Holding

Public servants are not covered by the Kar Vivad Samadhan Scheme and therefore are not entitled to immunity; the High Court judgment quashing the proceedings against them is set aside.

Summary

The case arose from allegations of irregularities in the grant of an advance licence for import of cotton fabrics, leading to a criminal complaint against a company, its directors and four public servants under the IPC, Prevention of Corruption Act and Customs Act. The company and its directors filed a declaration under the Kar Vivad Samadhan Scheme, 1998 (Finance Act 1998) seeking immunity, and the public servants also sought the same benefit. The Madras High Court quashed the criminal proceedings against both the private parties and the public servants. On appeal, the Supreme Court examined whether the Scheme could extend to public servants, when a prosecution is deemed to have started, and whether offences listed in Section 95(iii) of the Finance Act bar immunity. The Court held that the Scheme applies only to persons who can file a declaration on tax arrears, a category that excludes public servants, and that the earlier FIR constituted a prosecution before the declaration, invoking the exception in Section 95(iii). Consequently, the High Court’s order was set aside and the appeal was allowed.

Issues considered

Whether the Kar Vivad Samadhan Scheme, 1998 is applicable to public servants.
When does a prosecution commence for the purpose of Section 95(iii) of the Finance Act, 1998.
Whether offences enumerated under Section 95(iii) (including those under the Prevention of Corruption Act) are excluded from the immunity granted under Section 91 of the Finance Act.
Whether the High Court erred in quashing the criminal proceedings against the public servants.
Whether the appeal is maintainable despite the State not having appealed against other public servants.

Legislation cited

Customs Act, 1962s. 136
Finance (No.2) Act, 1998s. 87(a), s. 87(k), s. 88, s. 90, s. 91, s. 95(iii)
Foreign Exchange Regulation Act, 1973
Indian Penal Code, 1860s. 120-B, s. 195, s. 420, s. 471
Narcotic Drugs and Psychotropic Substances Act, 1985
Prevention of Corruption Act, 1988s. 13(1)(d), s. 13(2)
Terrorist and Disruptive Activities (Prevention) Act, 1987

Subjects

Kar Vivad Samadhan Schemeimmunity from prosecutionpublic servantFinance Act 1998declarationprosecution commencementSection 95 exceptiontax arrearscriminal proceedings quashed

Judgment

A STATE. CBI
\I,

SASH! BALASUBRAMANIAN AND ANR.

OCTOBER 31, 2006

B [S.B. SINHA AND DALVEER BHANDARI, JJ.]

Finance (No.2.), Act 1998; Sections 87(a), 87(k), 88, 91 & 95-Penal
f'
Code, 1860 ; Sections 120-B, 420 & 471-Prevention of Corruption Act,
1988; Section 13(2) & 13(J)(d)-Customs Act, 1962; Section 136-Kar Vivadh
c Samadhan Scheme, 1998 -A/legation of irregularities in grant of Advance
Licence to a company-Criminal complaint was lodged against the Company
and its Directors and public servants-High Court quashed the criminal
proceedings against the Company and its Directors on the ground of their ...
filing of a declaration under the Finance Act and thereby seeking immunity
D from criminal proceedings -High Court also quashed the criminal proceedings
.' against the public servants on the same ground-Correctness of-Held, public
servants will not come within the purview of the Finance Act and hence are
,...
not entitled to the benefit under the Schem.

A company made an application for grant of an advance licence
E before the Office of the Joint Director General of Foreign Trade for import
of cotton fabrics under Duty Exemption Entitlement Scheme. Since the
item was not figuring in the Standard Import and Export Norms Book,
respondent No. 2 -Controller of Exports and Imports, placed the
application file befor.e respondent No. I - Deputy Director General of
F Foreign Trade, for recommendations. Respondent no. I granted advance
licence to the company. On allegations of irregularities committed in the
grant of advance licence to the company, a First Information Report was
lodged against the company and its two Directors and four public servants
which included the respondents for commission of offences under sections
120-B, 420 and 471 IPC, under section 13(2) read with section 13(1)(d) of
G the Prevention of Corrupt ion Act, 1988 and under section 136 of the
Customs Act, 1962. The company and its Directors filed an application
under Kar Vivad Samadhan Scheme, 1998 framed under the Finance Act, ' ~

1998 and sought immunity from criminal prosecution. The respondents
also filed an application under the Samadhan Scheme and thereafter filed

H 914 t
STATE. CI3l 1•. SASH! BALASUBRAMANIAN [S.B. SINHA. J.] 915
a petition before High Court for quashing of the criminal proceedings on A
that ground. The High Court quashed the criminal proceedings against
the respondents.

The State, in appeal to this Court, contended that the respondents,
who are public servants, are not entitled to seek immunity from
prosecution under the Kar Vivad Samadhan Scheme, 1998; and that the B
High Court misconstrued and misinterpreted the provisions of Section
9S(iii) of the Finance Act, 1998.

