Demand and Acceptance Are Sine Qua Non for Offences Under the Prevention of Corruption Act: Karnataka High Court Quashes Criminal Proceedings in IMA Group Scam Case

In a significant judgment pronounced on December 3, 2024, the Karnataka High Court quashed the criminal proceedings initiated against Sri L.C. Nagaraja, a public servant and former Assistant Commissioner (Revenue) of Bengaluru North Sub-Division, in connection with the infamous I Monetary Advisory (IMA) Group scam. Justice M. Nagaprasanna, presiding over the case, emphasized that both "demand" and "acceptance" of illegal gratification are indispensable requirements under Sections 7 and 7A of the Prevention of Corruption Act, 1988. The Court ruled that the absence of direct evidence to establish these essential ingredients rendered the charges unsustainable.

The petitioner had sought the quashing of proceedings in Special C.C. No. 1055 of 2019, filed against him under various provisions of the Prevention of Corruption Act and the Indian Penal Code (IPC), including charges of criminal conspiracy, criminal breach of trust, and corruption. The High Court's decision not only brought relief to the petitioner but also reinforced the judicial principle that vague and uncorroborated allegations cannot form the basis for criminal prosecution.

The IMA Group scam, one of Karnataka's largest financial frauds, involved the defrauding of thousands of investors, primarily from the Muslim community, through Ponzi schemes promising exorbitant returns. The scam gained public attention in 2019 when the chairman of the IMA Group, Mohammed Mansoor Khan, fled the country, leaving behind unpaid investors. Following widespread public outrage, the investigation into the scam was transferred to the Central Bureau of Investigation (CBI).

Sri L.C. Nagaraja was one of the public officials accused of complicity in the scam. As the Assistant Commissioner and Competent Authority under the Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2004 (KPIDFE Act), he was tasked with protecting depositors' interests by taking action against financial entities like the IMA Group. However, allegations arose that the petitioner failed to act promptly and even accepted bribes to close complaints against the IMA Group. The CBI filed a charge sheet accusing him of offences under Sections 7, 7A, 8, and 12 of the Prevention of Corruption Act, along with Sections 120B, 406, 420, and 409 of the IPC.

The High Court's ruling primarily centered on two critical legal issues: the requirement of proving "demand" and "acceptance" of bribes under the Prevention of Corruption Act, and the evidentiary value of the statements made by approvers in the case.

Justice M. Nagaprasanna reiterated that the offence of corruption under Sections 7 and 7A of the Prevention of Corruption Act cannot be sustained unless there is conclusive evidence of both "demand" and "acceptance" of illegal gratification. Citing Supreme Court precedents such as B. Jayaraj v. State of Andhra Pradesh (2014) and Neeraj Dutta v. State (2023), the Court observed:

“Demand and acceptance are sine qua non for an offence under Section 7. If there is demand but no acceptance, or acceptance but no demand, it does not constitute an offence. Mere possession of currency notes or vague statements does not establish culpability.”

The Court noted that the charge sheet filed by the CBI lacked direct evidence of the petitioner making any demand for illegal gratification. While the prosecution relied on the statements of approvers who alleged that money was delivered to the petitioner, these statements were found to be vague and based on hearsay.

The prosecution's case heavily relied on the testimony of approvers who claimed to have facilitated payments to the petitioner. However, the Court found these statements insufficient to establish guilt. Referring to the legal principles governing the use of approver statements, Justice Nagaprasanna held:

“Statements of approvers, unless corroborated by direct or circumstantial evidence, lack the evidentiary weight necessary to frame charges. Vague or hearsay allegations cannot substitute for proof of demand and acceptance.”

The Court also highlighted that the petitioner’s residence was searched by the CBI, and no incriminating documents or evidence of bribe money were recovered. Furthermore, no trap was laid, and no recovery was made from the petitioner, which weakened the prosecution’s case significantly.

A key factor influencing the Court's decision was the discharge of similarly placed co-accused in the same case. Two other public officials, accused of identical offences, had been discharged by the trial court earlier due to a lack of evidence. The High Court observed that the allegations against the petitioner were identical to those against the co-accused, and therefore, the petitioner was entitled to similar relief. The Court stated:

“The petitioner is similarly placed as co-accused who have been discharged on identical allegations. No incriminating material has been found against the petitioner to distinguish his case.”

The principle of parity, combined with the absence of material evidence, strongly favored the petitioner.

The High Court drew extensively from Supreme Court rulings to interpret the requirements under Sections 7 and 7A of the Prevention of Corruption Act. Key judgments cited included:

B. Jayaraj v. State of Andhra Pradesh (2014): This case established that mere recovery of money does not prove the offence unless there is evidence of demand and acceptance.

N. Vijayakumar v. State of Tamil Nadu (2021): The Court emphasized that proof of demand is a prerequisite for invoking the presumption under Section 20 of the Act.

Neeraj Dutta v. State (2023): A Constitution Bench held that demand and acceptance must be proved as facts in issue, and mere possession or recovery of money does not suffice.

Based on these precedents, the High Court concluded that the petitioner’s case did not meet the evidentiary threshold for prosecution.

The High Court allowed the petitioner’s writ petition and quashed the criminal proceedings against him in Special C.C. No. 1055 of 2019. In doing so, the Court observed that continuing the trial in the absence of substantive evidence would amount to an abuse of the judicial process and a miscarriage of justice.

The Court also clarified that its findings were specific to the petitioner’s case and would not affect proceedings against other accused individuals. Justice Nagaprasanna noted:

“The observations made in the course of the order are only for the purpose of consideration of the case of the petitioner under Section 482 of Cr.P.C. and shall not bind or influence the proceedings against any other accused pending before any other fora.”

The Karnataka High Court’s judgment in this case is a landmark decision that underscores the need for stringent evidentiary standards in corruption cases. By reaffirming the principles of demand and acceptance as foundational requirements under the Prevention of Corruption Act, the ruling safeguards public servants from baseless and unsubstantiated allegations. At the same time, it highlights the importance of robust investigations and credible evidence in ensuring accountability and justice.

Date of Decision: December 3, 2024