LAW FOR ALL

Wednesday, February 3, 2021

the presumption permissible to be drawn under Section 20 of the Act is concerned, such presumption can only be in respect of the offence under Section 7 and not the offences under Sections 13(1)(d)(i) and (ii) of the Act. In any event, it is only on proof of acceptance of illegal gratification that presumption can be drawn under Section 20 of the Act that such gratification was received for doing or forbearing to do any official act. Proof of acceptance of illegal gratification can follow only if there is proof of demand.; acquittal recorded by the trial court is a “possible view” as such the judgment of the High Court is fit to be set aside. Before recording conviction under the provisions of Prevention of Corruption Act, courts have to take utmost care in scanning the evidence. Once conviction is recorded under provisions of Prevention of Corruption Act, it casts a social stigma on the person in the society apart from serious consequences on the service rendered. At the same time it is also to be noted that whether the view taken by the trial court is a possible view or not, there cannot be any definite proposition and each case has to be judged on its own merits, having regard to evidence on record.

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. 100101 OF 2021

[Arising out of S.L.P.(Crl.)Nos.47294730 of 2020]

N.Vijayakumar …..Appellant

Versus

State of Tamil Nadu …..Respondent

J U D G M E N T

R. Subhash Reddy, J.

1. Leave granted.

2. The sole accused in Special Calendar Case No.49 of 2011 on

the file of Special Court for Trial of Prevention of Corruption Act

Cases, Madurai, has filed these appeals, aggrieved by the conviction

recorded vide judgment dated 28.08.2020 and 22.09.2020 and

sentence imposed vide order dated 15.09.2020 and 29.09.2020 by the

Madurai Bench of the Madras High Court under Sections 7 and 13(2)

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

read with 13(1)(d) of the Prevention of Corruption Act, 1988 (for short,

‘the Act’).

3. The appellantaccused was working as Sanitary Inspector in

th Ward of Madurai Municipal Corporation. He was chargesheeted for

the offence under Sections 7, 13(2) read with 13(1)(d) of the Act

alleging that he demanded an amount of Rs.500/ and a cell phone as

illegal gratification from PW2 (Thiru. D. Gopal), who was working as

Supervisor in a Voluntary Service Organisation called Neat And Clean

Service Squad (NACSS), which was given sanitation work on contract

basis in Ward No.8 of Madurai Corporation. It was the case of the

prosecution that to send his report for extension of work beyond the

period of March 2003, when PW2 has approached him on 09th and

10th of October 2003, such a demand was made, as such appellant

being a public servant demanded and accepted illegal gratification on

10th of October 2003 as a motive or reward to do an official act in

exercise of his official function and thereby he has committed

misconduct which is punishable under Sections 7, 13(2) and 13(1)(d)

of the Act. On denial of charge, charges were framed against him for

the aforesaid offences and he has pleaded not guilty. Therefore, he

was tried before the Special Court for the aforesaid alleged offences.

During the trial, on prosecution side, 12 witnesses were examined, i.e.

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

PW1 to PW12; and 17 exhibits – Ex.P1 to P.17 and M.O.1 to M.O.4.

have been marked. No defence witness was examined and Ex.D1 to

D3 were marked during the crossexamination of PW6.

4. By considering the oral and documentary evidence on record,

trial court, by judgment dated 25.02.2014, acquitted the appellant.

Aggrieved by the judgment of the Special Court, State has preferred

Criminal Appeal (MD) No.6 of 2015 before the Madurai Bench of

Madras High Court. The Madurai Bench of Madras High Court, by

impugned judgment and orders, has reversed the acquittal, and

convicted the appellant for the offences under Section 7, 13(2) and

13(1)(d) of the Act and imposed the sentence of rigorous imprisonment

for one year and imposed the penalty of Rs.5000/. Aggrieved by the

conviction recorded and sentence imposed by the impugned

judgments and orders passed by the High Court, accused is before

this Court in these appeals.

5. We have heard Sri S. Nagamuthu, learned senior counsel

appearing for the appellant and learned counsel for the State of Tamil

Nadu.

6. Sri Nagamuthu, learned senior counsel appearing for the

appellant, by taking us to the evidence and other material on record,

has submitted that, the well reasoned judgment of the trial court,

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

which was rendered by appreciating oral and documentary evidence

on record, is reversed by the High Court without recording valid and

cogent reasons. By relying on a judgment of this Court in the case of

Murugesan & Ors. v. State through Inspector of Police (2012) 10

SCC 383, mainly it is contended that the finding recorded by the trial

court is a “possible view” having regard to evidence on record and

even if other view is possible, same is no ground to reverse the

acquittal and to convict the accused. By referring to findings recorded

by the trial court, it is strenuously argued that the view taken by the

trial court is a “possible view” and without recording any contra

finding to the same, the High Court has convicted the appellant. It is

submitted that there is no finding recorded by the High Court

anywhere in the judgment that the view taken by the trial court is not

a “possible view”. It is submitted that in view of the material

contradictions, the trial court has disbelieved the testimony of PW2, 3

and 5 by recording valid reasons, but the High Court, without

assigning any reasons, has believed these witnesses. It is submitted

that even if the High Court was of the view that PW2, 3 and 5 can be

believed, unless it is held that the view taken by the trial court

disbelieving these witnesses is not a “possible view”, High Court ought

not have interfered with the judgment of acquittal recorded by the trial

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

court. It is also submitted that having regard to reasons recorded,

findings recorded by the trial court cannot be said to be either

erroneous or unreasonable. By further referring to the oral evidence

on record, it is submitted that there are material contradictions in the

testimony of crucial witnesses, and without noticing the same the

High Court has convicted the appellant and imposed the sentence.

Further it is submitted that initially by judgment dated 28.08.2020,

High Court has recorded the conviction of the appellant, only for the

offence under Section 13(2) read with 13(1)(d) of the Act and imposed

the sentence of one year imprisonment and to pay a fine of Rs.5000/

vide order dated 15.09.2020. However, thereafter again the appeal

was listed under the caption “For being mentioned” on its own by the

Court on 22.09.2020 and convicted the appellant for the offence

under Section 7 of the Act also and by further order dated 29.09.2020

imposed the sentence of one year rigorous imprisonment for the

offence under Section 7 of the Act. It is submitted that the said

judgment of conviction rendered on 22.09.2020 and the order of

sentence dated 29.09.2020 is in violation of Section 362 of the Code of

Criminal Procedure. It is submitted that once the judgment is

rendered and conviction is recorded it was not open either to list the

matter for being mentioned or to convict the appellant for the offence

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

under Section 7 of the Act also. Lastly it is submitted that the

judgment in this case was reserved on 17.12.2019 and the same was

pronounced after a period of more than six months, i.e., on

28.08.2020 as such same is in violation of guidelines contained in the

judgment of this Court in the case of Anil Rai etc. v. State of Bihar

(2001) 7 SCC 318.

7. On the other hand, Sri M. Yogesh Kanna, learned counsel

appearing for the respondentState has submitted that from the

evidence of PW2, 3, 5 and PW11 it is clearly proved that on

10.10.2003, the appellantaccused has demanded and accepted

Rs.500/ and a mobile phone as bribe to process the application of

PW2 for the extension of contract. It is submitted that inspite of

cogent and valid evidence on record, the trial court has acquitted the

appellant, and same is rightly reversed by the High Court, as such

there are no grounds to interfere with the same. It is further

submitted that in terms of the amended prayer, the appellant has

questioned only the judgment dated 22.09.2020 and the order

imposing sentence on 29.09.2020, as such, there is no challenge to

the conviction recorded and sentence imposed for the offence under

Section 13(2) and 13(1)(d) of the Act. It is submitted that by noticing

the minor contradictions, the trial court has acquitted the appellant,

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

as such, the view taken by the trial court was not a “possible view”,

and the appellant is rightly convicted by the High Court and there are

no grounds to interfere with the same.

8. Having heard the learned counsels on both sides, we have

carefully perused the impugned judgments and the judgment of

acquittal rendered by the Special Court and other oral and

documentary evidence on record.

9. In these appeals, it is to be noticed that PW2 is the key

witness, and was the complainant. He was working as a Supervisor in

a Voluntary Service called NACSS which was awarded sanitation work

on contract basis for Ward No.8 of Madurai Municipal Corporation.

The sanctioning authority, who sanctioned to prosecute the appellant

was examined as PW1 and the complainant Thiru D. Gopal was

examined as PW2. It is evident from the deposition of PW2, 3, 5 and

11 that they reached the office of the accused at 05:30 p.m. on

10.10.2003, and at that point of time the accused was not found in

the seat and they have waited for him, and appellant has come to the

office at 05:45 p.m. on his bike and took his seat. PW2, in his

deposition has stated that when he met the appellantaccused along

with other witnesses, Sri Shanmugavel and Sri Ravi Kumaran

appellant has made a demand for Rs.500/ and cell phone. He has

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

stated that in view of such demand he has handed over the powder

coated currency notes and cell phone which were received by the

accused and kept in the left side drawer of the table. The official

witness Thiru Shanmugavel is examined as PW3. He also stated in

his deposition, that when they reached the office of the accused,

accused was not in the seat. Therefore, they have waited and accused

arrived in the office at 05:45 p.m. PW2 in his deposition has clearly

stated that he met the accused earlier several times and again when

he met on 09.10.2003 along with PW5, the appellantaccused has

demanded for Rs.500/ and a cell phone as illegal gratification. In the

crossexamination PW2, has admitted that he never saw the accused

earlier and the appellant has made a demand when he met firstly on

09.10.2003. It is also clearly deposed by PW2 in the crossexamination that he was ill treated by the accused several times

earlier as he belonged to scheduled caste community. From his

deposition it is clear that there were ill feelings between the appellant

and the PW2. It is also clear from the evidence, after handing over

currency and cell phone, he along with other witnesses who have

accompanied him they came out of the office and signalled to the

inspector. PW2 also admitted in the crossexamination that he was

not having any details regarding the purchase of M.O.2 cell phone. It

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

is also clear from the evidence that though the trap was at about

05:45 p.m., phenolphthalein test was conducted only at 07:00 p.m.