The respondents contended that they are also entitled to the benefit
under the Samadhan Scheme as other accused by application of the C
doctrine M parity; that section 9S(iii) of the Finance Act cannot be invoked
since it is impermissible in law to split up the offences between private
parties and public servants; that the charges against all the accused
including them formed part of the same transaction and hence either all
or none should be proceeded against; that even if the allegations against
them are taken to be correct and accepted in its entirety, the same does D
not constitute any offence as alleged at all; and that this appeal is not
• maintainable since no appeal was filed by the State against other public
servants after quashing of criminal proceedings by the High Court.

Allowing the appeal, the Court
E
HELD:l.1. Proceedings contemplated under the Finance Act, 1998
must have a nexus with arrears of tax. Public servants, who can never
file a declaration under section 88 of the Act, would not come within the
purview of the Act. There exists a distinction between a 'person' defined
under section 87 and a 'declarant' under section 87(a) of the Act. The F
definition of 'person' must be read having regard to term 'declarant' i.e.
who files a declaration. 1921-A, B, Cl

1.2. A public servant is enjoined with a duty to enforce tax
enactments. A declaration in terms of section 88 can be filed by a declarant
for determination of the tax arrear under the Scheme at the rates specified G
thereunder. Public servants, therefore, cannot take the benefit of the
Scheme. 1922-El
2.1. Section 9S(iii) of the Act would be attracted if, inter a/ia, any
_.. prosecution for any offence enumerated thereunder has been instituted
H
916 SUPREMi:: COURT REPORTS (2006) SUPP. 7 S.C.R.
'(
A on or before the filing of the declaration. The term 'prosecution' would
include institution or commencement of a criminal proceeding. It may also
include an inquiry or investigation. The terms 'prosecution and
'cognizance' are not interchangeable. They carry different meanings.
[922-A-B-E[

B 2.2. The Legislature with a definite purpose granted an exemption
from the operation of the Act, if no prosecution is initiated under other
Acts. The commission of offences under other Acts was considered to be
serious enough by the Parliament so as to exclude the application of the

c
Scheme, which includes Prevention of Corruption Act. Immunity is
granted only in respect of offences purported to have been committed
under direct tax or indirect tax enactments. By no stretch of imagination,
the same would be granted in respect of offences under the Prevention of
•

-
Corruption Act. A person may commit several offences under different
Acts, immunity granted in relation to one Act would not mean that
immunity granted would automatically extend to others.
-
[923-H; 924-A-B-Cf
D
Devarapalli Lakshminarayana Reddy & Ors. v. V. Narayana Reddy &
Ors., [1976) 3 SCC 252; Basir-ul-Haq & Ors. v. State of West Bengal, [1953)
SCR 836; Hira Lal Hari Lal Bhagwati v. CBI, New Delhi, [2003) 5 SCC 257;
Central Bureau of Investigation, SPE, SIU (X), New Delhi v. Duncans Agro
Industries Ltd., Calcutta, (1996) 5 SCC 591; K.C. Builders & Anr. v. Assistant
E Commissioner of Income Tax, [2004) 2 SCC 731; Central Bureau of
Investigation v. Akhilesh Singh, [2005) 1 SCC 478; R.K. Garg etc. v. Union
ofIndia & Ors., (1981) 4 SCC 675; Government of West Bengal v. Tarun K.
Roy & Ors., [2004 J 1 SCC 347; Union of India v. Pramod Gupta (Dead) by
LRs. & Ors., (2005) 12 SCC 1 and Secretary, State of Karnataka & Ors. v.
F Umadevi (3) & Ors., [2006) 4 SCC 1, referred to.

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No. 1100
of 2006.

From the Judgment and Final Order dated 20.1.2005 of the High Court
of Judicature at Madras in Crl. O.P. Nos. 31422 and 36254 of 2004.
G
Vikas Singh, A.S.G., Swarupa Reddy and P. Parmeswaran for the
Appellant.

Dr. Manish Singhvi, P.V. Yogeswaran and T. Raja for the Respondents.

The Judgment of the Court was delivered by .+.
H
STATE. CBI v. SASH! BALASUBRAMANIAN [S.B. SINHA, J.] 917

S.B. SINHA, J. Delay condoned. A
Leave granted.

Interpretation and/or application of the 'Kar Vivad Samadhan Scheme
1998' framed under the Finance (No.2) Act, 1998 is in question in this appeal
which arises out of a judgment and order dated 20.01.2005 passed by the B
High Court of Madras in Crl.OP Nos. 31422 and 36254 of 2004.

