Coercive Powers in Tax Matters - The Judgment in Radhika Agarwal v UOI

On 27.02.2025, a Three Justices' Bench of the Supreme Court delivered its verdict in a large batch of petitions which raised issues about the manner and exercise of the power of arrest without warrant under the Customs Act 1962 and the Central and State GST Acts. The judgment, reported as Radhika Agarwal v. Union of India & Ors. [2025 INSC 272 ('Radhika Agarwal')], consists of two opinions — one penned by the CJI for himself and Justice Sundresh, and a separate, mostly concurring, opinion by Justice Trivedi for herself. 

This post will engage mainly with the majority opinion and its two main themes: (i) applying the Criminal Procedure Code 1973 [Cr.P.C.] to warrantless arrests made under the Customs Act and GST Acts, and (ii) regulating exercise of warrantless arrests under both these acts. There are some smaller issues / aspects, which I take up under a 'Miscellany' head. The post then turns to the separate opinion of Trivedi J. where I try and explain its synergy, and dissonance, with the majority opinion. A small concluding section ends the post.

Extending the Cr.P.C. to Warrantless Arrests under Revenue Laws

Radhika Agarwal unambiguously extends Cr.P.C. provisions regulating warrantless arrests by police to the exercise of such powers under the Customs Act / GST Acts by revenue officials. This means that officers conducting arrests must wear clear badges, must inform relatives about arrest, maintain diaries to note progress of investigation, furnish grounds of arrest in writing to an accused prior to them being taken before a magistrate for further custody, and allow the arrested person to meet with legal counsel during interrogation (though not for its entirety) [Paras 23-28]. 

One may reasonably argue that this extension is hardly a perceptible shift, as practically all of the above requirements were already being adopted by the relevant departments. The argument about extending the Cr.P.C. regime to arrests under the Customs Act / GST Acts regime was not to make sure that officers wear name tags while arresting persons — nobody goes to Court for that. The gain for petitioners and accused persons here was to firstly get clarity on whether Section 41-A Cr.P.C. applies to arrests under the Customs Act / GST Acts, and secondly get a ruling that officers conducting arrests under the special laws are police officers, which in turn would impact the evidentiary value of any statements recorded by them. On both these aspects, Radhika Agarwal rules in favour of the Union on my reading — slightly ambiguously in respect of the Section 41-A issue, and very resoundingly on the 'police officer' issue. 

Section 41-A Cr.P.C. pertains to issuing notices to join an investigation. It has been used by the Supreme Court to foster a regime where today, for offences up to seven years, ordinarily such notices are sent to secure the cooperation of accused persons as opposed to rushing for an arrest. Extending it to the Customs Act / GST Acts regime would, in turn, help in staving arrests as most offences under these special laws are punishable up to seven years. Interestingly, the majority opinion in Radhika Agarwal is entirely silent on whether Section 41-A Cr.P.C. applies to the Customs Act / GST Acts regime on arrests. What to make of this? Technically, since Section 41-A is pre arrest and the judgment is concerned with post arrest issues, one may argue that the issue is left open. At the same time, nothing stopped the Court from looking at the clause, especially since the judgment refers to neighbouring Sections 41-B and 41-D of the Cr.P.C. It is fair to say that this issue may yet be litigated further. 

Moving on, Radhika Agarwal decisively rejects the contention that officers arresting persons under the Customs Act / GST Acts regime are 'police officers'. It does not on the strength of its own reasoning, but by relying purely on precedent which recognised this distinction. This precedent has been extensively discussed elsewhere on this blog here, and in a paper here, with my view being that the distinction needs to be revisited. That the Court chose not to do so is a win for the government, since treating such officers as 'police officers' would have dealt a bodyblow to the evidentiary value of statements recorded by them during the course of an inquiry or investigation. 

Nevertheless, reading Radhika Agarwal I wonder just how long this artificial distinction between officers will continue to hold the field, at least when a person is arrested. Since the 1960s, which is when the Constitution Bench decisions creating this artificial distinction came, the law has not remained static. A big change has been the shift in judicial perspective. The older cases took a formalist and hyper-technical approach to the issue to play a game of spot the difference where if even one facet from the Cr.P.C. regime on investigations was absent from the special law, that meant the officers under special laws were not seen as police officers for any purpose. Over time, this formalist approach gave way to a judicial perspective focusing on the impact of coercive action on life and liberty, especially when it comes to arrests. Radhika Agarwal also adopts this approach and uses it to further bridge the gap between arrests by ordinary police officers and revenue officers by extending the Cr.P.C. explicitly to the latter. 

Warrantless arrests are a serious infringement with personal liberty. The gravity of this infringement does not alter on the basis of the department in question. Nor is there any difference in the consequential impact of arrests. If the evidentiary value of statements by arrested persons to regular police officers is deemed sketchy, nothing inherently changes the reliability of such statements by arrested persons when they are made to revenue officers. One hopes, therefore, that at least in the context of arrested persons, a bench of the Supreme Court will soon have the courage to simply apply the Duck Test, and treat all officers with the power of arrest without warrant as belonging to one category.

Regulating the Exercise of Arrest Powers

Unsurprisingly, the majority opinion in Radhika Agarwal extends the judicial approach recently taken by the CJI in Arvind Kejriwal [(2025) 2 SCC 248] which sought to regulate warrantless arrest powers under the Prevention of Money Laundering Act 2002 ['PMLA']. The PMLA arrest provision is quite similar to the Customs Act / GST Acts clause, allowing for easy transplantation. Essentially, this approach consists of two conjoint parts. First, an insistence upon rigid compliance with the statutory tests for warrantless arrests, and second, recognising that the exercise of this arrest power is amenable to judicial review.