There is absolutely no evidence to show that why such inordinate

delay occurred from 05:45 p.m. to 07:00 p.m. The office of the Town

Assistant Health Officer and other officials of the department is also

near to the office of the appellant. PW3 in clear terms, has deposed

that only on demand of anticorruption officials, the accused had

taken and produced the money and cell phone, which was in the

drawer of the table. The Circle Health Inspector of Madurai

Corporation, who was examined as PW4 has deposed in the crossexamination that he had no idea what was going on before he reached

the office and he has also deposed that he was not aware about

Rs.500/ and cell phone, by whom and when it was kept. He, too has

deposed in the crossexamination that only on the direction of the

inspector the appellantaccused has taken out the money and the cell

phone. The deposition of Mr. Ravikumaran who was examined as PW5 is also in similar lines. Another key witness on behalf of the

prosecution is PW11, i.e., the Deputy Superintendent of Police,

Bodinayakkanur SubDivision, who was working as the Deputy

Superintendent of Police, Vigilance and Anticorruption Wing,

Madurai during the relevant time. He also in his deposition has

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

clearly stated that the appellantaccused was tested with the prepared

Sodium Carbonate Solution at 19:00 hrs. It is clear from the

deposition of all the witnesses, i.e., PW2, 3, 5 and 11 that trap was at

about 05:45 p.m. and the hands of the appellant were tested only at

07:00 p.m. Further in the crossexamination, PW11 has clearly

stated that when they were monitoring the place of occurrence for

about one hour and during that period many persons came in and out

of the office of the appellant. Added to the same, admittedly, after

completion of the phenolphthalein test, statement of the appellant was

not recorded as required under Rule 47 Clause 1 of the Vigilance

Manual. Further PW11 also clearly deposed in the crossexamination

that he did not test the hands of the appellantaccused immediately

after payment and handing over of the money and cell phone. Further

PW4 and PW11 both have stated in their evidence that, only when

TLO has asked the bribe amount and cell phone, the accused

produced the same by taking out from the left side drawer of his table.

It is fairly well settled that mere recovery of tainted money, divorced

from the circumstances under which such money and article is found

is not sufficient to convict the accused when the substantive evidence

in the case is not reliable. In view of the material contradictions as

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

noticed above in the deposition of key witnesses, the benefit of doubt

has to go to the accusedappellant.

10. Mainly it is contended by Sri Nagamuthu, learned senior

counsel appearing for the appellant that the view taken by the trial

court is a “possible view”, having regard to evidence on record. It is

submitted that the trial court has recorded cogent and valid reasons

in support of its findings for acquittal. Under Section 378, Cr.PC, no

differentiation is made between an appeal against acquittal and the

appeal against conviction. By considering the long line of earlier cases

this Court in the judgment in the case of Chandrappa & Ors. v. State

of Karnataka (2007) 4 SCC 415 has laid down the general principles

regarding the powers of the appellate court while dealing with an

appeal against an order of acquittal. Para 42 of the judgment which is

relevant reads as under :

“42. From the above decisions, in our considered view,

the following general principles regarding powers of the

appellate court while dealing with an appeal against an

order of acquittal emerge :

(1) An appellate court has full power to review,

reappreciate and reconsider the evidence upon

which the order of acquittal is founded.

(2) The Code of Criminal Procedure, 1973 puts

no limitation, restriction or condition on exercise

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

of such power and an appellate court on the

evidence before it may reach its own conclusion,

both on questions of fact and of law.

(3) Various expressions, such as, “substantial

and compelling reasons”, “good and sufficient

grounds”, “very strong circumstances”, “distorted

conclusions”, “glaring mistakes”, etc. are not

intended to curtail extensive powers of an

appellate court in an appeal against acquittal.

Such phraseologies are more in the nature of

“flourishes of language” to emphasise the

reluctance of an appellate court to interfere with

acquittal than to curtail the power of the court to

review the evidence and to come to its own

conclusion.

(4) An appellate court, however, must bear in

mind that in case of acquittal, there is double

presumption in favour of the accused. Firstly, the

presumption of innocence is available to him

under the fundamental principle of criminal

jurisprudence that every person shall be

presumed to be innocent unless he is proved

guilty by a competent court of law. Secondly, the

accused having secured his acquittal, the

presumption of his innocence is further reinforced,

reaffirmed and strengthened by the trial court.

(5) If two reasonable conclusions are possible on

the basis of the evidence on record, the appellate

court should not disturb the finding of acquittal

recorded by the trial court.”

Further in the judgment in the case of Murugesan (supra) relied on by

the learned senior counsel for the appellant, this Court has

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

considered the powers of the High Court in an appeal against

acquittal recorded by the trial court. In the said judgment, it is

categorically held by this Court that only in cases where conclusion

recorded by the trial court is not a possible view, then only High Court

can interfere and reverse the acquittal to that of conviction. In the

said judgment, distinction from that of “possible view” to “erroneous

view” or “wrong view” is explained. In clear terms, this Court has held

that if the view taken by the trial court is a “possible view”, High Court

not to reverse the acquittal to that of the conviction. The relevant

paragraphs in this regard where meaning and implication of “possible

view” distinguishing from “erroneous view” and “wrong view” is

discussed are paragraphs 32 to 35 of the judgment, which read as

under :

“32. In the above facts can it be said that the view taken

by the trial court is not a possible view? If the answer is

in the affirmative, the jurisdiction of the High Court to

interfere with the acquittal of the appellantaccused, on

the principles of law referred to earlier, ought not to

have been exercised. In other words, the reversal of the

acquittal could have been made by the High Court only

if the conclusions recorded by the learned trial court did

not reflect a possible view. It must be emphasised that

the inhibition to interfere must be perceived only in a

situation where the view taken by the trial court is not a

possible view. The use of the expression “possible view”

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

is conscious and not without good reasons. The said

expression is in contradistinction to expressions such

as “erroneous view” or “wrong view” which, at first

blush, may seem to convey a similar meaning though a

fine and subtle difference would be clearly discernible.

33. The expressions “erroneous”, “wrong” and

“possible” are defined in Oxford English Dictionary in

the following terms:

“erroneous.— wrong; incorrect.

wrong.—(1) not correct or true, mistaken.

(2) unjust, dishonest, or immoral.

possible.—(1) capable of existing, happening, or

being achieved.

(2) that may exist or happen, but that is

not certain or probable.”

34. It will be necessary for us to emphasise that a

possible view denotes an opinion which can exist or be

formed irrespective of the correctness or otherwise of

such an opinion. A view taken by a court lower in the

hierarchical structure may be termed as erroneous or

wrong by a superior court upon a mere disagreement.

But such a conclusion of the higher court would not

take the view rendered by the subordinate court outside

the arena of a possible view. The correctness or

otherwise of any conclusion reached by a court has to

be tested on the basis of what the superior judicial

authority perceives to be the correct conclusion. A

possible view, on the other hand, denotes a conclusion

which can reasonably be arrived at regardless of the fact

where it is agreed upon or not by the higher court. The

fundamental distinction between the two situations

have to be kept in mind. So long as the view taken by

the trial court can be reasonably formed, regardless of

whether the High Court agrees with the same or not, the

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

view taken by the trial court cannot be interdicted and

that of the High Court supplanted over and above the

view of the trial court.

35. A consideration on the basis on which the learned

trial court had founded its order of acquittal in the

present case clearly reflects a possible view. There may,

however, be disagreement on the correctness of the

same. But that is not the test. So long as the view taken

is not impossible to be arrived at and reasons therefor,

relatable to the evidence and materials on record, are

disclosed any further scrutiny in exercise of the power

under Section 378 CrPC was not called for.”

Further, in the case of Hakeem Khan & Ors. v. State of Madhya

Pradesh (2017) 5 SCC 719 this Court has considered powers of

appellate court for interference in cases where acquittal is recorded by

trial court. In the said judgment it is held that if the “possible view” of

the trial court is not agreeable for the High Court, even then such

“possible view” recorded by the trial court cannot be interdicted. It is

further held that so long as the view of trial court can be reasonably

formed, regardless of whether the High Court agrees with the same or

not, verdict of trial court cannot be interdicted and the High court

cannot supplant over the view of the trial court. Paragraph 9 of the

judgment reads as under :

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

“9. Having heard the learned counsel for the parties, we

are of the view that the trial court's judgment is more

than just a possible view for arriving at the conclusion

of acquittal, and that it would not be safe to convict

seventeen persons accused of the crime of murder i.e.

under Section 302 read with Section 149 of the Penal

Code. The most important reason of the trial court, as

has been stated above, was that, given the time of 6.30

p.m. to 7.00 p.m. of a winter evening, it would be dark,

and, therefore, identification of seventeen persons would

be extremely difficult. This reason, coupled with the fact

that the only independent witness turned hostile, and

two other eyewitnesses who were independent were not

examined, would certainly create a large hole in the

prosecution story. Apart from this, the very fact that

there were injuries on three of the accused party, two of

them being deep injuries in the skull, would lead to the

conclusion that nothing was premeditated and there

was, in all probability, a scuffle that led to injuries on

both sides. While the learned counsel for the respondent

may be right in stating that the trial court went

overboard in stating that the complainant party was the

aggressor, but the trial court's ultimate conclusion

leading to an acquittal is certainly a possible view on

the facts of this case. This is coupled with the fact that

the presence of the kingpin Sarpanch is itself doubtful

in view of the fact that he attended the Court at some

distance and arrived by bus after the incident took

place.”

