Supreme Court overturns High Court’s decision on Foreign Contribution case: Central Bureau of Investigation vs. Arvind Khanna (2019)

Case Background

The case revolves around Arvind Khanna, a Member of the Legislative Assembly (MLA) in Punjab from February 24, 2002, to February 27, 2007. During his tenure, between March 6, 2002, and March 4, 2006, he received ₹9,04,84,770 from eight foreign entities. One of these entities was ‘New Heaven Nominees,’ and the other seven were managed by ‘CI Law Trust’.

The Central Bureau of Investigation (CBI) filed a First Information Report (F.I.R.) on April 2, 2007, alleging that these foreign contributions violated the Foreign Contribution (Regulation) Act, 1976 (FCRA 1976). The CBI claimed that Khanna received these funds without the necessary prior permission from the Central Government, as required by the FCRA 1976.

Khanna argued that the funds were gifts from his father, Vipin Khanna, an Indian passport holder. He stated that the foreign entities were simply holding the money on behalf of his father. He presented statements from his father and ‘New Heaven Nominees’ supporting this claim. Additionally, he cited an order from the Income Tax Authorities that accepted these receipts as gifts and an order from the Income Tax Appellate Tribunal confirming the same.

The CBI, however, maintained that the funds were foreign contributions received without proper authorization, thereby violating the FCRA 1976.

Timeline

Course of Proceedings

Initially, the Additional Chief Metropolitan Magistrate (ACMM) took cognizance of the offense under Section 35 read with Section 3 of the Foreign Contribution (Regulation) Act, 2010 (FCRA 2010) and issued summons to Khanna. The CBI filed a revision petition before the Revisional Court, arguing that the offense should be considered under the Foreign Contribution (Regulation) Act, 1976 (FCRA 1976), as the alleged violations occurred when that act was in force.

The Revisional Court allowed the CBI’s petition, stating that the ACMM had made a “jurisdictional error” by applying the wrong law. The Revisional Court ordered that cognizance be deemed to have been taken under Section 23 read with Section 4 of the FCRA 1976. The High Court quashed the F.I.R. and all proceedings, stating that the material on record was insufficient to frame charges against Khanna and allowed the Central Government to compound the case under Section 41(1) of the FCRA 2010.

Legal Framework

The case primarily involves the Foreign Contribution (Regulation) Act, 1976 and the Foreign Contribution (Regulation) Act, 2010. The key provisions are:

• Section 4 of the Foreign Contribution (Regulation) Act, 1976: This section required individuals to obtain prior permission from the Central Government before accepting foreign contributions. The relevant portion of the Act states: “No person, being a citizen of India, shall accept any foreign contribution, except with the prior permission of the Central Government.”
• Section 23 of the Foreign Contribution (Regulation) Act, 1976: This section deals with the penalties for contravening the provisions of the Act.
• Section 3 of the Foreign Contribution (Regulation) Act, 2010: This section outlines the restrictions on accepting foreign contributions.
• Section 35 of the Foreign Contribution (Regulation) Act, 2010: This section deals with the penalties for contravening the provisions of the Act.
• Section 41 of the Foreign Contribution (Regulation) Act, 2010: This section allows for the compounding of offenses under the Act.
• Section 482 of the Code of Criminal Procedure: This section grants the High Court the inherent power to make orders to prevent abuse of the process of any court or to secure the ends of justice.

Arguments

Arguments by the CBI (Appellant):

• The CBI argued that the High Court should not have quashed the F.I.R. and charge sheet under Section 482 of the Code of Criminal Procedure (Cr.P.C.).
• The CBI contended that the allegations in the F.I.R. and charge sheet prima facie disclosed the commission of an offense under Section 23 read with Section 4 of the FCRA 1976.
• The CBI stated that the F.I.R. was registered with the sanction of the Ministry of Home Affairs, which authorized the investigation of foreign funds received by Khanna without prior permission.
• The CBI argued that the benefit of Section 41 of FCRA, 2010, which allows for compounding of offenses, is not available to Khanna because it applies only to offenses committed under the 2010 Act, not the 1976 Act.
• The CBI maintained that the funds were received from foreign entities, not directly from Khanna’s father, and thus constituted foreign contributions requiring prior permission.
• The CBI asserted that the High Court incorrectly accepted the defense that the funds were gifts from Khanna’s father, which is a matter of evidence to be tested during trial.