The statutory test for warrantless arrest under the Customs Act / GST Acts has been reduced to a threefold exercise for ease of understanding: (i) the officer must have material in his possession, (ii) this material must be the basis to form 'reasons to believe' which are recorded in writing, that (iii) the person is guilty of having committed the alleged offence. Following Arvind Kejriwal, each of these three parts is developed by the Court in a way to ensure that the arresting power is not arbitrarily used. Thus, the 'material' must be translatable into legally admissible evidence and consist of all the material available and not deliberately exclude material that favours the accused. The 'reasons to believe' recorded in writing must be lucid and clear, and must be shared with persons. Lastly, the legislative mandate in requiring for reasons to believe a person is 'guilty' of the alleged offence suggests a higher threshold as compared to arrests governed by the Cr.P.C. provisions which prescribe a lighter test in the form of requiring only a reasonable suspicion (more on this later). 

A little more time must be spent on the recording reasons part of the exercise here. The warrantless arrest power under the Customs Act / GST Acts regime is not recognised for all crimes. Instead, it triggers only if a certain monetary threshold is crossed (in most cases). For instance, only if the alleged tax intentionally evaded by the accused is beyond 5 Crores does the warrantless arrest power come alive under the GST Act. What Radhika Agarwal clarifies is that the recording of reasons must also explain on what basis has an officer decided that the monetary threshold was crossed. While this is undoubtedly a significant move, the Supreme Court does not go quite as far as the Delhi High Court had back in 2016, when in context of service tax laws it had restricted the warrantless arrest power as contingent upon a tax assessment order being passed quantifying the tax demand as crossing the monetary limit.

Significant also is the fact that the majority opinion deals with a contention that the threat of arrest was being used to coerce persons into paying tax dues. Obviously, the Court holds that arrest powers cannot be used to coerce persons into paying up, but it takes the issue a step further to hold that aggrieved persons can take their pleas to court and, if found true, then they would be entitled to refund of any dues so coercively paid. Whether this remedy is a meaningful one or not is difficult to say, considering judicial delays and the difficulty to establish coercion.

Which brings us to the second part of the regulatory exercise — judicial review of arrests. The existence of having statutory tests regulating the exercise of arrests is meaningless without the possibility of judicial review, and one reason for the Court to insist upon strict and documented compliance with statutory tests for arrest is to ensure fairer exercise of judicial review. At the same time, the majority opinion itself notes, in line with Arvind Kejriwal, that the review here is not a 'merits' review by, for instance, testing whether the material itself was correct or not. Rather, it is akin to judicial review of administrative action, allowing courts to step in if the action is, for instance, found to be entirely unreasonable, perverse, arbitrary, or is an action based on jurisdictional error. The import of proportionality analysis will aid this exercise. Though it must be flagged that a key issue within a proportionality assessment of whether the necessity of an arrest can be reviewed was referred to a larger bench in Arvind Kejriwal and remains pending.

I will return to the theme of judicial review when dealing with the separate opinion. Before that, a slight detour to cover some miscellaneous findings of interest. 

Miscellaneous Findings

There are some other notable points in the majority opinion, out of which I would want to flag two given their connection with the blog. First, the opinion has again remained faithful to precedent where it notes that persons who have received a notice to cooperate with the inquiry etc. under the revenue laws are not persons 'accused of an offence' for purposes of Article 20(3) of the Constitution. Second, the opinion notes that even though such persons may not be falling within the scope of Article 20(3), they can still avail of their remedies to seek anticipatory bail, where they can demonstrate that a threat of arrest exists. In doing so, the Court overrules the contrary view taken by some benches last year, which was also criticised on the blog here.       

The Separate Opinion

Justice Trivedi's short separate opinion is restricted only to expressing her views on the manner in which judicial review of the exercise of arrest powers ought to be conducted. Is it a concurrence, or a dissent, or yet another one of those separate opinions which is a bit of both? While on first blush it appeared that the third category is the safest bet, on a re-reading of her opinion I do believe that it is a concurrence which is merely emphasising the note of caution which is inherent in the majority opinion itself. At the same time, I also sense a divergence of views on a more fundamental aspect of what is the purpose of arrests in context of revenue laws. 

Justice Trivedi recognises the power of writ review in context of warrantless arrests, but urges that courts should ordinarily be 'loath' to interfere with use of the power by the concerned authorities under laws that concern serious financial crimes. Thus, while she agrees that non-compliance with the statute would be a valid ground for review, she cautions that this should not prompt courts to use a 'magnifying glass' to blow up minor procedural lapses on part of officers and confer undue benefits upon accused persons.

This, according to me, is just a more cautious way of expressing the same idea as the majority: do not go for a merits review, and do not interfere unless the decision is found perverse or arbitrary. Minor technical violations would not pass muster even under the Arvind Kejriwal standard, which Justice Trivedi does not disagree from specifically within her opinion. 