11. By applying the above said principles and the evidence on

record in the case on hand, we are of the considered view that having

regard to material contradictions which we have already noticed above

and also as referred to in the trial court judgment, it can be said that

acquittal is a “possible view”. By applying the ratio as laid down by

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

this Court in the judgments which are stated supra, even assuming

another view is possible, same is no ground to interfere with the

judgment of acquittal and to convict the appellant for the offence

alleged. From the evidence, it is clear that when the Inspecting Officer

and other witnesses who are examined on behalf of the prosecution,

went to the office of the appellantaccused, appellant was not there in

the office and office was open and people were moving out and in from

the office of the appellant. It is also clear from the evidence of PW3, 5

and 11 that the currency and cell phone were taken out from the

drawer of the table by the appellant at their instance. There is also no

reason, when the tainted notes and the cell phone were given to the

appellant at 05:45 p.m. no recordings were made and the appellant

was not tested by PW11 till 07:00 p.m. There are material

contradictions in the deposition of PW2 and it is clear from his

deposition that he has developed animosity against the appellant and

he himself has stated in the crossexamination that he was insulted

earlier as he belonged to scheduled caste. Further there is no answer

from PW11 to conduct the phenolphthalein test after about an hour

from handing over tainted notes and cell phone. The trial court has

disbelieved PW2, 3 and 5 by recording several valid and cogent

reasons, but the High Court, without appreciating evidence in proper

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

perspective, has reversed the view taken by the trial court. Further,

the High Court also has not recorded any finding whether the view

taken by the trial court is a “possible view” or not, having regard to

the evidence on record. Though the High Court was of the view that

PW2, 3 and 5 can be believed, unless it is held that the view taken by

the trial court disbelieving the witnesses is not a possible view, the

High Court ought not have interfered with the acquittal recorded by

the trial court. In view of the material contradictions, the prosecution

has not proved the case beyond reasonable doubt to convict the

appellant.

12. It is equally well settled that mere recovery by itself cannot

prove the charge of the prosecution against the accused. Reference

can be made to the judgments of this Court in the case of C.M. Girish

Babu v. CBI, Cochin, High Court of Kerala (2009) 3 SCC 779 and in

the case of B. Jayaraj v. State of Andhra Pradesh (2014) 13 SCC 55.

In the aforesaid judgments of this Court while considering the case

under Sections 7, 13(1)(d)(i) and (ii) of the Prevention of Corruption

Act, 1988 it is reiterated that to prove the charge, it has to be proved

beyond reasonable doubt that accused voluntarily accepted money

knowing it to be bribe. Absence of proof of demand for illegal

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

gratification and mere possession or recovery of currency notes is not

sufficient to constitute such offence. In the said judgments it is also

held that even the presumption under Section 20 of the Act can be

drawn only after demand for and acceptance of illegal gratification is

proved. It is also fairly well settled that initial presumption of

innocence in the criminal jurisprudence gets doubled by acquittal

recorded by the trial court. The relevant paragraphs 7, 8 and 9 of the

judgment in the case of B. Jayaraj (supra) read as under :

“7. Insofar as the offence under Section 7 is

concerned, it is a settled position in law that demand of

illegal gratification is sine qua non to constitute the said

offence and mere recovery of currency notes cannot

constitute the offence under Section 7 unless it is

proved beyond all reasonable doubt that the accused

voluntarily accepted the money knowing it to be a bribe.

The above position has been succinctly laid down in

several judgments of this Court. By way of illustration

reference may be made to the decision in C.M.

Sharma v. State of A.P. [(2010) 15 SCC 1 : (2013) 2 SCC

(Cri) 89] and C.M. Girish Babu v. CBI [(2009) 3 SCC

779 : (2009) 2 SCC (Cri) 1] .

8. In the present case, the complainant did not

support the prosecution case insofar as demand by the

accused is concerned. The prosecution has not

examined any other witness, present at the time when

the money was allegedly handed over to the accused by

the complainant, to prove that the same was pursuant

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

to any demand made by the accused. When the

complainant himself had disowned what he had stated

in the initial complaint (Ext. P11) before LW 9, and

there is no other evidence to prove that the accused had

made any demand, the evidence of PW 1 and the

contents of Ext. P11 cannot be relied upon to come to

the conclusion that the above material furnishes proof

of the demand allegedly made by the accused. We are,

therefore, inclined to hold that the learned trial court as

well as the High Court was not correct in holding the

demand alleged to be made by the accused as proved.

The only other material available is the recovery of the

tainted currency notes from the possession of the

accused. In fact such possession is admitted by the

accused himself. Mere possession and recovery of the

currency notes from the accused without proof of

demand will not bring home the offence under Section

7. The above also will be conclusive insofar as the

offence under Sections 13(1)(d)(i) and (ii) is concerned as

in the absence of any proof of demand for illegal

gratification, the use of corrupt or illegal means or

abuse of position as a public servant to obtain any

valuable thing or pecuniary advantage cannot be held to

be established.

9. Insofar as the presumption permissible to be

drawn under Section 20 of the Act is concerned, such

presumption can only be in respect of the offence under

Section 7 and not the offences under Sections 13(1)(d)(i)

and (ii) of the Act. In any event, it is only on proof of

acceptance of illegal gratification that presumption can

be drawn under Section 20 of the Act that such

gratification was received for doing or forbearing to do

any official act. Proof of acceptance of illegal

gratification can follow only if there is proof of demand.

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

As the same is lacking in the present case the primary

facts on the basis of which the legal presumption under

Section 20 can be drawn are wholly absent.”

The above said view taken by this Court, fully supports the case of the

appellant. In view of the contradictions noticed by us above in the

depositions of key witnesses examined on behalf of the prosecution,

we are of the view that the demand for and acceptance of bribe

amount and cell phone by the appellant, is not proved beyond

reasonable doubt. Having regard to such evidence on record the

acquittal recorded by the trial court is a “possible view” as such the

judgment of the High Court is fit to be set aside. Before recording

conviction under the provisions of Prevention of Corruption Act,

courts have to take utmost care in scanning the evidence. Once

conviction is recorded under provisions of Prevention of Corruption

Act, it casts a social stigma on the person in the society apart from

serious consequences on the service rendered. At the same time it is

also to be noted that whether the view taken by the trial court is a

possible view or not, there cannot be any definite proposition and each

case has to be judged on its own merits, having regard to evidence on

record.

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

13. Learned counsel for the appellant has also submitted that the

judgment and conviction for the offence under Section 7 of the Act

dated 22.09.2020 and 29.09.2020 is contrary to Section 362 of Cr.PC.

As we are in agreement with the case of the appellant on merits it is

not necessary to decide such issue. The learned counsel for the State

has submitted that as per the amended copy of the memo, the

appellant has challenged only judgment/order dated 22.09.2020 and

29.09.2020 and there is no challenge to the earlier judgment of

conviction dated 28.08.2020 and the order of sentence dated

15.09.2020, but at the same time it is to be noticed when the

judgment is subsequently rendered on 22.09.2020 for the offence

under Section 7 of the Act and further sentence is also imposed vide

order dated 29.09.2020, the appellant had filed interlocutory

application seeking amendment and the same was allowed by this

Court. In that view of the matter, merely because in the amended

memo the appellant has not mentioned about the judgment dated

28.08.2020 and the order dated 15.09.2020, same is no ground to

reject the appeals on such technicality. Further the judgments relied

by the learned counsel for the State also are of no assistance in

support of his case to sustain the conviction recorded by the High

Court.

Crl.A.@S.L.P.(Crl.)Nos.4729-30 of 2020

14. For the reasons stated supra, these appeals are allowed and

the impugned judgments of conviction dated 28.08.2020 and

22.09.2020 and orders imposing sentence dated 15.09.2020 and

29.09.2020 are hereby set aside. The appellant be released forthwith

from the custody, unless otherwise his custody is required in

connection with any other case.

………………………………J.

[Ashok Bhushan]

………………………………J.

[R. Subhash Reddy]

………………………………J.

[M.R. Shah]

New Delhi.

February 03, 2021

Miscellaneous Application filed by the appellant under Section 60(5)(c) of the Code holding that the appellant is not the financial creditor of the 2 corporate debtor, Doshion Veolia Water Solutions Private Limited = At best the Pledge Agreement and Agreement of undertaking executed on 10.01.2012, that is, subsequent to Facility Agreement, is security in favour of Lender-Assignor who at best will be secured creditor qua corporate debtor and not the financial creditor qua corporate debtor. The appellant is not financial creditor of the corporate debtor. Hence, Miscellaneous Application was rightly rejected by the Adjudicating Authority

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5146 of 2019

PHOENIX ARC PVT. LTD. ...APPELLANT(S)

VERSUS

KETULBHAI RAMUBHAI PATEL ...RESPONDENT(S)

J U D G M E N T

ASHOK BHUSHAN,J.

This appeal under Section 62 of the Insolvency

and Bankruptcy Code, 2016 (hereinafter referred to as

“Code”) has been filed questioning the judgment of

the National Company Law Appellate Tribunal, New

Delhi dated 09.04.2019 dismissing the Company Appeal

filed by the appellant. The Company Appeal was filed

by the appellant against order dated 22.02.2019 of

National Company Law Tribunal, Mumbai Bench rejecting

the Miscellaneous Application filed by the appellant

under Section 60(5)(c) of the Code holding that the

appellant is not the financial creditor of the

corporate debtor, Doshion Veolia Water

Solutions Private Limited.

2. Brief facts of this case for deciding this appeal

are:

L & T Infrastructure Finance Company Limited

advanced the financial facility to Doshion Limited, a

Company incorporated and registered under the

Companies Act, 1956. A Facility Agreement dated

12.05.2011 was executed between the Doshion Limited

(borrower) and L & T Infrastructure Finance Company

Limited (lender) advancing to the borrower a

financial facility of Rs.40 crores repayable in 72

structured monthly instalments. Schedule IV of the

facility agreement dealt with “Security Creation”.