Shorn of all unnecessary details, the fact of the matter is as under :

One Mis Best Fabrics (for short, 'the Company') had applied for an
advance Iicence on 29.01.1993 from the Office of the Joint Director General C
of Foreign Trade, Chennai for import of cotton fabrics showing the export

- order for 47136 sets of 'cotton mens ensemble' under the Duty Exemption
Entitlement Certificate, ('for short, the Scheme'). Upon scrutiny the application,
a recommendation, however, was made to allow the said company to import
'cotton fabrics of 44 inch widths'. As the item was not figuring in the standard D
input and output norms book, the file was placed before Respondent No. l,
Smt. Sashi Balasubramanian, by Sri V. Rajpriyan, Respondent No. 2 herein,
• for placing before the Zonal Advance Licensing Committee for
recommendations as regards quantity and description of the goods to be
allowed for import.
E
Approval for advance licence was granted by Smt. Sashi
Balasubramanian. On allegations in regard to the grant of the said licence, a
First Information Report was lodged on 02.03.1995 for commission of offences
under Sections 120-B, 420 and 471 of the Indian Penal Code, Section 13(2)
read with Section 13( 1)( d) of the Prevention of Corruption Act, 1988 and
Section 136 of the Customs Act, 1962. F

The Company and its Directors, however, in the meanwhile filed an
application in terms of the Scheme. Declarations were filed on 31.12.1998.
The charge-sheet in the criminal case was filed on 12.04.1999.

Originally, there were seven accused; three out of them were the private G
parties, namely, M/s Best Fabrics, Shri S. Vaidyanathan and Shri Bharath
· Bhushan Goyal. Smt. Sashi Balasubramanian, Respondent No. I herein, was
the Deputy Director General of Foreign Trade and Shri V. Rajpriyan,
Respondent No.2 herein, was the Controller of Exports and Imports. Apart
.+ from Respondents herein, two other officials were also arrayed as accused H
918 SUPREME COURT REPORTS (2006] SUPP. 7 S.C.R.

A persons in the charge- sheet, namely, Shri S. Ramanathan, Assistant Collector
and Shri A. Sivaram Kumar, Apprising Officer.

Accused Nos. I to 4 filed an application for quashing the criminal
proceedings as against them before the High Court of Madras, which was
registered as CC No. 34 of 1999. It is stated that by an order dated 29.04.2004,
B the said application has been allowed. No appeal is said to have preferred
therefrom.

Respondents thereafter filed an application before the High Court with (

the self-same prayer, which by reason of the impugned judgment has been
allowed.
c
Appellant is, thus, before us.

Mr. Vikas Singh, the learned Additional Solicitor General appearing on
behalf of Appellant urged :
-
D (i) Having regard to the nature of the Scheme, the High Court
committed a manifest error in opining that as the private parties
became entitled to immunity from prosecution, the official
respondents would also be covered thereby.
(ii) The High Court misconstrued and misinterpreted the provisions
E of Section 95(iii) of the Act.
(iii) Public Servants were not entitled to any relief under the said
Scheme and far less immunity from prosecution.

Dr. Manish Singhvi and Mr. T. Raja, the learned counsel appearing on
F behalf of Respondents, on the other hand submitted :
(i) The High Court cannot be said to have acted illegally and without
jurisdiction, as Respondents herein were also entitled to the benefit
of immunity scheme.
(ii) The doctrine of parity is applicable in the instant case, and, thus,
G as other accused similarly situated had been held to be entitled
to the benefit of declaration dated 31.12.1998 made under the
Scheme, there is no reason as to why Respondents would not be
entitled thereto.
(iii) Section 95 of the Act cannot be invoked for the said offence and
H in that view of the matter, it is impermissible in law to split up
STATE, CBI v. SASH! BALASUBRAMANIAN [S.B. SINHA, .I.] 919
the offences between private parties and the public servants, A
particularly when charges had been framed under Section 120-
B of the Indian Penal Code.

(iv) As the charges formed part of the same transaction, either all the
persons involved therein may be proceeded against or none at
all. B
(v) Section 95(iii) of the Act, as the High Court has rightly opined,
must be held to be inapplicable in the facts and circumstances of
' the case.

(vi) In any event, even if the allegations made against Respondents
are taken to be correct and accepted in its entirety, the same does C
not constitute any offence as alleged or at al I.

An additional submission was made by Mr. T. Raja that his client
having worked under the orders of Smt. Sashi Balasubramanian, cannot be
said to have committed any offence at all.
D
The Parliament enacted the Finance Act, 1998. It came into force with
effect from 29.03.1998. Chapter IV of thesaid Act provides for the 'Kar
Vivad Samadhan Scheme, 1998'. It came into force with effect from the I st
day of September, 1998.