I would submit that a large part of Justice Trivedi's concerns, and the seeming differences in her view from the majority, stem from deeper differences in how the two opinions viewed the use of the arrest power. For the separate opinion there is a tight nexus between arrest and investigation, requiring a wider berth to be granted to agencies. Thus, one finds that Justice Trivedi urges caution while reviewing arrests because the investigation may be at a 'very nascent' stage. Whereas for the majority opinion, a legislative mandate that allows warrantless arrest only upon gathering material sufficient to form reasons to believe that a person is guilty of the offence assumes that an investigation has progressed to a degree. In fact, the majority opinion at one place in its discussion on the GST regime specifically notes that the arrest "cannot be made to merely investigate whether the conditions are being met." Thus, the arrest power in these revenue laws is not primarily used as an investigate tool, but a step later on in the inquiry and adjudicatory process. 

In this regard, while I understand the perspective of Justice Trivedi, it is understandable why the majority opinion does not begin from that standpoint. In rare cases, arrests in revenue laws may occur at a nascent stage and there the usual caveats may apply, but that is not the norm. After all, it is because arrests are not routine parts of investigations under revenue laws that courts have sustained the distinction between the traditional crime versus the revenue offence, and used this distinction to conclude that the revenue officers are not 'police officers'. The legislative mandate must be respected in full, and the majority opinion rightly does so.

Conclusion: Confronting Two-Track Justice

The majority opinion in Radhika Agarwal re-emphasises that the power of warrantless arrests is drastic. It places this perspective at the heart of its reasoning to adopt conclusions which, in the eyes of the Court, aim to assist in the better regulation of how this drastic power is exercised. In pushing for better regulation the Court implicitly admits that the current scenario was suboptimal. 

If the current scenario is indeed suboptimal, that calls for some pause to think and reflect. Throughout Radhika Agarwal we are reminded that the scheme for warrantless arrests under the Customs Act / GST Acts is different from the scheme governing such arrests for ordinary crimes made under the Criminal Procedure Code (now Bharatiya Nagarik Suraksha Sanhita 2023). The threshold under the special laws for exercising this power is higher than the threshold under regular criminal law, and what Radhika Agarwal does is to tighten the bolts even further to ensure better regulation. At the same time, the total number of persons arrested under the special laws (and we can even add the PMLA here) is incomparably lesser than persons arrested everyday under the Cr.P.C. / BNSS for ordinary crime. Not only this, but the demographic of persons ordinarily being arrested under both sets of laws is also incomparable. Those arrested under the special laws are, usually, the 'haves' with access to money and resources, whereas the ordinary criminal accused are the 'have-nots' who are struggling to make ends meet.

There is, in practically every legal system, a two-track system of justice: one for the 'haves', and another for the 'have-nots'. The law cannot completely rid the handicap that the have-nots suffer from because of their lack of resources and access to capital, but what a fair legal system can try and do is to make sure that it is designed to reduce the impact of this inequality. For instance, in context of warrantless arrests, a fair legal system would prescribe the same threshold for arrests under crimes traditionally linked only with the 'haves' — such as tax fraud — and the usual crimes which traditionally mostly ensnare the 'have nots' to ensure that the law is not compounding the ill-effects of the latent inequality. Instead, what we have, is the exact opposite in place. A two-track system of justice with an arrest regime having strong safeguards under laws that primarily concern the haves (made even more robust by court) and an arrest regime with weak safeguards when it comes to the 'have nots' ensuring their liberty remains imperilled. 

This is a manifest injustice at the heart of this entire regime governing warrantless arrests. Rather than the ordinary law being dragged down to further improve upon the safeguards for warrantless arrests in special laws, one hopes that future benches of the Supreme Court and High Courts use the good work done by judgments such as Radhika Agarwal to raise the standard even for arrests under ordinary crimes. A start has, arguably, already been made in recent judgments on supplying the grounds of arrest. While the first judgments were indeed under a special law — the PMLA — the subsequent judgments affirmed this rule as applicable to all arrests. One hopes that a similar effect is felt in context of the arresting power itself, to tighten the bolts around the 'reasonable suspicion' standard under the Cr.P.C. / BNSS as well. Such an outcome would ensure that the drastic power of warrantless arrests is better regulated in its application to lakhs of Indians, as opposed to the few hundreds who are alleged to be evading taxes. 

Guest Post — An Economic Interpretation of Criminal Misappropriation

(This is a guest post by Parv Tyagi)

The Indian Penal Code criminalises dishonest misappropriation of property under section 403. This essay studies the crime of misappropriation from an economic point of view. Economics dictates that the efficient allocation of goods is best served by having agents engage in voluntary transactions, rather than in involuntary or forced exchange. Thus, it is argued that misappropriation being a purely coercive transfer of property is criminalised because it is inefficient. Readers will note that this approach assumes that one, if not the principal, function of criminal law is to prevent people from bypassing the market - a system of voluntary, compensated exchange. If I covet my neighbour’s car, it is more efficient to nudge me to negotiate with him than it is to allow me to steal his car. 

The remainder of this post is structured as follows: first, I briefly explain the economic approach to criminal law. I then explain what constitutes misappropriation under section 403 of IPC and how misappropriation is inefficient. Dishonesty is the chief element of misappropriation, thus, I discuss the requirement of dishonesty and how that requirement serves an important economic function. Following which, I demonstrate the viability of this thesis by analysing case law on misappropriation. I specifically look at cases where the court required the prosecution to prove the precise manner or mode of misappropriation to establish a charge under section 403 and argue why that insistence was incorrect on both legal and economic grounds. Finally, I conclude.