The Board of Directors of Doshion Veolia Water

Solutions Private Limited (corporate debtor) passed a

Resolution on 26.07.2011 to give Non-Disposal

Undertaking in favour of L & T Infrastructure Finance

Company Limited whereby Board was authorised to

provide an undertaking to the effect that 100% of

their shareholding in Gondwana Engineers Limited

(GEL) shall not be disposed of so long as any amounts

were due and payable and outstanding under the

financial assistance proposed to be provided by L&T

Infra to borrower. On 10.01.2012 a Pledge Agreement

was executed between Doshion Veolia Water Solutions

Private Limited and L&T Infrastructure Finance

Company Limited by which agreement 40,160 shares of

Gondwana Engineers Limited were pledged as a

security. On 10.01.2012 a deed of undertaking was

also executed by Doshion Veolia Water Solutions

Private Limited in favour of L&T Infrastructure

Finance Co.Ltd. By agreement dated 30.12.2013 L&T

Infrastructure assigned all rights, title and

interest in the financial facility including any

security, interest therein in favour of Phoenix ARC

Pvt. Ltd., the appellant under Section 5 of the

Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002. The

borrower, Doshion Limited failed to repay as per

agreed terms dated 12.05.2011. The appellant issued a

notice dated 19.02.2014 and recalled the financial

facility. The appellant filed O.A.No.325 of 2016

before the Debts Recovery Tribunal, Ahmedabad which

is said to be pending.

3. On 31.08.2018, Bank of Baroda filed Company

Petition No.CP(IB)1752/MB/2017 before the

Adjudicating Authority under Section 7 of the Code to

initiate the corporate insolvency resolution process

in respect of the Doshion Veolia Water Solutions

Private Limited (Corporate Debtor). By order dated

31.08.2018, the Adjudicating Authority admitted the

Company Petition and the corporate insolvency

resolution process began. The respondent was

appointed as the Interim Resolution Professional of

the corporate debtor which was later confirmed as the

Resolution Professional of the corporate debtor.

Pursuant to the commencement of corporate insolvency

resolution process in respect of the corporate

debtor, the appellant filed its claim for an amount

of Rs.83,49,85,667/- with the respondent. The

respondent vide email dated 20.09.2018 expressed an

opinion that as per the Pledge Agreement submitted by

the appellant, the corporate debtor’s liability was

restricted to pledge of the shares only. The

respondent sought further documents in respect of the

appellant’s claim. Although additional documents were

submitted by the appellant, the respondent by email

dated 23.11.2018 reiterated the earlier view.

4. The appellant filed M.A.No.1514 of 2018 before

the National Company Law Tribunal, Bench at Mumbai in

Company Petition No.CP(IB)1752/MB/2017 seeking a

direction to the respondent to admit the claim of the

appellant as a financial debt with all consequential

benefits including voting rights in the Committee of

creditors of the corporate debtor. The appellant

stated that pledge of the shares by the corporate

debtor was in essence a guarantee for financial debt

and, therefore, appellant was a financial creditor of

the corporate debtor. The Resolution Professional

vide email dated 04.12.2018 rejected the claim of the

appellant as financial creditor of the corporate

debtor on the ground that there was no separate Deed

of Guarantee in favour of the Assignor. The

respondent filed an affidavit in reply before the

Adjudicating Authority. After hearing the parties,

the Adjudicating Authority passed an order dated

22.02.2019 rejecting the Miscellaneous Application

filed by the appellant. The Adjudicating Authority

held that the applicant’s status as financial

creditor of the corporate debtor is not proved in the

light of Section 5(8) of the Code.

5. Aggrieved by the judgment of the Adjudicating

Authority, the appeal was filed by the appellant

before the Appellate Tribunal. The Appellate Tribunal

held that pledge of shares in question do not amount

to “disbursement of any amount against the

consideration for the time value of money” and it do

not fall within sub-clause (f) of sub-section (8) of

Section 5 as suggested by the learned counsel for the

appellant. The Appellate Authority finding no merit

in the appeal, dismissed the appeal. Aggrieved by the

judgment of the Appellate Tribunal, the appellant has

filed the present appeal.

6. We have heard Shri K.V. Vishwanathan, learned

senior counsel for the appellant, Ms. Ami Jain,

learned counsel for the respondent. We have also

heard learned counsel for the Bank of Baroda as

intervenor.

7. Shri K.V. Vishwanathan, learned senior counsel,

submits that the appellant is a financial creditor

within the meaning of Section 5 sub-section (8)(i) of

the Code. He submits that liability of the corporate

debtor, who is surety, is co-extensive to that of

debtor and the creditor has full rights to pursue his

liability against the surety even before the

creditor. There is a debt which is payable by the

corporate debtor to the appellant and for securing

that debt, the corporate debtor has created a

security interest in favour of the Assignor that is

L&T Infrastructure Ltd. The L&T Infrastructure Ltd.

having assigned all its rights and obligations to the

appellant vide Assignment dated 30.12.2013, the

appellant has stepped into the shoes of L&T

Infrastructure Ltd. The parent Company of corporate

debtor Doshion Ltd. took a credit facility from the

predecessor of the appellant and the corporate debtor

undertook a liability by creating a security interest

in the form of shares of Gondwana Engineers Limited.

The present case is covered by Section 5(8)(b) read

with 5(i), not accepting the appellant as financial

creditor would have effect of leaving the appellant

effectively remediless inasmuch as the appellant

cannot enforce the guarantee during the subsistence

of moratorium period and once the resolution plan is

passed without any redress to the appellant in the

Financial Plan, the said resolution plan would be

binding upon the appellant whereupon the appellant

shall be gravely prejudiced since nothing could then

be recoverable from the corporate debtor. The

corporate debtor in effect has provided a guarantee

to L&T Infrastructure Ltd. whereby the corporate

debtor guarantees L&T Infrastructure the debts due

from Doshion Ltd. and in case of non-payment, a

charge subsisted upon the 100% shareholding of

Gondwana Engineers Ltd. As the corporate debtor has

secured the payment of the loan, the liability of

corporate debtor to L&T Infrastructure became coextensive to that of Doshion Ltd. under Section 128

of the Indian Contract Act, 1872 which, inter alia,

financial creditor to the appellant herein and the

loan was advanced for interest and the said loan was

secured by the corporate debtor.

8. Learned counsel further submits that the judgment

of this Court in Anuj Jain, Interim Resolution

Professional for Jaypee Infratech Limited vs. Axis

Bank Limited and others, (2020) 8 SCC 401, relied by

the learned counsel for the respondent is

distinguishable from the facts of the present case.

He submits that any security that would permit the

right of action against the third party that is not

the borrower, would amount to guarantee. The mere

fact that corporate debtor has not borrowed money

from the appellant, it cannot absolve the corporate

debtor from its liability as guarantor. He submits

that term guarantee is not to be understood narrowly

and it has to be understood to include any security

created by third party to secure repayment of

financial debt including a pledge of shares. The

pledge of shares by corporate debtor to secure the

loan advanced to the parent Company of the corporate

debtor amounts to a guarantee. He lastly submits that

judgment of Anuj Jain needs to be clarified to the

effect that it has been rendered in a specific facts

scenario which does not apply to the present case at

all.

9. Ms. Ami Jain, learned counsel, appearing for the

respondent submits that the appellant is not a

creditor of any nature whatsoever of the corporate

debtor. The appellant has no right of recovery of any

debt from the corporate debtor and has a limited

right of enforcing and realising the value of its

security in the shape of the shares held by the

corporate debtor in its subsidiary, that is, Gondwana

Engineers Ltd. which is pledged with the appellant as

a security for the loan given to its parent Company,

viz. Doshion Ltd. in accordance with the Pledge

Agreement dated 10.01.2012. The pledge is not, in any

manner, a guarantee under the Contract Act. Section

5(8)(i) of the Code takes within its sweep only any

liability arising out of a guarantee for any of the

items referred to in sub-clauses (a) to (h) of

Section 5(8) of the Code, and not any other

instrument in the nature of a guarantee. The pledge

of shares cannot be equated with the guarantee as

both are absolutely different in terms of their

ramification and implication. The corporate debtor

has not entered into any contract of guarantee with

the appellant to perform the promise, or discharge

the liability of a third party in case of his

default. In the event of default by the borrower, the

appellant has the limited right to realise the money

by sale of shares pledged without requiring the

corporate debtor to perform the promise, or discharge

the liability as no promise is given by the corporate

debtor to repay the debt recoverable from the

borrower.

10. Learned counsel for the respondent submits that

the National Company Law Tribunal has rightly

rejected the claim of the appellant as financial

creditor. It is further submitted that the appellant

has already initiated proceedings at the Debt

Recovery Tribunal, Ahmedabad for realisation of its

dues which is an admitted fact. In the Code nowhere

pledge is mentioned. The appellant cannot claim their

pledge agreement dated 10.01.2012 as guarantee as

there is no Deed of Guarantee on the record. The Code

does not deal with recovery.

11. Learned counsel appearing for Bank of

Baroda/Intervenor referring to objects and reasons of

Insolvency and Bankruptcy Code contends that the

purpose and object of the Code is entirely different.

It is not a mechanism for recovery of any amount. The

appellant has already moved to Debt Recovery

Tribunal, Ahmedabad.

12. We have considered the submissions of the learned

counsel for the parties and have perused the records.

13. The only question to be considered in this appeal

is as to whether the appellant is a financial

creditor within the meaning of Section 5(8) of the

Code on the strength of pledge agreement dated

10.01.2012 and Deed of Undertaking dated 10.01.2012

entered into with L&T Infrastructure.

14. We may first notice the transaction in question

on the basis of which the appellant claims to be

treated as financial creditor qua corporate debtor.

15. The Facility Agreement dated 12.05.2011 was

executed between the Doshian Ltd. and the L&T

Infrastructure Finance Company Ltd. The corporate

debtor was not a party to the Facility Agreement. It

was the Doshion Ltd., the borrower who was to repay

the loan of Rs.40 crores. Schedule-IV of Facility

Agreement is “Security Creation” which is a part of

the Facility Agreement, is as follows:

“SCHEDULE-IV

SECURITY CREATION

The Facility (together with all principal

interest, liquidated damages, fees costs,

charges, expenses and other monies and all

other amounts stipulated and payable to the

Lender) shall be secured by:

1.Second pari-passu charge on all current

assets of the Borrower.

2.Second pari-passu charge on all current

assets of Gondwana Engineers Limited (GEL).

3.Pledge of 100% equity shares together with

all accretions thereon of the GEL.

4.Personal guarantee of promoters of DL namely

Ashit Dhirajilal Doshi, Dhirajilal Shivlal

Doshi and Rakshit Dhirajlal Doshi.