'Declarant' has been defined in Section 87(a) to mean a person making E
a declaration under Section 88. 'Disputed tax' has been defined in Section
87(f) to mean the total tax determined and payable, in respect of an assessment
year under any direct tax enactment but which remains unpaid as on the date
·of making the declaration under Section 88. Indirect tax enactment has been
defined in Section 87(j) in the following terms : p
(j) "indirect tax enactment" means the Customs Act, 1962 (52 of
1962) or the Central Excise Act, 1944 (I of 1944) or the Customs
Tariff Act, 1975 (51 of 1975) or the Central Excise Tariff Act, 1985
(5 of 1986) or the relevant Act and includes the rules or regulations
made under such enactment; "Section 87(k) of the Act defines the G
person" to mean: -

(k) "person" includes

(i) an individual,
+ (ii) a Hindu undivided family, H
920 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.
.,,
A (iii) a company,
(iv) a firm,

(v) an association of persons or a body of individuals, whether
incorporated or not,

B (vi) a local authority,
(vii) every artificial juridical person, not falling within any of the
preceding sub-clauses;
,
(viii) assessee, as defined in rule 2 of the Central Excise Rules,
1944;
c (ix) exporter as defined in clause (20) of section 2 of the Customs
Act, 1962 (52 of 1962);
(x) importer as defined in clause (26) of section 2 of the Customs
Act, 1962 (52 of 1962);

D (xi) any person against whom proceedings have been initiated
and are pending under any direct tax enactment or indirect tax
enactment."

Section 88, inter alia, provides :

E 88. Subject to the provisions of this Scheme, where any person makes,
on or after the Ist day of September, 1998 but on or before the 31st
day of December, 1998, a declaration to the designated authority in
accordance with the provisions of section 89 in respect of tax arrear,
then, notwithstanding anything contained in any direct tax enactment
or indirect tax enactment or any other provision of any law for the
F time being in force, the amount payable under this Scheme by the
declarant shall be determined at the rates.specified hereunder, namely:-
(f) where the tax arrears is payable under the indirect tax enactment-
(i) in a case where the tax arrear comprises fine, penalty or
interest but does not include duties (including drawback of duty,
G
credit of duty or any amount representing duty) or cesses, at the
rate of fifty per cent, of the amount of such fine, penalty or
interest, due or interest, due or payable as on the date of making
a declaration under section 88,
(ii) in any other case, at the rate of fifty per cent, of the amount
H
STATE, CBI 1•. SASI-11 BAl"ASUBRAMANIAN [S.B. SINI-IA, .LJ 921
of duties (including drawback of duty, credit of duty or any A
amount representing duty) or cess due or payable on the date of
making a declaration under section 88."

A declaration is required to be filed in the form prescribed therefor.
Time and manner of payment of tax arrears is provided for in Section 90.
Section 91 provides for immunity from prosecution and imposition of penalty B
in certain cases. Section 95 provides for exceptions as regards the applicability
of the Scheme, Clause (iii) whereof, which is relevant for our purpose, reads
'. as under :

95. The provisions of this Section shall not apply
c
(iii) to any person in respect of whom prosecution for any offence
punishable under Chapter IX or Chapter XVII of the Indian Penal
Code (45 of 1860), the Foreign Exchange Regulation Act, 1973
(46 of 1973), the Narcotic Drugs and Psychotropic Substances D
Act, 1985 (61 of 1985), the Terrorists and Disruptive Activities
• (Prevention) Act, 1987 (28 of 1987), the Prevention of Corruption
Act, 1988 (49 of 1988), or for the purpose of enforcement of any
I civil liability has been instituted on or before the filing of the
declaration or such person has been convicted of any such offence
punishable under any such enactment. E
The principal questions which arise for consideration are

(i) Whether the Scheme is applicable in relation to a public servant?
(ii) When does a prosecution start?
F
(iii) Whether the offences enumerated under Section 95 (iii)
are excluded from immunity in terms of Section 91 of the Act?

The Scheme provides for an exception to the general law. It provides
for the mode and manner in which the arrears of tax was to be collected. It
dealt with direct and indirect taxes only. Exfacie 'public servants' would not G
come within the purview of the Act.

Counsel for Respondents, however, suggest that public servants would
also come within the purview of the Act as against them also proceedings
" had been initiated.
H
922 SUPREME COURT REPORTS [2006) SUPP. 7 S.C.R.

A Section 2(k)(xi), while defining a person undoubtedly embraces within
its fold those against whom proceedings have been initiated, but the same
relate to direct or indirect tax enactments. Proceedings contemplated under
the Act must have a nexus with arrears of tax. Public servants who can never
file a declaration would not, in our considered view, come within the purview
thereof.
B
Of course, there exists a distinction between a 'person' and a 'declarant'.
However, declaration is to be filed by a person who would come within the
purview of the said term, as has been stated in the interpretation clause ·t
contained in Section 2(k) of the Act. Section 88 provides for a declaration to
C be made by a person and, 'declarant' means a person making a declaration.
The applicability of the provisions of the Act must be judged in the aforesaid
context.

The definition of'person' must be read having regard to tenn 'declarant'
i.e. who files a declaration.
D
A public servant is enjoined with a duty to enforce tax enactments. A
declaration in tenns of Section 88 can be filed by a declarant for detennination ..
of the tax arrear under the Scheme at the rates specified thereunder. Public
servants, therefore, cannot not take the benefit of the scheme. Section 90
provides for the time and manner of payment of tax arrear. The amount of
E arrear of tax is required to be determined within a period of sixty days from
the date ofreceipt of the declaration under Section 91, whereupon a certificate
is to be granted in such form as may be prescribed. The certificate is granted
only to the declarant, which would contain the particulars of tax arrears and
the sum payable after such detennination towards full and final settlement of
tax arrears.
F
The immunity under the scheme is not an absolute one. The designated
authority may impose certain conditions while making an inquiry contained
in Section 90.

