Panama Papers: Explained by myLaw

We have been tracking the Panama Papers scandal with a lot of interest. The papers leaked to a German newspaper blew the lid wide open on thousands of offshore shell companies set up by Panamanian law firm Mossack Fonseca in tax havens around the world, implicating several politicians, heads of state, businessmen and celebrities from various countries. But where does India figure in all of this? What laws have the 500 Indians named in the documents allegedly broken? What could the consequences be? Amidst all of the noise and overwhelming amounts of information out there, join us as we make sense of it all and understand the Panama Papers from an Indian law perspective.


The law that caught up with Jayalalithaa – Section 13(1)(e) of the Prevention of Corruption Act

In an eighteen-year-old case alleging disproportionate assets, a court in Bangalore today found Tamil Nadu Chief Minister J. Jayalalithaa guilty. The allegations go back to her term as Chief Minister between 1991 and 1996, during which she had, without being involved in any businesses and while receiving a monthly salary of Re. 1, allegedly collected assets worth Rs. 66 crore, including 2,000 acres of land, 30 kg of gold, and 12,000 sarees.


The conviction took place under Section 13(1)(e) of the Prevention of Corruption Act, 1988 which defines the offence of criminal misconduct by a public servant. One of the ways in which a public servant is deemed to conduct criminal misconduct is when that person cannot satisfactorily account for pecuniary resources or property disproportionate to his known sources of income. The explanation to the Section defines known sources of income as “income received from any lawful source and such receipt has been intimated in accordance with the provisions of any law, rules or orders for the time being applicable to a public servant.

Once the prosecution establishes the disproportionate nature of the assets, the public servant will be presumed guilty of the offence under this provision. The onus then, of proving that he acquired the assets through legal means will rest with the public servant.

The punishment for criminal misconduct by a public servant is laid down in Section 13(2), which states “any public servant who commits criminal misconduct shall be punishable with imprisonment for a term which shall be not less than one year but which may extend to 7 years and shall also be liable to fine.” While arriving at a sentence, the court has to consider the amount or value of the pecuniary resource or property for which the accused is unable to account satisfactorily. One of the major changes brought about by this law over the repealed Prevention of Corruption Act, 1947 is that the courts are no longer allowed to impose a sentence less than the one prescribed.

Jayalalithaa will also have to step down as Chief Minister of Tamil Nadu following the Supreme Court’s judgment last year in the famous Lily Thomas Case which stated that any law-maker convicted with a sentence longer than two years should be immediately disqualified from office. The Cabinet had even tried to promulgate an ordinance to nullify the judgment after the Supreme Court rejected a petition by the Centre to review the case, but it was never passed.

Jayalalithaa’s close aide Sasikala Natarajan, her niece Ilavarasi and her disowned foster son Sudhakaran were also convicted in the case.

(Prapti Patel is a student of the Indian Law Society’s Law College in Pune.)

The article was edited for more clarity on the ordinance.

Supreme Court of India

Supreme Court invites public scrutiny of top bureaucracy in corruption cases

ShadanFarasat_SupremeCourtofIndiaFrom the 1950s to the 1970s, constitutional issues were regularly decided by Constitution benches of the Supreme Court comprising of at least five judges. Today, such decisions have become rare. It is not uncommon to see the correctness of a decision from a bench of two or three judges on a constitutional issue questioned within a year or two by another bench of two or three judges, which then refers the question to a larger bench. A decision of a Constitution bench on the other hand, has the advantage of expressing a position of law that will prevail for much longer than a similar decision from a bench of two or three judges.

It was therefore refreshing to see a Constitution bench of the Supreme Court give a unanimous decision on May 6, 2014 in Subramanian Swamy v. Director, CBI, W.P. (Civil) No. 38 of 1997 and W.P. (Civil) No. 21 of 2004. The Court found that Section 6-A of the Delhi Special Police Establishment Act, 1946 (“DSPE Act, 1946”) was unconstitutional because it violated Article 14 of the Constitution of India.

Section 6-A was added to the DSPE Act, 1946 by Section 26 (c) of the Central Vigilance Commission Act, 2003 and provided that no investigation or enquiry could be conducted under the DSPE Act without the prior approval of the Central Government, in respect of allegations under the Prevention of Corruption Act, 1988 against employees of the Central Government above the level of Joint Secretary and officers appointed by the Central Government in corporations owned by it. Section 6A was challenged on the ground that it created a separate class of offenders and sought to protect them from investigation for corruption offences. The position that such a classification was not permitted was articulated by the amicus curiae Senior Advocate Anil Divan,  Advocate Prashant Bhushan (an advocate in the 2004 petition), and Gopal Sankarnaraynan, an advocate for an intervenor. Interestingly, Subramanian Swamy, whose name the reported decision will bear, did not argue the matter in court, even through an advocate.