5.Debt Service Reserve Account (DSRA) in the

form of LC/BG for 3 months of interest and

principal payments.

6.Demand Promissory Note.

If, at any time during the subsistence of the

Facility, the Lender is of the opinion that

the security provided by the Borrower has

become inadequate to cover the Facility then

outstanding, then, on the Lender advising the

Borrower to that effect, the Borrower shall

provide and furnish to the Lender, to the

satisfaction of the Lender, such additional

security as may be acceptable to the Lender

to cover such deficiency.”

16. Item No.3 of Schedule IV, as noted above, is

Pledge of 100% equity shares together with all

accretions thereon of the GEL. There is Second paripassu charge on all current assets of the GEL as per

Schedule IV.

17. The Pledge Agreement dated 10.01.2012 was entered

into between the corporate debtor and L&T

Infrastructure Finance Co. Ltd. Schedule II contains

details of the Securities which are 40,160 shares of

GEL. The corporate debtor has pledged in favour of

lender, the securities, the Clauses of the Pledge

Agreement clearly describe the nature of the security

created by the Pledge Agreement. It is relevant to

notice Clause 2(iii) which is to the following

effect:

“2(iii) The Obligors hereby agree and

confirm that the pledge created/to be

created in terms of this Agreement shall

be a continuing security for the payment

of the Secured Obligations and the due

performance by the Obligors of their

obligations hereunder.”

18. The shares of GEL were pledged with L&T

Infrastructure as security. The Deed of Undertaking

which was given on the same day, i.e., 10.01.2012 is

also to the same effect.

19. Now, we may look into the provisions of the

Insolvency and Bankruptcy Code, 2016 relevant for the

present controversy. Part II of Chapter I of the Code

deals with Insolvency Resolution Liquidation for

Corporate Persons. Section 5 is the definition

clause. Section 5(7) defines “financial creditor” in

the following words:

“Section 5(7) “financial creditor” means any

person to whom a financial debt is owed and

includes a person to whom such debt has been

legally assigned or transferred to;”

20. What is ‘financial debt’ is defined in Section

5(8) which is to the following effect:

“Section 5(8) “financial debt” means a debt

along with interest, if any, which is disbursed

against the consideration for the time value of

money and includes—

(a) money borrowed against the payment of

interest;

(b) any amount raised by acceptance under

any acceptance credit facility or its dematerialised equivalent;

purchase facility or the issue of bonds,

notes, debentures, loan stock or any

similar instrument;

(d) the amount of any liability in respect

of any lease or hire purchase contract

which is deemed as a finance or capital

lease under the Indian Accounting Standards

or such other accounting standards as may

be prescribed;

(e) receivables sold or discounted other

than any receivables sold on non-recourse

basis;

(f) any amount raised under any other

transaction, including any forward sale or

purchase agreement, having the commercial

effect of a borrowing;

(g) any derivative transaction entered

into in connection with protection against

or benefit from fluctuation in any rate or

price and for calculating the value of any

derivative transaction, only the market

value of such transaction shall be taken

into account;

(h) any counter-indemnity obligation in

respect of a guarantee, indemnity, bond,

documentary letter of credit or any other

instrument issued by a bank or financial

institution;

(i) the amount of any liability in

respect of any of the guarantee or

indemnity for any of the items referred to

in sub-clauses (a) to (h) of this clause;”

21. Whether the corporate debtor owed any financial

debt to the appellant so as to treat the appellant as

financial creditor is the question to be answered.

The definition of ‘financial debt’ as contained in

Section 5(8) contains the expressions “means” and

“includes”. The definition begins with the words

“financial debt” means 'a debt alongwith interest, if

any, which is disbursed against the consideration for

the time value of money and includes'... The main

part of the definition, thus, provides that financial

debt means a debt “which is disbursed against the

consideration for the time value of money”. The

definition in the second part gives instances which

also includes financial debt. Learned counsel for the

appellant in his submission has relied on Section

5(8)(i) to support his claim that the appellant is

the financial creditor. Learned counsel for the

appellant has referred both sub-clause (b) and sub-

clause (i) and submits that credit facility which was

extended to the borrower is referable to Section 5(8)

(b) and the corporate debtor pledged his share to

give indemnity for credit facility and which is in a

sense of guarantee. The debt is a financial debt

within the meaning of Section 5(8)(i) and the

appellant is the financial creditor. There can be no

dispute that credit facility given by the Assignor to

borrower by Facility Agreement dated 12.05.2011 is a

credit facility which can be covered under Section

5(8)(b). A bare perusal of Section 5(8)(i) indicates

that it contemplates amount of any liability in

respect of any of the guarantee or indemnity for any

of the items referred to in sub-clauses(a) to (h) of

clause (8). Sub-clause (i) uses two expressions

“guarantee” and “indemnity” for any of the items

referred to in sub-clauses (a) to (h).

22. Chapter VIII of the Indian Contract Act, 1872

deals with “Of Indemnity and Guarantee”. Section 124

defines “Contract of indemnity” and Section 126

defines “Contract of guarantee”. Section 126 which is

relevant for the present case is as follows:

“ Section 126. “Contract of

guarantee”, “surety”, “principal debtor”

and “creditor”.—A “contract of guarantee”

is a contract to perform the promise, or

discharge the liability, of a third person

in case of his default. The person who

gives the guarantee is called the

“surety”; the person in respect of whose

default the guarantee is given is called

the “principal debtor”, and the person to

whom the guarantee is given is called the

“creditor”. A guarantee may be either oral

or written.”

23. As clear from the definition a contract of

guarantee is a contract to perform the promise, or

discharge the liability, of a third person in case of

his default. The present is not a case where the

corporate debtor has entered into a contract to

perform the promise, or discharge the liability of

borrower in case of his default. The Pledge Agreement

is limited to pledge 40,160 shares as security. The

corporate debtor has never promised to discharge the

liability of borrower. The Facility Agreement under

which the borrower was bound by the terms and

conditions and containing his obligation to repay the

loan security for performance are all contained in

the Facility Agreement. A contract of guarantee

contains a guarantee “to perform the promise or

discharge the liability of third person in case of

his default”. Thus, key words in Section 126 are

contract “to perform the promise”, or “discharge the

liability”, of a third person. Both the expressions

“perform the promise” or “discharge the liability”

relate to “a third person”. The Pledge Agreement

dated 10.01.2012 does not contain any contract that

the promise which was made by the borrower in the

Facility Agreement dated 12.05.2011 to discharge the

liability of debt of Rs.40 crores is undertaken by

the corporate debtor. It was the borrower who had

promised to repay the loan of Rs.40 crores in

Facility Agreement dated 12.05.2011 and it was

borrower who had undertaken to discharge the

liability towards lender. The Pledge Agreement dated

10.01.2012 does not contain any contract that

corporate debtor has contracted to perform the

promise, or discharge the liability of the third

person. The Pledge Agreement is limited to pledge of

40,160 shares of GEL only. We have noticed above that

in the Facility Agreement there is a Security

Creation by way of Schedule IV in which 100% equity

shares of GEL were pledged by the borrower and

second pari-passu charge on all current assets of the

GEL was also created as security for loan. It

transpires that since some shares of GEL were also

with the corporate debtor who is subsidiary Company

of Doshion Ltd. the same was also pledged with the

lender as additional security by a subsequent

agreement dated 10.01.2012.

24. The Pledge Agreement and undertaking given,

entered between Assignor and corporate debtor cannot

be termed as contract of guarantee within the meaning

of Section 126.

25. The expression “pledge” is separately dealt with

in the Indian Contact Act, 1872. Section 172 defines

'pledge' in the following words:

“Section 172. "Pledge", "pawnor", and

"pawnee" defined.-The bailment of goods as

security for payment of a debt or

performance of a promise is called

"pledge". The bailor is in this case called

the "pawnor". The bailee is called

"pawnee".:”

26. The word 'guarantee' and 'indemnity' as occurring

in Section 5(8)(i) has not been defined in the Code.

Section 3 sub-section (37) of the Code provides that

words and expressions used but not defined in the

Code but defined in the Indian Contract Act, 1872

shall have the meanings respectively assigned to

them.

27. Learned counsel for the appellant has referred to

a judgment of the Bombay High Court in the Indian Law

Reports, Volume LV 1931, 617, Jagjivandas Jethalal

and another vs. King Hamilton & Co., which was case

arising out of the suit filed to enforce an

equitable mortgage of an immovable property. The

defendants as owners of the immovable property in

question created an equitable mortgage upon it as

sureties for the firm of Sarda & Sons who owed money

to the plaintiff. The Bombay High Court had occasion

to consider Section 126 of the Contract Act in the

above case. Noticing the arguments based on Section

126 of the Indian Contract Act raised by the

respondent, the Bombay High Court noticed following

at page 684:

"......Mr. Desai's answer to that is that

the defendants here were not sureties. He

relies on section 126 of the Indian

Contract Act which provides that a

“contract of guarantee” is a contract to

perform the promise or discharge the

liability of a third person in case of his

default, and the person who gives the

guarantee is called the “surety”. Mr. Desai

says that here there was no personal

obligation on the defendents to pay

anything: they merely handed over their

property as security, and that being so,

there was no contract to perform the

promise or discharge the liability of a

third person. Then he says that in section

135, which provides that a contract between

the creditor and the principal debtor by

which the creditor makes a composition

with, or promises to give time to, or not

to sue, the principal debtor, dishcarges

the surety unless the surety assents to

such contract, th word “surety” must have

the same meaning as in section 126, and

therefore a person who merely deposits the

documents as security is not a surety

within section 135. There may possibly be

something in that argument on the wording

of the sections, but it has been held often

that the Indian Contract Act is not

exhaustive, and, therefore, one has to

consider apart from the Act what the

general is.”

28. The Bombay High Court although observed that on

plain reading of Section 126, there may be some

substance in the submission of Mr. Desai but Bombay

High Court proceeded to examine the general law. The

judgment of the Bombay High Court relied by the

learned counsel for the appellant was on its own

facts and has no bearing on interpretation of Section

5(8)(i) with reference to Section 126 of Contract

Act.