The immunity granted is subject to the conditions provided in Section
G 90. The immunity is in relation to institution of any proceeding for prosecution
for any offence. Such offence may be either under the direct tax enactment
or indirect enactment. Immunity is also granted from imposition of penalty
under such enactments. However, immunity also extends to matters covered
under the declaration under Section 88. Section 95 provides for an exception
-(
H to the Scheme. Once the provisions of Section 95 are attracted, the Scheme
t
STATE, CBI v. SASH! BALASUBRAMANIAN (S.B. SINHA. J.) 923
shall not apply. A determination might have been made although the Scheme A
was not applied, but the same may not per se confer a right of obtaining any
immunity in terms of Section 91 of the Act. Clause (iii) of Section 95 while
laying down the exceptions, enumerates offences under Chapter IX or Chapter
XVII of the IPC and certain other statutes. It also makes an exception, if a
proceeding for enforcement of any civil liability has been instituted. Clause
(iii) of Section 95 would be attracted if, inter alia, any prosecution for any B
offence enumerated thereunder has been instituted on or before the filing of
. the declaration.

The First Information Report in regard to the offences committed, as
indicated hereinbefore, was lodged on 02.03.1995. The investigation started C
immediately thereafter. The investigation was being carried on by the Central
Bureau of Investigation (Economic Off~nces Wing). Only at a much later
stage, namely, more than three years thereafter, i.e. on 31.12.1998, declarations
were filed. Charge-sheet in the criminal case was filed on 12.04.1999.

It is in the aforementioned context, interpretation of the word D
'prosecution' assumes significance. The term 'prosecution' would include
institution or commencement of a criminal proceeding. It may include also
an inquiry or investigation. The terms 'prosecution' and cognizance are not
interchangeable. They carry different meanings. Different statutes provide
for grant of sanction at different stages.
E
'In initio means in the beginning. The dictionary meaning of 'initiation'
is cause to begin. Whereas some statutes provide for grant of sanction before
a prosecution is initiated; some others postulate grant of sanction before a
cognizance is taken by Court. However, meaning of the word may vary from·
case to case. In its wider sense, the prosecution means a proceeding by way
of indictment or information, and is not necessarily confined to prosecution
F
for an offence.

The term 'prosecution has been instituted' wou Id not mean when charge-
sheet has been filed and cognizance has been taken. It must be given its
ordinary meaning. G
The Legislature with a definite purpose thought of granting an exemption
from the operation of the Act, if no prosecution is initiated under the provisions
of the statute specified thereunder. Chapter IX of the Penal Code deals with
public servants. Chapter XVII thereof deals with offences relating to property.
H
924 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A Offences under other enactments are of serious nature. Thus, presumably
commission of offences under the other Acts enumerated therein were
considered to be serious enough by the Parliament, so as to exclude the
application of the Scheme, which includes Prevention of Corruption Act.

In any view of the matter. an immunity is granted only in respect of
B offences purported to have been committed under direct tax enactment or
indirect tax enactment, but by no stretch of imagination, the same would be
granted in respect of offences under the P1 evention of Corruption Act. A
person may commit several offences under different Acts; immunity granted
in relation to one Act would not mean that immunity granted would
C automatically extend to others. By way of example , we may notice that a
person may be prosecuted for commission of an offence in relation to property
under the Indian Penal Code as also under another Act, say for example, the
Prevention of Corruption Act. Whereas charges under the Prevention of
Corruption Act may fail, no sanction having been accorded therefor, the
charges under the Penal Code would not.
D
The High Court has not held that the offences alleged against
Respondents are so inextricably connected that it cannot be separated so
much so that in the event if it be held that private parties cannot be proceeded
with at all, the case against public servants, would invariably fail. We, thus,
as at present advised, do not intend to delve deep into the said question.
E However, to be fair to learned counsel, we may notice the decisions cited at
the bar.

Reliance placed by Mr. Singhvi on Devarapalli lakshminarayana Reddy
and Ors. v. V. Narayana Reddy and Ors., [1976) 3 SCC 252 has no application
F to the facts and circumstances of the present case. The question which arose
for consideration therein was required to be determined in the context of the
provisions of Sections 200 and 202 of the 1898 Code vis-a-vis Sections 200
and 202 of the 1973 Code. The question was as to whether cognizance is
taken before issuance of process or not. It in that context, it was stated :

G 14. This raises the incidental question: What is meant by "taking
cognizance of an offence" by a Magistrate within the contemplation
of Section 190? This expression has not been defined in the Code.
But from the scheme of the Code, the content and marginal heading
of Section 190 and the caption of Chapter XIV under which Sections
190 to 199 occur, it is clear that a case can be said to be instituted
H in a court only when the court takes cognizance of the offence alleged
STATE. CBI v. SASH! BALASUBRAMANIAN [S.B. SINHA, J.) 925