The response of the government, which was articulated by two of its law officers, was that higher bureaucrats in government and government owned corporations are responsible for important policy decisions and that such a protection was necessary to allow them to take decisions fearlessly without worrying about harassment through false criminal cases.

Speaking for the Court, Chief Justice of India R. M. Lodha held that the difference that was sought to be carved out between higher officials and lower officials in respect of prosecution for corruption cases was itself discriminatory and therefore, the classification envisaged in Section 6-A was devoid of intelligible differentia as the object of the intelligible differentia cannot be itself discriminatory. The Court found Section 6-A in violation of Article 14 on this ground alone and did not embark upon the second query of whether the intelligible differentia furthers the legislative objective of the enactment, because the legislative objective itself was discriminatory. The relevant finding of the Court (in paragraphs 67 and 69) is extracted below.


This finding can prove crucial for challenging the constitutionality of a range of provisions in legislations, where the political class has rather opportunistically protected itself from public scrutiny. Many of these provisions relate to election law, where through various amendments, a large number of exceptions have been provided to the political class from scrutiny, including scrutiny of funding and political expenses. The limit on expenses under Section 77 of the Representation of People Act, 1951 for example applies only to expenses made or authorised by candidates and not expenses made by the political party, leaving it open for political parties to flood elections with unaccounted money. Similarly, Section 13A read with Section 29C of the Income Tax Act, 1961 mandate disclosure of contributions made to political parties only when they are above Rs. 20,000. Political parties have misused this provision to hide their actual sources of income by showing most of their income as contributions below Rs. 20,000 from the sale of coupons to party workers.

Both these provisions are likely to fail the mandate that the object of the legislation or the amendment itself has to be non-discriminatory. This test, which has actually existed ever since the concept of “intelligible differentia” was envisaged, has been reinstated with this Constitution bench decision and now provides an important basis for challenging the constitutionality of those laws where the unconstitutional objectives of the provisions are writ large in the provision itself. All it will now take is for a willing court to describe the provisions of law for what they are – expressions of a discriminatory objective to give the powerful political class an advantage in the society.

(Shadan Farasat is an Advocate-on-Record at the Supreme Court of India)

Supreme Court of India

Previous sanction requirement for prosecuting senior bureaucrats for corruption offences struck down – the Article 14 thicket grows denser

GautamBhatia_SupremeCourtofIndiajpgThis week, in Centre for Public Interest Litigation v. Union of India, a Constitution Bench of the Supreme Court struck down Section 6A of the Delhi Special Police Establishment Act, 1946 (“DSPE Act”). The Section, which had been inserted into the enactment through a 2003 amendment (with a tortuous history of its own), prohibited inquiries or investigations of offences alleged to have been committed under the Prevention of Corruption Act, 1988 without the prior approval of the Central Government, if such allegations were made – inter alia – against certain senior government officials (Joint Secretary and above), and officials appointed in government corporations. Section 6A thus created two classes of officials, one of which could be investigated for corruption without prior sanction and the other, which could not. This classification was challenged under Article 14 of the Constitution. The Supreme Court upheld the challenge.

In order to survive an Article 14 challenge, the government must demonstrate three things. There must be an intelligible differentia between the two groups that have been treated differently. This differential treatment must bear a rational nexus with a governmental purpose. And the purpose itself must be legitimate. This is accepted doctrine, established in cases such as Budhan Choudhry v. State of Bihar, and Rama Krishna Dalmia v. Justice S.R. Tendolkar (both cases that the Court cites).

Unfortunately, the Court’s opinion omits these distinct enquiries. This renders the basis of its judgment uncertain, and leaves the law in a state of some confusion.

The government’s argument was straightforward. High-level government officials must repeatedly take important decisions. They must take them swiftly and without the benefit of hindsight. Repeated and frivolous allegations of corruption will invariably exercise a chilling effect upon their behaviour. Often, they will prefer inaction over taking a controversial decision that could subsequently land them in court, answering corruption charges. Section 6A is important just to avoid this policy paralysis. Thus, governmental efficiency is the legitimate purpose with which this classification bears a rational nexus.