29. The learned counsel for the respondent has placed

heavy reliance on two-Judge Bench judgment of this

Court in Jaypee Infratech Limited vs. Axis Bank

Limited (supra). One of the issues which came before

this Court was as to whether the respondent (lenders

of JAL) could be financial creditors of the corporate

debtor JIL on the strength of the mortgages created

by corporate debtor as collateral securities of its

holding Co. JIL. In the above case, the AXIS Bank had

lent finance to Jaiprakash Associates Ltd.(JAL), the

holding company, Jaypee Infratech Ltd.(JIL) had

mortgaged several properties as collateral securities

for the loans and advances made by the Axis Bank to

JAL. Interim Resolution Professional has rejected the

claim of the Asix Bank to be recognised as financial

creditor of corporate debtor (JIL). The National

Company Law Tribunal has approved the decision of

Interm Resolution Professional rejecting the claim of

Axis Bank as financial creditor against which appeal

was filed before the Appellate Tribunal which was

allowed. The corporate debtor had filed an appeal

before this Court in which appeal one of the issues

was as to whether the Axis Bank can be recognised as

financial creditor of the corporate debtor on the

strength of the mortgaged by the JIL, corporate

debtor of its holding Co. JAL. This Court after

noticing the facts, noted rival submissions of the

parties on the above issue in detail. The two earlier

judgments of this Court, namely, Swiss Ribbons (P)

Ltd. v. Union of India, (2019) 4 SCC 17 and Pioneer

Urban Land & Infrastructure Ltd. v. Union of India,

(2019) 8 SCC 416 were extensively noted. Paragraphs

46 to 50.2 contain elaborate discussion regarding the

essentials of “financial debt” and “financial

creditor” which are to the following effect:

“46. Applying the aforementioned

fundamental principles to the definition

occurring in Section 5(8) of the Code, we have

not an iota of doubt that for a debt to become

'financial debt' for the purpose of Part II of

the Code, the basic elements are that it ought

to be a disbursal against the consideration

for time value of money. It may include any of

the methods for raising money or incurring

liability by the modes prescribed in Subclauses (a) to (f) of Section 5(8); it may

also include any derivative transaction or

counter-indemnity obligation as per Subclauses (g) and (h) of Section 5(8); and it

may also be the amount of any liability in

respect of any of the guarantee or indemnity

for any of the items referred to in Subclauses (a) to (h). The requirement of

existence of a debt, which is disbursed

against the consideration for the time value

of money, in our view, remains an essential

part even in respect of any of the

transactions/dealings stated in Sub-clauses

(a) to (i) of Section 5(8), even if it is not

necessarily stated therein. In any case, the

definition, by its very frame, cannot be read

so expansive, rather infinitely wide, that the

root requirements of 'disbursement' against

'the consideration for the time value of

money' could be forsaken in the manner that

any transaction could stand alone to become a

financial debt. In other words, any of the

transactions stated in the said Sub-clauses

(a) to (i) of Section 5(8) would be falling

within the ambit of 'financial debt' only if

it carries the essential elements stated in

the principal Clause or at least has the

features which could be traced to such

essential elements in the principal clause. In

yet other words, the essential element of

disbursal, and that too against the

consideration for time value of money, needs

to be found in the genesis of any debt before

it may be treated as 'financial debt' within

the meaning of Section 5(8) of the Code. This

debt may be of any nature but a part of it is

always required to be carrying, or

corresponding to, or at least having some

traces of disbursal against consideration for

the time value of money.

47. As noticed, the root requirement for a

creditor to become financial creditor for the

purpose of Part II of the Code, there must be a

financial debt which is owed to that person. He

may be the principal creditor to whom the

financial debt is owed or he may be an assignee

in terms of extended meaning of this definition

but, and nevertheless, the requirement of

existence of a debt being owed is not forsaken.

48. It is also evident that what is being

dealt with and described in Section 5(7) and in

Section 5(8) is the transaction vis-a-vis the

corporate debtor. Therefore, for a person to be

designated as a financial creditor of the

corporate debtor, it has to be shown that the

corporate debtor owes a financial debt to such

person. Understood this way, it becomes clear

that a third party to whom the corporate debtor

does not owe a financial debt cannot become its

financial creditor for the purpose of Part II

of the Code.

49. Expounding yet further, in our view,

the peculiar elements of these expressions

"financial creditor" and " financial debt", as

occurring in Sections 5(7) and 5(8), when

visualised and compared with the generic

expressions "creditor" and "debt" respectively,

as occurring in Sections 3(10) and 3(11) of the

Code, the scheme of things envisaged by the

Code becomes clearer. The generic term

"creditor" is defined to mean any person to

whom the debt is owed and then, it has also

been made clear that it includes a 'financial

creditor', a 'secured creditor', an 'unsecured

creditor', an 'operational creditor', and a

'decree-holder'. Similarly, a "debt" means a

liability or obligation in respect of a claim

which is due from any person and this

expression has also been given an extended

meaning to include a 'financial debt' and an

'operational debt'.

49.1. The use of the expression "means and

includes" in these clauses, on the very same

principles of interpretation as indicated

above, makes it clear that for a person to

become a creditor, there has to be a debt i.e.,

a liability or obligation in respect of a claim

which may be due from any person. A "secured

creditor" in terms of Section 3(30) means a

creditor in whose favour a security interest is

created; and "security interest", in terms of

Section 3(31), means a right, title or interest

or claim of property created in favour of or

provided for a secured creditor by a

transaction which secures payment for the

purpose of an obligation and it includes,

amongst others, a mortgage. Thus, any mortgage

created in favour of a creditor leads to a

security interest being created and thereby,

the creditor becomes a secured creditor.

However, when all the defining clauses are read

together and harmoniously, it is clear that the

legislature has maintained a distinction

amongst the expressions 'financial creditor',

'operational creditor', 'secured creditor' and

'unsecured creditor'. Every secured creditor

would be a creditor; and every financial

creditor would also be a creditor but every

secured creditor may not be a financial

creditor. As noticed, the expressions

"financial debt" and "financial creditor",

having their specific and distinct connotations

and roles in insolvency and liquidation process

of corporate persons, have only been defined in

Part II whereas the expressions "secured

creditor" and "security interest" are defined

in Part I.

50. A conjoint reading of the statutory

provisions with the enunciation of this Court

in Swiss Ribbons (supra), leaves nothing to

doubt that in the scheme of the IBC, what is

intended by the expression 'financial creditor'

is a person who has direct engagement in the

functioning of the corporate debtor; who is

involved right from the beginning while

assessing the viability of the corporate

debtor; who would engage in restructuring of

the loan as well as in reorganisation of the

corporate debtor's business when there is

financial stress. In other words, the financial

creditor, by its own direct involvement in a

functional existence of corporate debtor,

acquires unique position, who could be

entrusted with the task of ensuring the

sustenance and growth of the corporate debtor,

akin to that of a guardian. In the context of

insolvency resolution process, this class of

stakeholders namely, financial creditors, is

entrusted by the legislature with such a role

that it would look forward to ensure that the

corporate debtor is rejuvenated and gets back

to its wheels with reasonable capacity of

repaying its debts and to attend on its other

obligations. Protection of the rights of all

other stakeholders, including other creditors,

would obviously be concomitant of such

resurgence of the corporate debtor.

50.1. Keeping the objectives of the Code in

view, the position and role of a person having

only security interest over the assets of the

corporate debtor could easily be contrasted

with the role of a financial creditor because

the former shall have only the interest of

realising the value of its security (there

being no other stakes involved and least any

stake in the corporate debtor's growth or

equitable liquidation) while the latter would,

apart from looking at safeguards of its own

interests, would also and simultaneously be

interested in rejuvenation, revival and growth

of the corporate debtor. Thus understood, it is

clear that if the former i.e., a person having

only security interest over the assets of the

corporate debtor is also included as a

financial creditor and thereby allowed to have

its say in the processes contemplated by Part

II of the Code, the growth and revival of the

corporate debtor may be the casualty. Such

result would defeat the very objective and

purpose of the Code, particularly of the

provisions aimed at corporate insolvency

resolution.

50.2. Therefore, we have no hesitation in

saying that a person having only security

interest over the assets of corporate debtor

(like the instant third party securities),

even if falling within the description of

'secured creditor' by virtue of collateral

security extended by the corporate debtor,

would nevertheless stand outside the sect of

'financial creditors' as per the definitions

contained in Sub-sections (7) and (8) of

Section 5 of the Code. Differently put, if a

corporate debtor has given its property in

mortgage to secure the debts of a third party,

it may lead to a mortgage debt and, therefore,

it may fall within the definition of 'debt'

Under Section 3(10) of the Code. However, it

would remain a debt alone and cannot partake

the character of a 'financial debt' within the

meaning of Section 5(8) of the Code.”

30. This Court held that a person having only

security interest over the assets of corporate

debtor, even if falling within the description of

'secured creditor' by virtue of collateral security

extended by the corporate debtor, would not be

covered by the financial creditors as per definitions

contained in sub-section (7) and (8) of Section 5.

What has been held by this Court as noted above is

fully attracted in the present case where corporate

debtor has only extended a security by pledging

40,160 shares of GEL. The appellant at best will be

secured debtor qua above security but shall not be a

financial creditor within the meaning of Section 5

sub-sections (7) and (8).

31. Mr. Vishwanathan tried to distinguish the

judgment of this Court in Jaypee Infratech Limited

(supra) by contending that the above judgment has

been rendered in the specific facts scenario which

does not apply to the present case at all. Shri

Vishwanathan submits that in Jaypee Infratech Limited

case (supra) corporate debtor had created mortgage

for the loan obtained by the parent Company and no

benefit of such loan has been received by the

corporate debtor whereas in the present case

corporate debtor has been the direct and real

beneficiary of the loan advanced by Assigner to the

parent Company of the corporate debtor. The above

point as contended by the learned counsel does not

commend us. The present is also a case where only

security was created by the corporate debtor in

40,160 shares of GEL, there was no liability to repay

the loan taken by the borrower on the corporate

debtor in the present case. At best the Pledge

Agreement and Agreement of undertaking executed on

10.01.2012, that is, subsequent to Facility

Agreement, is security in favour of Lender-Assignor

who at best will be secured creditor qua corporate

debtor and not the financial creditor qua corporate

debtor.