• therein. The ways in which such cognizance can be taken are set out A
in clauses (a), (b) and (c) of Section 190(1). Whether the Magistrate
has or has not taken cognizance of the offence will depend on the
circumstances of the particular case including the mode in which the
case is sought to be instituted, and the nature of the preliminary
action, if any, taken by the Magistrate. Broadly speaking, when on
receiving a complaint, the Magistrate applies his mind for the purposes B
of proceeding under Section 200 and the succeeding sections in
Chapter XV to the Code of 1973, he is said to have taken cognizance
of the offence within the meaning to Section l 90(l)(a). It, instead of
proceeding under Chapter XV, he has, in the judicial exercise of his
discretion, taken action of some other kind, such as issuing a search C
warrant for the purpose of investigation, or ordering investigation by
the police under Section 156(3), he cannot be said to have taken
cognizance of any offence."

Institution of a prosecution and institution of a complaint case in a
criminal court stand on different footings. Whereas summons to an accused D
in a complaint case can be issued only upon taking cognizance of the offence,
the same would not mean in a case where first information report has been
lodged resulting in initiation of investigation or where it has been referred to
police or other authorities for enquiry; even then a prosecution may not be
held to have been initiated at that stage.
E
What transpires from the said decision is that whereas before cognizance
is taken, application of mind on the part of the court is imperative, taking
action of some other kind would not mean that cognizance has been taken .
. In some cases, even after lodging of the F.l.R., a preliminary enquiry which
may not be an investigation into the crime, may be initiated. F
Strong reliance has also been placed on Basir-ul-Haq and Ors. v. State
of West Bengal, [1953] SCR 836. The question which arose for consideration
therein was whether having regard to the nature of the offence allegedly
committed by the accused named therein, it was capable to be split up. In the
aforementioned context, it was held that if the offences are inseparable or G
incapable of being split up, the Court will have no other option but to pass
a judgment of acquittal, stating :

"14. Though, in our judgment, Section 195 does not bar the trial of
an accused person for a distinct offence disclosed by the same facts
and which is not included within the ambit of that section, it has also H
926 SUPREME COURT REPORTS [2006] SUPP. 7 S.C.R.

A to be borne in mind that the provisions of that section cannot be
evaded by resorting to devices or camouflages. The test whether there
is evasion of the section or not is whether the facts disclose primarily
and essentially an offence for which a complaint of the court or of the
public servant is required. In other words, the provisions of the section
cannot be evaded by the device of charging a person with an offence
B to which that section does not apply and then convicting him of an
offence to which it does, upon the ground that such latter offence is
a minor offence of the same character, or by describing the offence
as being one punishable under some other section of the Indian Penal
Code, though in truth and substance the offence falls in the category
c of sections mentioned in Section 195 of the Criminal Procedure
Code.... "

[Emphasis supplied]

The observations in the said judgment must be held to have been made
D in the factual matrix obtaining therein and not de hors the same.
In the instant case, resorting to any device or camouflage has not been
alleged. It is also not a case that the provisions of the Indian Penal Code or
the Prevention of Corruption Act cannot be said to have any application,
although linked with an offence under Section 136 of the Customs Act.
E
An ultimate purpose of commission of an offence may be to commit
one offence under one statute, but indisputably in the process thereof offences
under other statutes may also be committed.

In Hira Lal Ha6 Lal Bhagwati v. CBI, New Delhi, [2003] 5 SCC 257
F this Court indisputably proceeded to hold that the immunity was qua offence
but Appellants therein before this Court were the assessees. The prosecution
was also launched therein after a declaration was made.

We may also notice that Brijesh Kumar, 1. in his concurring but separate
judgment took into consideration the fact situation obtaining therein, namely,
G initiation of a criminal proceeding after issuance of a declaration and after
withdrawal of the case, in the High Court in the following terms :