An Economic Approach to Crime

The economic analysis of criminal law began with Beccaria and Bentham, but its systematic study dates only from 1968 when Becker wrote “Crime and Punishment: An Economic Approach”. The principal insight of that essay was that criminal law is a method of crime control; it is a service provided by the government and the provision of this service like any other service must be efficient. Efficiency dictates that criminal law must minimize the social loss resulting from offences. Social loss refers to the sum of (i) resources expended in the commission of crimes by offenders and (ii) resources expended in the prevention of crime by potential victims. Viewed economically, these expenditures are wasteful. 

To better understand, consider theft. At first glance, it might appear that, though immoral, theft is not inefficient. If I steal hundred rupees from you, I am hundred rupees richer, and you are hundred rupees poorer: the total wealth of society remains unchanged. In other words, theft is a mere transfer of property with the loss to the victim being compensated by an equal gain to the criminal. Thus, if judged in this way there is no social loss.

That seems obvious but is wrong. Opportunities to make money by stealing attract economic resources. If stealing is more profitable than, say, waiting on tables, workers will be attracted out of waiting on tables into theft. As the number of thieves increases, the returns from theft will fall. This is because (a) everything easy to steal would have been stolen and(b) victims would successfully defend themselves against the increased level of theft by installing locks, bars, alarms etc. The process of falling returns will stop only when the next person considering becoming a thief figures out that he will be just about as well off continuing to wait on tables. In economic terms, when the gains from becoming a thief are about equal to the costs.

In sum, the existence of theft makes society as a whole poorer not because money has been transferred from one person to another, but because productive resources have been diverted out of the business of producing into the business of stealing. In addition, the thief would have to expend resources on taking the property and potential victims would have to expend resources on preventing the property from being taken.

All this may appear to be a hopelessly laboured economic scaffolding of the obvious- that theft is bad. However, in the words of Posner, it is still useful to point out that economic analysis need not break down in the face of an apparently non-economic phenomena, like theft. We know judges often assign purpose to substantive provisions of law in order to solve interpretative questions. In acquisitive crimes generally and in misappropriation particularly, I argue that that purpose is essentially economic- minimising social loss- and it is that economic purpose which should guide their decisions. 

Misappropriation

IPC defines and provides for punishment for dishonest misappropriation of moveable property under Section 403. The essence of the offence is that the property of another person comes into the possession of the accused and is misappropriated or converted to his own use by the accused. If A takes a car belonging to B by mistake but returns the same when he finds out that it belongs to S, there is no misappropriation of property. But if A does not return the car even after knowing that it belonged to S, R commits the offense of misappropriation of property. To ‘misappropriate’ means ‘improperly setting apart for one's use to the exclusion of the owner’ [see: P. Durugappa v. State of Mysore, 1956 CriLJ 630, para 4].

Note that the offense of misappropriation under section 403 is distinguished from the foregoing offenses of theft, robbery, and extortion, for the taking of property is not necessarily dishonest here. An innocent taking could be followed by a dishonest misappropriation or conversion. Misappropriation under this section is different also from criminal breach of trust, contained in sections 405-409. Criminal breach of trust assumes that the original taking of possession was in pursuance of some pre-existing relation of trust between the parties.

Now if criminal law is, as Gary Becker claimed, an efficiency enhancing device, what criminal law forbids is a class of inefficient acts. On that account, then, misappropriation of property is an inefficient act and therefore forbidden. It is easy to understand using a simple example why misappropriation is indeed inefficient. 

If I happen to have no money but want a car, it would be inefficient to let me just take my neighbour’s car. This transfer does not improve the allocation of resources, that is, it does not move resources from a less to a more valuable employment. Note that value is a function of willingness to pay. Since I am unwilling to bid up or even match my neighbour’s price for the car, the car would be more valuable in his hands than in mine. In addition, someone who takes my car deprives me of a valuable property that costed me money to acquire, while he pays nothing. In other words, he free rides on my investment. Lastly, if I were to take the car, I would have to expend resources on taking it and my neighbour would have to expend resources on preventing it from being taken. These expenditures as a whole, yield no social product and are wasteful.

The foregoing account also explains why in section 403, the requirement of dishonesty is not attached at the level of original taking of possession of property. The initial taking of property may be innocent and lawful, and dishonest intention may develop subsequently. Yet, misappropriation will be made out under section 403. The economic logic of not requiring dishonesty at the level of original taking of possession is that regardless, the property still moves from a more to a lesser valuable employment, the offender still free rides on the investment of another, and the preventive expenditures are still incurred. 

Dishonesty

It is inefficient to allow pure coercive transfers of wealth- pure coercive implying that the transfer is neither an accident nor an incident of a productive act; it is dishonest. Note that this is an important qualification. The requirement of dishonesty serves an important economic function in cases of misappropriation. We will now turn to that discussion. 

A person is held guilty under section 403 only when it is proved that he dishonestly misappropriated or converted the property to his own use. This requirement is important. Mere retention of property short of evidence of dishonest intention does not amount to misappropriation. 'Dishonestly' is defined under Section 24 of the IPC as doing anything with the intention of causing wrongful gain to one person or wrongful loss to another person. Thrust of the provision is gain/loss. 