32. We may notice that the Appellate Tribunal has

dealt with Section 5(8)(f) while rejecting the claim

of the appellant as to be the financial creditor. It

appears that the submission based on Section 5(8) (i)

was not addressed before the Appellate Tribunal which

has now been pressed before us. We, thus, uphold the

decision of the Resolution Professional as approved

by the NCLAT as correct. The appellant is not

financial creditor of the corporate debtor. Hence,

Miscellaneous Application was rightly rejected by the

Adjudicating Authority. We, however, make it clear

that observations made by us in this judgment are

only for deciding the claim of the appellant as the

financial creditor within the meaning of Section 5(7)

and 5(8) of the Code and shall have no bearing on any

other proceedings undertaken by the appellant to

establish any of its right in accordance with law.

We, thus, do not find any merit in this appeal. The

appeal is dismissed. No costs.

......................J.

( ASHOK BHUSHAN )

......................J.

( R. SUBHASH REDDY )

......................J.

( M.R. SHAH )

New Delhi,

February 03, 2021.

freezing of the bank account.= Since we have indicated that the freezing has been done without due compliance of law, it is necessary to direct the respondents No.1 to 3 to defreeze the respective accounts and clear the cheques issued by the appellant, drawn in favour of the Competent Authority towards the ITDS, PF, ESI, Professional Tax, Gratuity and LIC employees’ deductions, subject to availability of the funds in the account concerned. Needless to mention that if any further amount is available in the account after payment of the statutory dues and with regard to the same any action is to be taken by the respondent No.4 within a reasonable time, it would open to them to do so subject to compliance of the required procedure afresh, as contemplated in law.We direct that the respondents shall defreeze the accounts

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.102 OF 2021

(Arising out of SLP (Criminal) No.4171 of 2020)

OPTO Circuit India Ltd. .…Appellant(s)

Versus

Axis Bank & Ors. ….

Respondent(s)

J U D G M E N T

A.S. Bopanna, J.

Leave granted.

2. The appellant is before this Court assailing the

order dated 13.08.2020 passed by the High Court of

Karnataka in WP No.8031 of 2020. Through the said

Page 1 of 21

common order the High Court has disposed of two writ

petitions but the consideration herein relates to the issue

raised in Writ Petition No.8031 of 2020 which was filed

before the High Court, by the appellant herein raising the

issue relating to the freezing of their bank account.

3. When the Special Leave Petition was listed for

admission, the learned senior counsel for the appellant

while assailing the order passed by the High Court, inter

alia contended that the freezing of the bank accounts

maintained by the appellant company has prejudiced the

appellant, inasmuch as, the amount in the account

which belongs to the appellant is made unavailable to

them due to which statutory payments to be made to the

Competent Authorities under various enactments is

withheld and the payment of salary which is due to the

employees is also prevented. In that background, this

Court though had not found any reason to interfere with

the initiation of the proceedings under the Prevention of

MoneyLaundering Act, 2002 (‘PMLA’ for short) had,

however, limited the scope of consideration in this appeal

Page 2 of 21

on the issue of defreezing the bank account so as to

enable the appellant to make the statutory payments. In

that view, notice had been issued to the respondent

through the order dated 11.09.2020 in the following

manner “issue notice restricted to the purpose of

enabling necessary payment returnable within two

weeks”. The respondent on being served, having appeared

has filed the counter affidavit on behalf of respondent

No.4.

4. In that background we have heard Mr. Mukul

Rohatgi, learned Senior Advocate for the appellant and

Mr. S.V. Raju, learned Additional Solicitor General for the

respondent No.4 and perused the petition papers.

5. The instant appeal arises out of the proceedings

initiated by respondent No.4 against the appellant under

the PMLA. The analogous matter, which was considered

by the High Court along with the writ petition which is

the subject matter herein related to the action initiated

by the Central Bureau of Investigation (‘CBI’ for short) for

the alleged predicate offence and the instant proceedings

Page 3 of 21

is a fall out of the same. It is in that background the

Enforcement Directorate in order to track the money trail

relating to the predicate offence and prevent layering of

the same has initiated the proceedings under the PMLA.

In the said process the Deputy Director, Directorate of

Enforcement through the communication dated

15.05.2020 addressed to the Anti MoneyLaundering

Officer (‘AML’ for short) of Respondents No.1 to 3 Banks

instructed them that the accounts maintained by the

appellant company be ‘debit freezed/stop operations’

until further orders, with immediate effect. It is in that

light the appellant claiming to be aggrieved filed WP No.

8031 of 2020 before the High Court seeking for issue of

an appropriate writ to quash the communication dated

15.05.2020 issued for debit freezing the account

No.914020014786978 maintained with the respondent

No.1, account No.200006044354 maintained with the

respondent No.2 and the account No. 39305709999

maintained with the respondent No.3. The appellant in

Page 4 of 21

that regard also prayed that the respondents be directed

to defreeze the accounts to which reference is made.

6. The High Court considered the matter in detail and

has taken into consideration the object with which the

PMLA was enacted and the validity of the Act being

considered by the High Court in the decisions referred to

in the course of the order. The permissibility and scope

of parallel proceedings under Section 3 and 4 of PMLA

was adverted to in detail and upheld the action. Insofar

as the reasoning adopted and the conclusion reached by

the High Court with regard to the power and competence

to initiate the proceedings under the PMLA in view of the

action taken for predicate offence, the High Court was

very much justified. However, the High Court having held

that the impugned communication was with competence

or justification ought to have examined whether the ‘due

process’ as contemplated under the PMLA was complied

so as to make it valid and sustainable in law, though the

power under the Act was available. As already noticed,

the consideration to be made in this appeal is therefore

Page 5 of 21

limited to the aspect of freezing/defreezing the account,

more particularly keeping in view the requirement of the

appellant to make the statutory payments even if the

freezing of the account is found justified.

7. While adverting to this aspect of the matter, what

cannot be lost sight is also the fact as to whether the

power available to the competent authority has been

exercised in the manner as is contemplated under PMLA.

The Directorate of Enforcement (Respondent No.4) in

their counter affidavit has taken contradictory stand

inasmuch as, while explaining the need to freeze the

account has stated that the ‘stop operation’ was

requested to stop the further layering/diversion of

proceeds of crime and to safeguard the proceeds of crime,

which we notice is a power available under PMLA. But in

the counter affidavit it is strangely stated that the same

has not been done under Section 17(1) of the PMLA.

However, in contrast it has been further averred with

regard to the power available under PMLA and that PMLA

being a standalone enactment and independent process

Page 6 of 21

whereunder Section 71 of PMLA has an overriding affect

over other laws. Irrespective of the stand taken, the

power exercised by the Competent Authority should be

shown to be in the manner as has been provided in law,

in this case under PMLA.

8. To appreciate this aspect, it would be appropriate

to refer to Section 17 of PMLA whereunder the freezing of

such property or record is also provided. Section 17 of

PMLA reads as hereunder:

17. Search and seizure (1) Where the

Director or any other officer not below the

rank of Deputy Director authorized by him

for the purposes of this section, on the basis

of information in his possession, has reason

to believe (the reason for such belief to be

recorded in writing) that any person

(i) has committed any act which

constitutes moneylaundering, or

(ii) is in possession of any proceeds of

crime involved in moneylaundering, or

(iii) is in possession of any records

relating to moneylaundering, or

(iv) is in possession of any property

related to crime

Page 7 of 21

then, subject to the rules made in this

behalf, he may authorise any officer

subordinate to him to

(a) Enter and search any building,

place, vessel, vehicle or aircraft

where he has reason to suspect

that such records or proceeds of

crime are kept;

(b) Break open the lock of any door,

box, locker, safe, almirah or other

receptacle for exercising the

powers conferred by clause (a)

where the keys thereof are not

available;

as a result of such search;

(d) place marks of identification on

such record of property, if required

or make or cause to be made

extracts or copies therefrom;

(e) make a note or an inventory of

such record or property;

(f) examine on oath any person, who

is found to be in possession or

control of any record or property,

in respect of all matters relevant

for the purposes of any

investigation under this Act:

(1A) Where it is not practicable to seize such

record or property, the officer authorised

under subsection (1), may make an order to

freeze such property whereupon the property

shall not be transferred or otherwise dealt

with, except with the prior permission of the

officer making such order, and a copy of such

order shall be served on the person

concerned:

Page 8 of 21

Provided that if, at any time before its

confiscation under subsection (5) or subsection (7) of section 8 or section 58B or subsection (2A) of section 60, it becomes

practical to seize a frozen property, the

officer authorised under subsection (1) may

seize such property.

(2) The authority, who has been authorised

under subsection (1) shall, immediately after

search and seizure or upon issuance of a

freezing order forward a copy of the reasons

so recorded along with material in his

possession, referred to in that subsection, to

the Adjudicating Authority in a sealed

envelope, in the manner, as may be

prescribed and such Adjudicating Authority

shall keep such reasons and material for such

period, as may be prescribed.

(3) Where an authority, upon information

obtained during survey under section 16, is

satisfied that any evidence shall be or is

likely to be concealed or tampered with, he

may, for reasons to be recorded in writing,

enter and search the building or place where

such evidence is located and seize that

evidence:

Provided that no authorisation referred

to in subsection (1) shall be required for

search under this subsection.

(4) the authority seizing any record or

property under subsection (1) or freezing

any record or property under subsection (1A)

shall, within a period of thirty days from

such seizure or freezing, as the case may be,

file an application, requesting for retention

of such record or property seized under subsection (1) or for continuation of the order of

Page 9 of 21

freezing served under subsection (1A), before

the Adjudicating Authority.