" ... On the one hand final settlement was made after determining the
tax liability on the premise that the appellants were neither convicted
nor criminal proceedings were pending, relating to any offence under
H
STATE, CBI v. SASH! BALASUBRAMANIAN [S.B. SINHA, J.] 927
# Chapter IX or XVII IPC, yet the criminal proceedings are being A
prosecuted which is apparently against the very spirit of the Scheme
promulgated under the Finance (No. 2) Act of 1998. If a person
against whom criminal proceedings were pen.ding, relating to offence
under Chapter IX or XVII IPC or who stood convicted under any of
the provisions of those chapters, he would not have been eligible to
seek benefit under the Scheme and after accepting that position and B
the due settlement, there was no occasion to initiate and continue the
criminal proceedings, which could bring about the conviction of the
same persons, in case prosecution ended successfully in favour of the
State and against the appellants. If such a condition is provided that
on a particular date a criminal proceeding should not be pending c
against a person nor should he have been convicted of an offence, as
a condition precedent for a settlement, and on that basis a settlement
is brought about, it does not mean that later on, one could tum around
· and get the declarant convicted for a criminal offence too, after
settlement of the liability. More so, when in view of Section 90 sub-
section (4) of the Scheme the declarant is obliged to withdraw an D
appeal or proceedings regarding tax liability pending before the High
Court or the Supreme Court, which had also been done in the case in
hand. That is to say that on one hand the declarant is not permitted
to pursue the remedy, regarding tax liability, which is already pending
before the courts of law, as they are either deemed to be withdrawn E
by operation of law or they have to be withdrawn by a positive act
of the party and yet prosecute such persons for their conviction as
well. The declarant could not be dragged and chased in criminal
proceedings after closing the other opening making it a dead end. It
is highly unreasonable and arbitrary to do so and initiation and
continuance of such proceedings lack bona fides. F
An accused may be discharged from a criminal case under Section 245 of the
Code, if his civil liability has been determined in his favour; but the same
must have a direct nexus with his criminal liability. He would not acquire any
immunity only because civil and criminal liabilities have some connection,
however, remote the same may be. The connection between the two types of G
liabilities must be direct and proximate. If in incurring the civil liability, he
has committed offences wherewith deterrilination thereof has no nexus, the
immunity would not extend thereto.

... We will give a simple example. A person while obtaining undue favour H
928 SUPREME COURT REPORTS (2006] SUPP. 7 S.C.R.

A from an authority under the indirect tax enactment, offers a bribe. Obtaining
of an undue favour resulting in prosecution under the indirect tax enactment '
may be a separate offence, but involvement of the public servant qua offences
under the Prevention of Corruption Act would be a separate and distinct one.

It is one thing to say that an Act constitutes both civil and criminal
B wrong and in the self same fact, when compounding of offence is effected
in relation to the civil dispute, the High Court may be justified in quashing
a complaint under the criminal case as was done in Central Bureau of
Investigation, SPE, SIU (X), New Delhi v. Duncans Agro Industries ltd., '•
Calcutta [1996] 5 SCC 591, but it is another thing to say that prosecution
c under other statute would also fail. It is in that view of the matter, this Court
stated the law in the following terms :

26. After giving our careful consideration to the facts and
circumstances of the case and the submissions made by the respective
counsel for the parties, it appears to us that for the purpose of quashing
D the complaint, it is necessary to consider whether the allegations in
the complaint prima facie make out an offence or not. It is not
necessary to scrutinise the allegations for the purpose of deciding
whether such allegations are likely to be upheld in the trial. Any
action by way of quashing the complaint is an action to be taken at
the threshold before evidences are led in support of the complaint.
E For quashing the complaint by way of action at the threshold, it is,
therefore, necessary to consider whether on the face of the allegations,
a criminal offence is constituted or not."

Reliance has also been placed on K. C. Builders and Anr v. Assistant
Commissioner of Income Tax, [2004] 2 SCC 731. The question which arose
F for consideration therein was as to whether mens rea is an essential ingredient
for imposition of penalty under Section 27J(l)(c) of the Income Tax Act. In
that case, finding of concealment and subsequent levy of penalties had been
struck down by the Tribunal. The assessment year was directed to be corrected
in terms of Section 154 of the Act. It was in that fact situation, this Court
G opined that if the Tribunal has set aside the order of imposing a penalty for
concealment, there would be no concealment in the eyes of the law and,
therefore, the prosecution should be proceeded against the accused and, thus, ".'"

further proceedings would be illegal and without jurisdiction, stating :

-
" .... When the Tribunal has set aside the levy of penalty, the criminal
H proceedings against the appellants cannot survive for further
"
STATE. CBI v. SASlll BALSUBRAMANIAN [S.B. SINHA. J.] 929
t consideration .. .'' A
In the fact of that case, it was held that the charge of conspiracy had
not been proved and no case had also been made out for establishing the
offence of cheating. The gist of the prosecution case therein was that the
accused had filed false returns of income before the Department which led
concealment of income to evade tax. The question, therefore, was as to whether B
there had been any concealment of income at all. The said decision, therefore,
cannot have any application whatsoever.

Reliance has also been placed on Central Bureau of Investigation v.
Akhi!esh Singh, [2005] I SCC 478. In that case, out of the three accused, two
were discharged and in that view of the matter it was held that the basis of c
alleged conspiracy by the respondent therein with Dr. Sanjay Singh lost its
substratum. It was in the factual matrix of the case exercise of jurisdiction by
the High Court under Section 482 of the Code of Criminal Procedure was
held to be not to be suffering from any illegality or infirmity.