It may be argued that the cost of trying criminal cases would be significantly reduced by not making a distinction between a pure coercive transfer and an accident that it externally resembles. However, the result would be excessive penal consequences, leading to serious social costs from avoidance of lawful activity. To avoid these costs, dishonest intention is required to be proved. Second, it is only if one deliberately misappropriates property that he invests resources in its attainment. Recall that it is these wasteful expenditures that criminal law seeks to prohibit. Lastly, pure coercive transfers of wealth are advance-planning offenses. Here (a) the probability of commission of offence is maximized, and (b) the probability of apprehension and conviction is minimized (as one who plans in advance also takes steps to escape detection later). As a result, the state’s cost of catching the offender increases. This is another reason for punishing pure coercive transfers over accidental transfers. 

Actual Mode of Misappropriation

Let’s further concretize the foregoing discussion by looking at how case law has evolved on one particular aspect of misappropriation. Now, actual manner of misappropriation need not be proved to establish offense under section 403. However, it may be useful to note that till recently, some confusion persisted as to whether the prosecution was needed to show proof of actual mode of misappropriation. In P. Durugappa, the court ruled in the affirmative. In that case, the accused did not deposit a certain sum with the cooperative society that he was supposed to deposit by a specified date. The court quashed charges brought against him on the grounds that the possibility of his having kept the amount with himself without using the same for any other purpose could not at all be excluded [para 5]. In a similar case, Sardar Singh v. State of Haryana (1976, SC), the court ruled that the prosecution needed to show that the accused dishonestly misappropriated the property in question to his own use or dishonestly disposed of it [para 2]. Both rulings were faulty on two counts.

One, dishonestly is defined in section 24 of the IPC as doing anything with the intention of causing wrongful gain to one person or wrongful loss to another person. Commonly, ‘dishonestly’ is understood to involve an element of fraud or deceit, but in the IPC, the word does not carry this implication. Dishonesty is made out in a monetary circumstance: pecuniary or economic gain or loss. Hence the word is restricted in meaning to an intention to cause a wrongful gain or loss of property or pecuniary or economic gain or loss. More importantly, for an act to be dishonest, it is not necessary that the intention should be to cause both wrongful gain and wrongful loss. It is enough if the intention is to cause either wrongful gain or wrongful loss [Ajodhya Nath Parlu v Emperor, AIR 1920 Pat 582, p 583]. 

Therefore, dishonest misappropriation should be made out if either wrongful loss is caused or intended to be caused or wrongful gain is caused or intended to be caused. Determining the actual manner of misappropriation, i.e., what use the misappropriated property was put to, can be helpful in establishing wrongful gain to the offender. However, it does not directly help establishing wrongful loss. It is thus unclear as to why the court strictly insisted that the prosecution proves the actual mode or manner of misappropriation to establish dishonest misappropriation. In addition, Sardar Singh actually overlooked existing precedent on this point of law. In Jaikrishnadas Manohardas Desai (SC, 1960), the Supreme Court had clarified that misappropriation or conversion are not matters of direct proof and that the prosecution was not obliged to prove the precise mode of conversion or misappropriation [para 6]. 

There’s a further sense in which these rulings made little sense. Recall our discussion on efficiency. The law prohibits inefficient acts. Efficiency dictates that criminal law must minimize the social cost of crime. Thus, once resources have moved from a lesser valuable to a more valuable use, i.e., an inefficient act, in this case that of misappropriation, is committed, the law must spring into action to punish the offender. Therefore, any inquiry into what use the misappropriated property was put to thereafter becomes futile. It only increases the prosecution’s cost of establishing the offense. The Supreme Court also remarked something along these lines in Mustafikhan v. State of Maharashtra (2006, SC).

“Although onus lies on the prosecution to prove the charge against the accused, yet where the entrustment is proved or admitted it would be difficult for the prosecution to prove the actual mode and manner of misappropriation...” [Para 12].

Conclusion

If a conflict has occurred and the court is asked to resolve it, how should it do so? The Law & Economics view is that it makes more sense for the court to make an efficient ruling. Crimes result in social costs and criminal law should minimise these costs. Consequently, criminal law should punish acts considered inefficient. The analysis in this essay sought to demonstrate why dishonest misappropriation is inefficient, why criminalising it makes economic sense, how the requirement of dishonesty serves an important economic function in cases of misappropriation, and how taken together these explain the evolution of case law on one particular aspect of misappropriation, namely actual mode of misappropriation. This analysis, I believe, can be extended to other acquisitive crimes in the IPC. When interpretative doubts arise, judges look to the purpose of the substantive law. If the analysis in this essay holds true, one is forced to think that in acquisitive crimes generally, that purpose is essentially economic.

Dimple Happy Dhakad and Normalising Preventive Detention

“Preventive Detention” is a phrase that is inextricably bound with the history of the Indian Constitution. The Constituent Assembly affirmed the power for future governments to pass such laws, and only later got around to debating the restraints surrounding them. As a result, despite Article 22 having been inserted to serve as the minimal constitutional threshold to check abuse of preventive detention, it has often been treated as a constitutional recognition for the notion that the fundamental right to personal liberty requires restraints “For the good of the people“.

The decision of the Supreme Court in Union of India v. Dimple Happy Dhakad [Crl. Appeal No. 1064 of 2019 & connected petitions, "Dhakad"] shows a clear preference for the latter, mistaken view, over the former. By affirming the use of preventive detention in a situation where no “prevention” was really at stake, while at the same time diluting the high burden usually imposed on the state for requesting preventive detention in such cases, the Supreme Court took a dangerous step towards normalising what was meant to be a measure of the absolute last resort. In doing so, it compounded the slide towards normalising preventive detention already being witnessed across states, which have used this tool to deal with bullying and cattle theft, among other issues. 