Arguments by Arvind Khanna (Respondent):

• Khanna argued that the funds he received were gifts from his father, Vipin Khanna, an Indian passport holder.
• He stated that the foreign entities through which the funds were sent were holding the money on behalf of his father.
• Khanna presented statements from his father and ‘New Heaven Nominees’ to support his claim that the funds were gifts.
• He also relied on the Income Tax Authorities’ order that treated the funds as gifts, which was later confirmed by the Income Tax Appellate Tribunal.
• Khanna argued that the Revisional Court’s order was passed without notice to him.
• He contended that the offense was compoundable under Section 41 of the FCRA, 2010, and he had applied to the Ministry of Home Affairs for compounding.
• He argued that the High Court was correct in quashing the proceedings because the material on record did not support the charges.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue before the court was:

1. Whether the High Court was justified in quashing the F.I.R. and charge sheet under Section 482 of the Cr.P.C., based on disputed facts, before a trial had taken place.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court?

• Ahmedabad Urban Development Authority v. Manilal Gordhandas and Ors. [(1996) 11 SCC 482]:* The court did not explicitly state how this authority was used in its reasoning.
• Mohit Alias Sonu and Anr. v. State of Uttar Pradesh and Anr. [(2013) 7 SCC 789]:* The court agreed with the principle that the Revisional Court should have given an opportunity of hearing.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that disputed facts in a criminal case should be determined through a trial, not through preliminary hearings or by the High Court in exercise of its inherent powers under Section 482 of the Cr.P.C. The Court emphasized that the defense of the accused, including the claim that the funds were gifts from his father, needs to be tested during the trial by appreciating the evidence.

The Court also noted that the High Court had exceeded its jurisdiction by recording findings on disputed facts and that the correctness of the defense should be determined only after appreciating the evidence during the trial.

The court’s reasoning was based on the following steps:

The court considered the alternative interpretation that the funds were indeed gifts from the respondent’s father. However, it rejected this interpretation because such a determination required an appreciation of evidence, which is to be done during the trial. The court emphasized that it is not an admitted position that the funds were received from the respondent’s father, and therefore, the burden is on the respondent to prove that the funds were received from his father.

The Supreme Court’s decision was based on the principle that:

• The correctness of the defense of the respondent is to be gone into only after appreciating the evidence during the trial.
• The High Court exceeded its powers under Section 482 of the Cr.P.C. by recording findings on disputed facts.

The court quoted the following from the judgment:

“In a petition filed under Section 482 Cr.P.C., the High Court has recorded findings on several disputed facts and allowed the petition. Defence of the accused is to be tested after appreciating the evidence during trial.”

“The very fact that the High Court, in this case, went into the most minute details, on the allegtions made by the appellant-C.B.I., and the defence put-forth by the respondent, led us to a conclusion that the High Court has exceeded its power, while exercising its inherent jurisdiction under Section 482 Cr.P.C.”

“The correctness of the defence whether such amounts were received by the respondent from his father or not is a serious factual dispute. It is not an admitted position, as recorded by the High Court.”

Key Takeaways

• The High Court should not quash a criminal case based on disputed facts before a trial.
• The defense of the accused should be tested after appreciating the evidence during trial.
• The High Court’s power under Section 482 of the Cr.P.C. should not be used to make findings on disputed facts.
• The benefit of compounding under Section 41 of FCRA, 2010 is not available for offenses under FCRA 1976.
• Revisional Courts should provide a hearing to the affected party before passing an adverse order.

Directions

The Supreme Court gave the following directions:

• The order of the High Court was set aside.
• The trial court was directed to proceed from the stage at which the proceedings were stopped.
• The order of the Revisional Court was quashed, and the matter was remitted back for fresh consideration after issuing notice to the respondent.
• The respondent was directed to appear before the Revisional Court within four weeks.

Development of Law

The ratio decidendi of the case is that disputed facts in a criminal case should be determined through a trial, not through preliminary hearings or by the High Court in exercise of its inherent powers under Section 482 of the Cr.P.C. The court clarified that the defense of the accused, including the claim that the funds were gifts from his father, needs to be tested during the trial by appreciating the evidence. This decision reinforces the importance of the trial process in resolving factual disputes in criminal cases.

Conclusion

The Supreme Court overturned the High Court’s decision, emphasizing that factual disputes in criminal cases must be resolved through a trial. The court directed the trial court to proceed with the case and the Revisional Court to reconsider its order after hearing the respondent. This judgment reinforces the principle that High Courts should not interfere with the trial process based on disputed facts.