A response to this could do one of four things: challenge the intelligibility of the classification, its nexus with the stated purpose, whether the stated purpose is the actual purpose, and if so, whether it is a legitimate purpose.

Surprisingly, however, the Court begins its analysis by ignoring the government’s stated purpose altogether. In Paragraph 58, it notes:

It seems to us that classification which is made in Section 6-A on the basis of status in the Government service is not permissible under Article 14 as it defeats the purpose of finding prima facie truth into the allegations of graft, which amount to an offence under the PC Act, 1988.”

LR-BlogAdAdmittedly, the purpose of the Prevention of Corruption Act is to expose corruption. Yet the stated purpose of S. 6A of the DSPE Act, which is under consideration, is different: to achieve efficiency by insulating “decision-making officials” from frivolous allegations. The Court spends a significant part of its opinion demolishing a straw-man. It argues – with perfect truth – that making a distinction between higher and lower officials bears no rational nexus with exposing corruption, because “irrespective of their status or position, corrupt public servants are corrupters of public power. The corrupt public servants, whether high or low, are birds of the same feather and must be confronted with the process of investigation and inquiry equally.” The Court makes a number of observations about the need for an unhampered, unbiased, free, and fearless enquiry into corruption, and the role and purpose of the CBI more generally. But in so doing, the Court substitutes the government’s stated purpose with a purpose it imports from a different statute, without providing reasons for the same. Having done so, it enters a finding of irrationality in the scheme of classification.

It is difficult not feel that its suspicion of a corrupt and self-serving political class has played a role in the Court’s thinking. Immediately after its most conclusive statement of no-rational-nexus, the Court observes:

“There will be no confidentiality and insulation of the investigating agency from political and bureaucratic control and influence because the approval is to be taken from the Central Government which would involve leaks and disclosures at every stage.”

That is no doubt an undesirable state of affairs, but one that, in a Constitutional democracy based on the separation of powers, is meant to be punished by the voters at the ballot box. A bad situation of governance is not an Article 14 violation.

The Court then shifts tack. In Paragraph 67, it holds:

“The object of Section 6-A, that senior public servants of the level of Joint Secretary and above who take policy decision must not be put to any harassment, side-tracks the fundamental objective of the PC Act, 1988 to deal with corruption and act against senior public servants. The CBI is not able to proceed even to collect the material to unearth prima facie substance into the merits of allegations. Thus, the object of Section 6-A itself is discriminatory.”

This is a very curious statement. The Court rules that because the objective of S. 6A (a legally enacted provision of a statute) is in conflict with the objective of another legally enacted statute (the Prevention of Corruption Act), it is an illegitimate objective. Both the DSPE and the PC Acts, however, enjoy the same legal status in our hierarchy of norms. A finding of illegitimate objective surely needs something more than an existing conflict with an equally authoritative norm.

The Court punctuates its legal findings with rhetorical flourishes about equality before law, noting that it is singing to the tune of the aphorism, “However high you may be, the law is above you.” Insofar as this applies to different procedural requirements for prosecuting the same offence, this is simply untrue. Sanction-for-prosecution requirements exist in a number of laws, most controversially, the Armed Forces (Special Powers) Act, 1958. The Court expressly holds that it is concerned with the validity of sanction-for-prosecution more generally, but is concerned only with this case. Yet the seeming basis for judgment – that you can’t have different legal regimes for different persons, based on their status – cuts much wider and deeper, and calls into question a number of legislations – which, evidently, the Court did not intend. Yet it is where it must explain why this statutory provision specifically violates Article 14 that the Court stumbles.

It is only towards the end of the judgment that the Court briefly engages with the government’s argument. Noting that there has been no recorded case of frivolous harassment of officials, and noting that the classification assumes that out of all investigative organisations, harassment is limited to the CBI, it dismisses the argument. This, of course, is the quintessential Article 14 enquiry into the relationship between the stated purpose and the classification. Unfortunately, it is limited to two paragraphs, and the Court does not explain what standard of scrutiny it is applying, what degree of deference is due to the government, and what evidence it considers relevant.

Ultimately, the Court’s decision is – arguably – correct. The reasoning however, only extends the ad hoc jurisprudence that has come to characterise one of the most important fundamental rights of our Constitution. That is a pity.

(Gautam Bhatia blogs at Indian Constitutional Law and Philosophy.)