Understanding Preventive Detention

Despite the perceived familiarity with preventive detention, it still serves us well to remind ourselves just what exactly is meant by the phrase, and how different this regime is from the normal “punitive” system of criminal justice. 

In the regular course, the police or other agencies can only take steps to restrain personal liberty after some illegal conduct has taken place. There must be something, beyond mere thoughts, to justify why a person should be arrested and thus denied the most basic of freedoms. This regular course is turned on its head under the preventive detention regime. Here, waiting for some conduct to manifest itself is considered a fatal delay, and therefore, the police is allowed to arrest persons merely suspected of engaging in illegal activities, or about to engage in them. 

The dissimilarities with the regular process only increase from this point. In the preventive detention regime, a has no right to be informed immediately about the grounds of arrest and detention, and in some cases might never learn of the grounds if it is against public interest. The detenu can challenge the detention order, but has no right to legal assistance. Further, all hearings take place behind closed doors, robbing a person of the sense of fairness that a public hearing entails. Although one can challenge Detention orders in writ proceedings, the Writ Court can only interfere on limited grounds. 

At its very best, preventive detention is a useful tool to ensure the safety of society. At any other level, it is a convenient means to suppress dissent, disregard individual liberty, and nullify the presumption of innocence. It can very quickly transform into a tool to justify the continued incarceration of “unwanted” persons through a process with minimal procedural safeguards, without ever making efforts to prove their alleged infractions. 

Preventive Detention in the Ordinary Process

The legal position on passing preventive detention orders against persons already in custody, in connection with cases filed in the regular criminal justice system, is perhaps one of the most peculiar aspects of the Indian criminal process. One would think that since a person is already in custody, the urgency surrounding preventive detention is all but lost. This is not so. 

Time and again, detention orders are passed against persons who are anticipated to be released on bail at any moment. The perceived threat from their release is considered so grave as to justify a detention order anticipating this eventuality. 

The litany of judicial decisions covering this peculiar aspect of our criminal process always struggle to maintain a balance between the interests of security and the interests of liberty. It would be fair to say that a common theme through all these decisions is a requirement that the government must clearly establish that there is an imminent possibility of release, and that there is a grave likelihood of the person returning to the prejudicial activities that had necessitated his arrest/detention in the first place. [See, Rekha v. State of Tamil Nadu, (2011) 5 SCC 244]

Dimple Happy Dhakad 

Having thus fleshed out the basic legal position on these issues, we can now proceed to the recent decision in Dhakad. This was yet another case where persons who had already been arrested under the regular criminal process were made the subject of a Preventive Detention order [Under the Conservation of Foreign Exchange and Prevention of Smuggling Act, 1974 (COFEPOSA)]. Here, the arrests occurred in March 2019 in connection with alleged gold smuggling. Bail applications filed by the accused in April had been rejected once. When the accused filed fresh bail applications in May, then the government authorised the Detention Order. The Bombay High Court set aside the orders (W.P. 2844 of 2019, decided on 25.06.2019), and this decision is what was overturned by the Supreme Court. 

The arguments in Dhakad were on the lines as above. Appealing against the Bombay High Court order, the Union of India laid stress on the gravity of the allegations and the security interests at stake. The respondents/accused strived to show that the detention orders had not been passed with the required degree of care and attention, and had instead been passed in a most routine and mechanical manner. They were assisted by the fact that the Detention order did not even mention anything about an imminent possibility of release, or about the likelihood of the accused persons returning to their prejudicial activities. 

Moreover, in their haste to pass the Detention orders, the authorities had committed basic errors; such as (i) adding documents created after the decision to pass the detention order had been made, as part of the material relied upon for passing the Detention orders and (ii) not supplying the said relied upon material together with the grounds of the detention order, despite the order stating that this material was in fact being supplied. While it was never expressly mentioned in the Supreme Court’s opinion, the fact that the investigation had been ongoing for almost 2 months before the Detention orders were passed was a circumstance that had found favour with the Bombay High Court, to conclude that there was no reason for any delay in them being supplied with the materials upon which the authorities had relied for passing the detention orders.

Issue 1: Non-Supply of Documents

There is limited value in dissecting all that is wrong with the Supreme Court‘s decision in Dhakad, so let us focus on the core aspects. The Court spends great time in telling us that Section 3(3) of the COFEPOSA, and Article 22(5) of the Constitution, have not been breached because all documents were supplied within the statutorily prescribed timeframe of five days. Similarly, it tells us that non-compliance with Executive Guidelines is no grounds for setting aside the Order. Sadly, that is besides the point, because the argument was not about a statutory lapse on part of the authorities or about non-compliance with Guidelines per se. Instead, it was argued that by failing to provide documents, even after specifically noting in the Detention Order that the same are being provided, showed a clear lack of care on the part of the authorities and laid bare the mechanical manner in which the orders were passed. Further, the Supreme Court seems to have ignored the point, that a document prepared after the decision to pass the detention orders was made had found a place in the list of materials relied upon to pass this order, again suggesting that the Detention order had been passed without proper application of mind.