We may, however, notice that in R.K. Garg etc. v. Union of India and
D
Ors., [1981] 4 SCC 675, it was held that only because exemption had been
granted in relation to purchase of bearer bonds, the same would not mean
that the offender shall stand immuned from other offences also. Bhagwati, J.
speaking for the majority opined :
E
" ... It will be seen that the immunities granted under Section 3, sub-
section (I) are very limited in scope. They do not protect the holder
of Special Bearer Bonds from any inquiry or investigation into
concealed income which could have been made if he had not
subscribed to or acquired Special Bearer Bonds. There is no immunity
from taxation given to the black money which may be invested in F
Special Bearer Bonds. That money remains subject to tax with all
consequential penalties, if it can be discovered independently of the
fact of subscription to or acquisition of Special Bearer Bonds. The
only protection given by Section 3, sub-section.(!) is that the fact of
subscription to or acquisition of Special Bearer Bonds shall be ignored G
altogether and shall not be relied upon as evidence showing possession
of undisclosed money. This provision relegates the Revenue to the
position as if Special Bearer Bonds had not been purchased at all. If
without taking into account the fact of subscription to or acquisition

-
of Special Bearer Bonds and totally ignoring it as if it were non-
existent, any inquiry or investigation into concealed income could be H
930 SUPREME COURT REPORTS (2006) SUPP. 7 S.C.R.

A carried out and such income detected and unearthed, it would be •
open to the Revenue to do so and it would be no answer for the
assessee to say that this money has been invested by him in Special
Bearer Bonds and it is therefore exempt from tax or that he is on that
account not liable to prosecution and penalty for concealment of such
income. This is the main difference between the impugned Act and
B the Taxation Laws (Amendment and Miscellaneous Provisions) Act,
1965. Under the latter Act, where gold is acquired by a person out of
his undisclosed income, which is the same thing as black money, and
such gold is tendered by him as subscription for the National Defence
Gold Bonds, 1980, the income invested in such gold is exempted
c from tax, but where Special Bearer Bonds are purchased out of
undisclosed income under the impugned Act, the income invested in
the Special Bearer Bonds is not exempt from tax and if independently
of the fact of purchase of the Special Bearer Bonds and ignoring
them altogether, such income can be detected, it would be subject to
tax. The entire machinery of the taxation laws for inquiry and
D investigation into concealed income is thus left untouched and no
protection is granted to a person in respect of his concealed income
merely because he has invested such income in Special Bearer Bonds. '
It is therefore incorrect to say that as soon as any person purchases
Special Bearer Bonds, he is immunised against the processes of
E taxation laws. Here there is no amnesty granted in respect of any part
of the concealed income even though it be invested in Special Bearer
Bonds. The whole object of the impugned Act is to induce those
having black money to convert it into white money by making it
available to the State for productive purposes, without granting in
return any immunity in respect of such black money, if it could be
F detected through the ordinary processes of taxation laws without taking
into account the fact of purchase of Special Bearer Bonds ....."

We may at this stage deal with another contention viz. that if in the
connected matter where other public servants were parties, no appeal having
G been filed from the judgment of the High Court by the C.B.I., this appeal
would be maintainable. This aspect of the matter has been considered by a
three-Judge Bench of this Court in Government of West Bengal v. Tarun K.
Roy and Ors., [2004] I SCC 34 7, wherein it was categorically stated :

" ... Non-filing of an appeal, in any event, would not be a ground for
H
refusing to consider a matter on its own merits. (See State of
-
STATE. CBI v. SASH! BALSUBRAMANIAN [S.B. SINHA, J.] 931
Maharashtra v. Digambar/O.) A
29. In State of Bihar v. Ramdeo Yadav/ I wherein this Court
noticed Debdas Kumar by holding: (SCC p. 494, para 4)

"4. Shri B.B. Singh, the learned counsel for the appellants,
contended that though an appeal against the earlier order of the High B
Court has not been filed, since larger public interest is involved in the
interpretation given by the High Court following its earlier judgment,
the matter requires consideration by this Court. We find force in this
contention. In the similar circumstances, this Court in State of
Maharashtra v. Digambarw and in State of W.B. v. Debdas Kumar
1
had held that though an appeal was not filed against an earlier order, C
when public interest is involved in interpretation of law, the Court is
entitled to go into the question."

[See also Union of India v. Pramod Gupta (Dead) by LRs. and Ors., [2005)
12 sec 11
D
In this case also public interest is involved as interpretation of the
provisions of the Act were in question. Yet again there cannot be any equality
in illegality.

[See Secretary, State of Karnataka and Ors. v. Umadevi (3) and Ors.,
[2006J 4 sec 11 E
We, therefore, are of the opinion that the impugned judgment cannot
be sustained. It is set aside accordingly.

The High Court, however, did not go into the merit of the matter. It
proceeded on the basis that the continuation of the prosecution as against F
Respondents was unsustainable in law. Although prosecution as against
Respondents herein may be held to be not maintainable, in our opinion, they
are entitled to contend that even if the materials brought on records are given
face value and taken to be correct in their entirety, no case has been made
out as against them. G
The appeal is allowed, the impugned judgment is set aside with the
aforementioned observations. No costs.

- B.S. Appeal allowed.
H