(emphasis supplied)

9. A perusal of the above provision would indicate

that the prerequisite is that the Director or such other

Authorised Officer in order to exercise the power under

Section 17 of PMLA, should on the basis of information in

his possession, have reason to believe that such person

has committed acts relating to money laundering and

there is need to seize any record or property found in the

search. Such belief of the officer should be recorded in

writing. Subsection (1A) to Section 17 of PMLA provides

that the Officer Authorised under subsection (1) may

make an order to freeze such record or property where it

is not practicable to seize such record or property. Subsection (2) provides that after search and seizure or upon

issuance of a freezing order the Authorised Officer shall

forward a copy of the reasons recorded along with

material in his possession to the Adjudicating Authority

in a sealed envelope. Subsection (4) provides that the

Page 10 of 21

Authority seizing or freezing any record or property under

subsection (1) or (1A) shall within a period of thirty days

from such seizure or freezing, as the case may be, file an

application before the Adjudicating Authority requesting

for retention of such record or properties seized.

10. For the purpose of clarity, it is emphasised that the

freezing of the account will also require the same

procedure since a bank account having alleged ‘proceeds

of crime’ would fall both under the ambit “property” and

“records”. In that regard it would be appropriate to take

note of Section 2(v) and (w) of PMLA which defines

“property” and “records”. The same read as follows:

“Sec. 2(v) “property” means any

property or assets of every description,

whether corporeal or incorporeal, movable

or immovable, tangible or intangible and

includes deeds and instruments

evidencing title to, or interest in, such

property or assets, wherever located.”

“Sec. 2(w) – “records” – include the

records maintained in the form of books

or stored in a computer or such other

form as may be prescribed.”

Page 11 of 21

11. The scheme of the PMLA is well intended. While it

seeks to achieve the object of preventing money

laundering and bring to book the offenders, it also

safeguards the rights of the persons who would be

proceeded against under the Act by ensuring fairness in

procedure. Hence a procedure, including timeline is

provided so as to ensure that power is exercised for the

purpose to which the officer is vested with such power

and the Adjudicating Authority is also kept in the loop.

In the instant case, the procedure contemplated under

Section 17 of PMLA to which reference is made above has

not been followed by the Officer Authorised. Except

issuing the impugned communication dated 15.05.2020

to AML Officer to seek freezing, no other procedure

contemplated in law is followed. In fact, the impugned

communication does not even refer to the belief of the

Authorised Officer even if the same was recorded

separately. It only states that the Officer is investigating

the case and seeks for relevant documents, but in the

tabular column abruptly states that the accounts have to

Page 12 of 21

be ‘debit freezed/stop operations’. It certainly is not the

requirement that the communication addressed to the

Bank itself should contain all the details. But what is

necessary is an order in the file recording the belief as

provided under Section 17(1) of PMLA before the

communication is issued and thereafter the requirement

of Section 17(2) of PMLA after the freezing is made is

complied. There is no other material placed before the

Court to indicate compliance of Section 17 of PMLA, more

particularly recording the belief of commission of the act

of money laundering and placing it before the

Adjudicating Authority or for filing application after

securing the freezing of the account to be made. In that

view, the freezing or the continuation thereof is without

due compliance of the legal requirement and, therefore,

not sustainable.

12. Mr. S.V. Raju, learned Additional Solicitor General

made a subtle attempt to contend that the power of

seizure is available under Section 102 of the Code of

Criminal Procedure, which has been exercised and as

Page 13 of 21

such the freezing of the account would remain valid. We

are unable to appreciate and accept such contention for

more than one reason. Firstly, as noted, it has been the

contention of Respondent No.4 that PMLA is a standalone enactment. If that be so and when such enactment

contains a provision for seizure which includes freezing,

the power available therein is to be exercised and the

procedure contemplated therein is to be complied.

Secondly, when the power is available under the special

enactment, the question of resorting to the power under

the general law does not arise. Thirdly, the power under

Section 102 CrPC is to the Police Officer during the

course of investigation and the scheme of the provision is

different from the scheme under PMLA. Further, even

subsection (3) to Section 102 CrPC requires that the

Police Officer shall forthwith report the seizure to the

Magistrate having jurisdiction, the compliance of which is

also not shown if the said provision was in fact invoked.

That apart, the impugned communication dated

Page 14 of 21

15.05.2020 does not refer to the power being exercised

under the Code of Criminal Procedure.

13. The action sought to be sustained should be with

reference to the contents of the impugned

order/communication and the same cannot be justified

by improving the same through the contention raised in

the objection statement or affidavit filed before the Court.

This has been succinctly laid down by this Court in the

case of Mohinder Singh Gill & Another vs. The Chief

Election Commissioner, New Delhi & Ors. (1978) 1

SCC 405) as follows;

“8. The second equally relevant matter is that when a

statutory functionary makes an order based on

certain grounds, its validity must be judged by the

reasons so mentioned and cannot be supplemented

by fresh reasons in the shape of affidavit or otherwise.

Otherwise, an order bad in the beginning may, by the

time it comes to court on account of a challenge, get

validated by additional grounds later brought out. We

may here draw attention to the observations of Bose

J. in Gordhandas Bhanji:

(1) "Public orders, publicly made, in exercise of a

statutory authority cannot be construed in the light of

explanations subsequently given by the officer making

the order of what he meant, or of what was in his

mind, or what he intended to do. Public orders made

by public authorities are meant to have public effect

and are intended to effect the actings and conduct of

those to whom they are addressed and must be

Page 15 of 21

construed objectively with reference to the language

used in the order itself."

Orders are not like old wine becoming better as they

grow older:”

In fact, in the instant case such contention of having

exercised power under Section 102 CrPC has not been

put forth even in the counter affidavit, either in this

appeal or before the High Court and has only been the

attempted ingenuity of the learned Additional Solicitor

General. Such contention, therefore, cannot be accepted.

In fact, in the objection statement filed before the High

Court much emphasis has been laid on the power

available under PMLA and the same being exercised

though without specifically referring to the power

available under Section 17 of PMLA.

14. The respondent No.4 in the counter affidavit has

stated that the action initiated against the appellant is

based on the complaint dated 02.11.2019 made by the

State Bank of India alleging that the appellant, its

Chairman and the Promoter Directors have conspired

Page 16 of 21

and cheated them to tune of Rs. 354.32 crores by

diversion of funds abroad. In that regard the CBI has

registered the case in FIR No. RC 18(A)/2019 dated

04.11.2019 under Section 120(B) read with Section 420,

468 and 471 IPC and under Section 13(2) read with

section 13(1)(d) of Prevention of Corruption Act, 1988.

Since the said offences are also schedule offences under

Section 2(1)(x) and (y) of PMLA, the case in ECIRBGZO/01/2020 was recorded by the Directorate on

02.01.2020 and action is taken to safeguard the alleged

proceeds of crime. On that aspect we have already

indicated that the High Court was justified in upholding

the action initiated under the PMLA but the consideration

herein was only with regard to freezing of the bank

account and as to whether while doing so the due

process had been complied by adhering to the procedure

prescribed under Section 17 of PMLA.

15. This Court has time and again emphasised that if a

statute provides for a thing to be done in a particular

manner, then it has to be done in that manner alone and

Page 17 of 21

in no other manner. Among others, in a matter relating

to the presentation of an Election Petition, as per the

procedure prescribed under the Patna High Court Rules,

this Court had an occasion to consider the Rules to find

out as to what would be a valid presentation of an

Election Petition in the case of Chandra Kishor Jha vs.

Mahavir Prasad and Ors. (1999) 8 SCC 266 and in the

course of consideration observed as hereunder:

“It is a well settled salutary principle that if a

statute provides for a thing to be done in a

particular manner, then it has to be done in

that manner and in no other manner”.

Therefore, if the salutary principle is kept in perspective,

in the instant case, though the Authorised Officer is

vested with sufficient power; such power is circumscribed

by a procedure laid down under the statute. As such the

power is to be exercised in that manner alone, failing

which it would fall foul of the requirement of complying

due process under law. We have found fault with the

Authorised Officer and declared the action bad only in so

far as not following the legal requirement before and after

Page 18 of 21

freezing the account. This shall not be construed as an

opinion expressed on the merit of the allegation or any

other aspect relating to the matter and the action

initiated against the appellant and its Directors which is

a matter to be taken note in appropriate proceedings if at

all any issue is raised by the aggrieved party.

16. Apart from the above consideration, what has also

engaged the attention of this Court is with regard to the

plea put forth on behalf of the appellant regarding the

need to defreeze the account to enable the appellant to

pay the statutory dues. The appellant in that regard has

relied on the certificate issued by the Chartered

Accountant, (AnnexureP/38 at page 231) which

indicates the amount payable towards ITDS, PF, ESI,

Professional Tax, Gratuity and LIC employees’

deductions, in all amounting to Rs.79,93,124/. Since we

have indicated that the freezing has been done without

due compliance of law, it is necessary to direct the

respondents No.1 to 3 to defreeze the respective accounts

and clear the cheques issued by the appellant, drawn in

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favour of the Competent Authority towards the ITDS, PF,

ESI, Professional Tax, Gratuity and LIC employees’

deductions, subject to availability of the funds in the

account concerned. Needless to mention that if any

further amount is available in the account after payment

of the statutory dues and with regard to the same any

action is to be taken by the respondent No.4 within a

reasonable time, it would open to them to do so subject

to compliance of the required procedure afresh, as

contemplated in law.

17. In terms of the above, the communication dated

15.05.2020 is quashed. We direct that the respondents

shall defreeze the accounts bearing Nos.

914020014786978, 200006044354 and 39305709999

and honour payments advised by the appellant towards

statutory dues stated supra. Liberty is reserved to

Respondent No.4 thereafter to initiate action afresh in

accordance with law, if they so desire.

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18. The appeal is allowed to the above extent with no

order as to costs.

…..………….…………CJI.

(S.A. Bobde)

....……………………….J.

(A.S. Bopanna)

…..………….…………….J.

(V. Ramasubramanian)

New Delhi,

February 03, 2021

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LAW FOR ALL

LawforAll

advocatemmmohan

Just for legal information but not form as legal opinion

Wednesday, February 3, 2021