Issue 2: Failure to Consider Pre-Existing Detention 

Which then brings me to the main issue, on the usage of Preventive Detention in cases already being prosecuted under the regular criminal process. The Supreme Court seems to have entirely missed the point about holding the government to a high standard of care in situations where both, the regular criminal process and the extraordinary means of preventive detention, are employed. The recitations of decisions emphasising the urgency of preventive detention, in a case where the accused persons had already been arrested and had been languishing in jail for almost 2 months, is almost laughable if it were not tragic. 

The Court reasoned that the existence of an imminent possibility of release, as well as likelihood of further prejudicial conduct by the accused persons upon release, were issues that depended upon the “subjective satisfaction” of the authority and thus was beyond the scope of judicial review. Now, there is no debate that the scope of judicial review of Detention orders is limited. But, at the same time, it is also true that the Supreme Court has made consistent efforts to expand the possibilities for review to ensure fairness. Two examples are striking. First, the Court judicial created a requirement that the allegation must have a “live link” with the present to justify a need for preventive detention, in a bid to prevent persons being detained on the basis of stale allegations that had not been tested for years [See, Bhawarlal Ganeshmalji v. State of Tamil Nadu, (1979) 1 SCC 465]. Second, the Court also assented to testing the grounds to examine whether they were so arbitrary and vague so as to render it impossible to challenge the Detention order [See, Prabhu Dayal Deorah v. D.M., Kamrup, (1974) 1 SCC 103]. 

This trend of heightened review is what led to the common theme identified in the previous section, of the Supreme Court consistently placing a higher threshold on detention authorities to justify use of Preventive Detention in cases already being processed in the regular criminal process. Requiring that the Detention order explicitly refers to the possibility of release and likelihood of re-offending does not impinge upon the subjective satisfaction of the authority. It only provides a clear basis for assuming that the authority did indeed consider these issues, and prevent the kind of inferential exercises that the Court resorted to in Dhakad.

Post-Script

The most telling circumstance in Dhakad only emerged after the Detention orders were passed and thus is not expressly mentioned in the Supreme Court decision: The customs authorities failed to complete their investigation within the statutorily prescribed time limit, entitling Dhakad and others to statutory bail under Section 167(2), Cr.P.C.. The only reason why they were not released was the Detention orders. Thus, the customs authorities had used Preventive Detention to cover their inability to finish an investigation in time, and also deny the accused yet another vested right in the criminal process. It is practice that has been chided by the Delhi High Court on different occasions (See, here, and here), but has not been the subject of consideration in any reported Supreme Court opinions that I could find. 

Thankfully, the opinion in Dhakad does not expressly record that the possibility of being released on statutory bail is a compelling enough reason to invoke Preventive Detention. But this is perhaps the only positive note that the decision strikes. Yet again, the Supreme Court ended up being drawn in by the lure of preventing a politically undesirable outcome — the possibility of releasing alleged gold smugglers on bail — and in the process ended up glossing over the procedural safeguards that are the bedrock of the liberty it is constitutionally committed to protect.

The Fugitive Economic Offenders Ordinance: Gearing Up for Challenge?

It has been over a month since the Fugitive Economic Offenders Ordinance [FEO] was passed by the Indian President. In what is rather common fashion, the Ordinance was passed without the necessary rules having been prepared, and this past month has slowly seen the Government get its act together and notify those rules that make the wheels of the Ordinance turn (see here, and here). The stage is nearly set for the first set of cases to be brought under this Ordinance, which one expects would be against Nirav Modi and Vijay Mallya, the two bogeymen used to pilot the law through in the first place. What this also means, hopefully, is that the legal defence teams for both Mr. Modi and Mr. Mallya will bring up what many commentators including myself (mostly before the Ordinance, for instance see here, here, here, and here) have imagined as the expected legal challenge to the constitutionality of that Ordinance. In eager anticipation of that legal challenge, which I sincerely hope does take place for a Court to clarify the issues, this post highlights what are perhaps the weakest parts of the Ordinance legally. It then moves beyond these previously argued points to point out a serious change brought about by the Ordinance in how its invested law enforcement agents with seriously broad powers to investigate routine offences.

The Mechanics of the FEO Ordinance

Bear with me, as I quickly run through what the FEO Ordinance does, before moving to what many have considered as its potential pitfalls if a legal challenge comes before court. The FEO Ordinance is a measure passed by the Government to "deter" alleged fraudsters from hastily fleeing the jurisdiction of Indian law enforcement agencies, which stalls any potential criminal proceedings against these persons. Who is an FEO? It is a person against whom a warrant has been issued, and who either left India to evade it, or if outside India, remained outside to evade arrest [Section 2(f)]. The Government admittedly had the examples of Mr. Modi and Mr. Mallya in mind, and so it has made the Ordinance applicable to persons who might already be FEOs before the Ordinance came in force [Section 3].  

How does the FEO Ordinance work? It can be used by Officers of the Enforcement Directorate [ED] in cases where they allege a person is an FEO and that sums more than Rs. 100 Crores were involved [Section 2(m)]. Based on these ED allegations, the Ordinance allows the Government to confiscate the property of an FEO at the initial stage itself. To triggers this process, an application consisting of these allegations (why is she an FEO, where is she, what property is sought) must be filed by the ED [Section 4]. The Court then issues a notice the alleged FEO, and any other persons with interest in the property, to appear and answer the allegations. The persons must have at least six weeks to appear, but this calculated from the date of issuing notice and not its receipt. Effectively, it will be lesser, as the Government has up to two weeks to get that notice served [Section 10]. If the person comes herself then proceedings under the Ordinance terminate. If, she appears through counsel, then the Court can give up to a week to file a reply. But if she does neither, and the Court is satisfied that notice was properly served, then it will hear the merits of the Government application [Section 11]. If the Court finds is convinced of the Government claim, then it will declare the person an FEO, and pass orders for confiscation [Section 12]. Thus, it should be clear that the ED can't get "immediate confiscation" as some news reports wrongly suggest."

