Twists in Jain hawala case

Print edition : June 27, 2014

S.K. Jain. He along with J.K. Jain are being investigated by the CBI and the Enforcement Directorate for offences under the Prevention of Corruption Act and the Foreign Exchange Regulation Act. Photo: The Hindu Archives

J.K. Jain. Photo: The Hindu Archives

THE “Jain Hawala Diaries” case, which shook the politics of the country in the 1990s, is far from resolved. Although the main case against leading politicians such as L.K. Advani and V.C. Shukla collapsed because the uncorroborated diary entries indicating illegal payments to politicians did not constitute evidence, the cases filed against industrialist S.K. Jain for violation of the Foreign Exchange Regulation Act (FERA) and the Foreign Exchange Management Act (FEMA) continue to be fought in the courts. On May 29, Justice S. Muralidhar of the Delhi High Court delivered a judgment considered a setback to the Enforcement Directorate’s (E.D.) efforts to prosecute S.K. Jain for violations of FERA.

On March 4, 1995, the Central Bureau of Investigation (CBI) registered a first information report (FIR) against S.K. Jain, his employee J.K. Jain, and certain others for offences under the Prevention of Corruption Act (PCA) and FERA. The FIR stated that the entries in the diaries revealed that payments to 119 persons through hawala channels “were partly explained by the accused S.K. Jain, who is the master of the said documents and the employer of the accused J.K. Jain, who had maintained the documents in his own handwriting in the coded words and figures”. The total amount disbursed was estimated at Rs.65.47 crore between 1985 and 1991. It was stated that the major part of this amount, Rs.53.5 crore (approximately), had been transferred through hawala channels to a number of persons named in the diaries and that this constituted an offence under Section 56 read with Section 8(1) of FERA. On the basis of this FIR, the CBI recommended to the E.D. that it, as the competent authority, launch prosecution against 15 persons who were found to have violated FERA.

The May 29 decision of the Delhi High Court pertained to two show-cause notices issued by the E.D. as a consequence of the FIR filed by the CBI. In its Adjudication Order (A.O.) dated November 7, 2001, the E.D. held that S.K. Jain had contravened the provisions of Section 8(1) of FERA “inasmuch as he illegally acquired and paid U.S.$10,000”. It further held that S.K. Jain acquired foreign exchange in Dubai equal to Rs.1,90,000 in violation of the provisions of Section 8(1) of FERA and did not surrender it to an authorised dealer.

The second allegation was that S.K. Jain paid $40,895.65 to V.K. Beri of the United Kingdom outside India without obtaining permission from the Reserve Bank of India (RBI), thus contravening FERA. When the A.O. found that there was no material whatsoever to prove such payment, it held that S.K. Jain paid $10,000 to “somebody”. The court found that this allegation was not mentioned in the show-cause notices and, therefore, S.K. Jain’s failure to explain this could not be used for drawing adverse inference against him.

S.K. Jain appealed against the A.O. before the Appellate Tribunal for Foreign Exchange (A.T.). The tribunal dismissed the appeal on January 2, 2008, and held that since S.K. Jain had exclusive knowledge of the entries, he was bound to explain them. His failure to do so would invite an adverse inference against him in terms of Section 114 of the Indian Evidence Act.

But S.K. Jain invoked clause 3 of Article 20(3) of the Constitution, under which no person accused of any offence shall be compelled to be a witness against himself. The E.D., however, contended that he was not entitled to protection under Article 20(3) since he was not accused in any criminal proceeding initiated under FERA at the time his statement was recorded under Section 40 of FERA. The Delhi High Court, on May 29, rejected this contention, saying both S.K. Jain and J.K. Jain were entitled to invoke their right against self-incrimination under Article 20(3) and, therefore, no adverse inference could be drawn against them for having exercised that right. The court also held that the question of shifting the burden to S.K. Jain to show that he had not contravened FERA was not permissible or justified. The mere fact that J.K. Jain was found in the possession of diaries in which he purportedly made entries at the behest of S.K. Jain does not ipso facto shift to S.K. Jain the burden of showing that they did not pertain to transactions involving foreign exchange, the court explained. The court also found that the E.D. did not gather any credible evidence through independent investigation in Dubai or any place outside India to substantiate the allegations in the show-cause notices. “The entries by themselves cannot constitute substantive evidence of such allegations,” the court observed, while quashing the A.O.

While the May 29 judgment of the High Court is deemed as a setback to the E.D., another judgment, delivered on May 2, 2012, by Justice Mukta Gupta of the Delhi High Court in the case of S.K. Jain vs M.G. Attri, Assistant Director, E.D., is considered a setback to S.K. Jain. In this case, foreign currency was recovered from J.K. Jain, and as co-accused his confession was considered by the court as prima facie evidence to frame charges against S.K. Jain. S.K. Jain had challenged the framing of charges against him by the E.D. in this case. The court held that the burden was on S.K. Jain to prove his innocence.

Sources in the E.D. said that although the facts of these two cases were different, the charges against the Jains were of similar nature and the different interpretations by the court of the relevant legal provisions had landed the E.D. in a quandary. As they expect appeals in these two cases to be heard by the Supreme Court, the effectiveness of FERA’s successor legislation FEMA in curbing hawala transactions may well come under scrutiny.

V. Venkatesan

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