Previously Argued Pitfalls

Confiscation of assets is not new under Indian laws. But confiscation at the pre-trial stage, with such rapidity and only on the basis of initial allegations levelled by an admittedly biased investigating agency, is definitely new. Thus, it has been argued that the Ordinance procedures could be challenged as unreasonable under Article 21 of the Constitution. Most commentators argue that a prominent issue with the Ordinance lies in the variety of drastic measures it seeks to impose on a person declared an FEO. Specifically, Section 14 of the Ordinance has been attacked. This allows any court to disallow the FEO herself or entities in which the FEO holds a key managerial position to advance or defend any civil claims. The provision is dangerously overbroad: any civil claims includes property disputes, matrimonial claims, company disputes, writ petitions, and a host of other potential claims. Certainly, the FEO Ordinance cannot take away the right of a person to seek writ remedies, or approach the Supreme Court under Article 136? Beyond Section 14, it has been argued that a problem lies in the Ordinance failing to explain what happens if a person successfully appeals against an FEO declaration under Section 17. Will the Government have to return confiscated property? Will it have to make monetary refunds for property where it has already been sold? The failure to elucidate any of this raises a question of whether the deprivation of personal assets, part of my right to life under Article 21, is being done via procedure established by law. This is not inconsequential, for while the Supreme Court has upheld pre-trial confiscation of property for a State Law in Odisha and Bihar (wrongly, in my view), both those statutes had provided compensation in case of a successful appeal.

A Challenge to the Broad Powers of Enforcement - Routinising Exceptionalism

In the existing commentary on the FEO, both while it was a pending Bill and the present Ordinance, little has been said about what it allows the Government to do beyond confiscating property. By this I mean the powers of survey, search, seizure, etc. [Sections 7-9] that have been conferred on ED officers. These are extremely broad powers. Survey powers allow them to enter any establishment and legally compel proprietors or employees to furnish documents and other materials, and even take their statements. Search and seizure, though common to law, requires court sanction unless there is grave exigency. Not anymore, as Section 8 authorises ED officers to conduct warrantless searches of places without any need for exigency. Section 9 similarly allows searches of persons, obviously not the FEO, for finding evidence. 

Now, these powers are not unknown to Indian laws. Nearly identical provisions are present in the Prevention of Money Laundering Act 2002 [Sections 16-18], and are definitely the source for the FEO Ordinance. Similar powers of search are also under the Unlawful Activities Prevention Act 1967 [Section 43A]. But, at the cost of sounding obvious I must say this, Money Laundering is one of the most serious offences out there today, and the UAPA deals with terrorism. Money laundering carries links with terrorism, and nation states argue that it offers one of the most serious threats to economic stability. We can all disagree about this assessment (I certainly do), but that is the line that India and other nations have taken. Is the FEO Ordinance only dealing with Money Laundering? No! It isn't! While allegations of Money Laundering offences can trigger the FEO, it is also a mechanism for dealing with many more standard offences when the allegations involve sums of over Rs 200 Crores. So, one finds that Cheque Bouncing Offences are part of the Schedule, as are nearly all the property-related offences of the Indian Penal Code, 1860. So, the ED can bust your house without a warrant for high-value cheque bouncing or cheating cases. You might say that wait, these are huge sums involved. Rs. 200 Crores is not chump change, and these are persons fleeing the country. I agree. But are there really these sums involved, and do we really have absconders? No. Remember, the FEO Ordinance powers can be used based purely on the untested allegations of the ED. Moreover, the law contains the vague language, that the ED officers can use these powers on the suspicion that a person may be an FEO. So there is no objective basis to be certain of how fairly these powers are used. 

To give some context, go look at the Narcotics, Drugs and Psychotropic Substances Act 1985, one of the more draconian statutes that we have at our disposal. Even that law does not permit a warrantless search and seizure except in cases of exigency. Thus, what the Government has done, is to confer perhaps the most serious and rights-limiting style of enforcement powers our legal system has, to deal with cases of cheque bouncing. It offers a drastic instance of routinising exceptional powers that the law confers under the guise of fear-mongering and scare politics. Sure, you can go challenge the unannounced raid and deprivation of your property in Court later. But the damage is already done by then, and is certainly done by the time you might get a hearing in the slow Indian criminal justice system. 

Conclusion: A Serious Problem Needing Judicial Attention

The FEO Ordinance must come up before a Court. The problems that have been highlighted in terms of its consequential provisions are serious and, in some cases, seemingly unconstitutional. That the Government went ahead with these provisions despite persistent adverse commentary makes one wonder just what it thinks is a legal justification behind them? But far more troubling is this resort to exceptional enforcement powers in dubious fashion. Why does the Government need terrorism-level enforcement powers to deal with loan defaulters, cheque bouncing, cheating, and bank fraud cases? No mention of this aspect was found in the Ordinance, the Bill, or the Parliamentary Debates on the Bill, and that should concern us. This cannot become the new normal that we slowly slide towards. In any potential legal challenge, a court will have the chance to arrest that slide, and it must.