Chennai: A day after former Tamil Nadu Chief Minister J Jayalalithaa was acquitted by the Karnataka High Court on May 11 in a high profile corruption case, Special Public Prosecutor BV Acharya revealed arithmetic errors in the judgment. An error in adding up a tabular column of loans considered as income by the High Court judge left a gaping hole of Rs 13.5 crore, which the AIADMK is still trying to explain away.
Now, more serious errors of duplication have been found in Judge CR Kumaraswamy’s verdict. It now appears that the High Court has, erroneously, added loan amounts twice to the income of the defendants. This means that the amount calculated by the judge as ‘explained income’ — the basis on which the court has exonerated Jayalalithaa and others — is a highly inflated figure.
To put it in simple terms, disproportionate wealth is calculated by adding up all the assets and income of the accused and finding out which of the assets and income are from an explained valid source of income. Those assets and income that do not have a satisfactory source are then deemed to be disproportionate wealth.
The trial court, in September 2014, had found Jayalalithaa guilty of possessing disproportionate wealth to the tune of Rs 53.6 crore. Earlier this month the Karnataka HC ruled on her appeal, acquitting her of all charges as it found disproportionate wealth to be only to the tune of Rs 2.82 crore. The High Court cited earlier judgments to argue that 10% of unexplained wealth was permissible as per law and that since only 8.12% of the defendants’ wealth was disproportionate to their income, they were liable to be acquitted as per law.
Duplication of loans
On page 852 of the High Court order, Judge Kumaraswamy has put in place a tabular column showing a list of 10 loans, which, he argues, would constitute additional income, automatically bringing down the total amount of disproportionate income in Jayalalithaa’s case. He then adjusts the sum assessed as income by the prosecution and arrives at a new figure.
Out of the 10 loans, the first one, a loan to Jaya Publications from Indian Bank to the tune of Rs 1.5 crore is clearly shown to have been repaid in full, in the corresponding Page 294 of the trial court order and has been accepted as legitimate expenditure by the lower court. Therefore, it is already factored in.
Of the other nine loans listed, seven of these have already been taken into account by the prosecution. In fact, the trial court order, on pages 126 to 139, delves in detail into each individual loan taken by the defendants and accepts them either completely or partially with reasons.
Legal experts say that this amounts to duplication of income – if, for instance, the trial court has accepted an income of Rs 100 out of these loans, the High Court has erroneously taken the same Rs 100 and added it once again, assuming that the lower court had omitted to do so. This would take the total income to double the actual amount i.e. Rs 200.
In fact, the High Court appears to have made some more glaring errors. Item number 8 in the table on Page 852 is a loan of Rs 1.57 crore in the name of VN Sudhakaran, Jayalalithaa’s foster son and one of the accused. A comparison with Pages 136 and 137 of the trial court order shows the discrepancy. Three pieces of evidence are cited in this particular loan – one, a letter from Sudhakaran to Indian Bank requesting a loan of Rs 1.57 crore. The second evidence is a letter from Indian Bank sanctioning a loan amount of Rs 1.33 crore and not the full amount requested. The third bit of evidence is the statement of accounts from the bank’s records. The trial court has taken the outstanding balance of the loan amount as income. The High Court, however, in a glaring error, takes into account only the first piece of evidence i.e. the loan amount requested by Sudhakaran, which was not even sanctioned in full.
Other loans show up similar discrepancies in the High Court order.
Another glaring error in the loan table is that of item number 3 – a loan of Rs 90 lakhs taken by Jayalalithaa from Indian Bank. The HC has taken this into account despite that loan having been sanctioned in August 1996, after the ‘check period’ of the case, i.e. after her first term as Chief Minister of the state had ended.
Once we discount the duplicated loans, the arithmetic now works out as follows.
Total assets accepted by HC: Rs 37,59,02,466
Total income as calculated by HC (incl loans as under Page 852): Rs 34,76,65,654
Now we deduct the amount of Rs 18,17,46,000 from this since the loans mentioned have already been taken into account by the trial court.
Only one component Item number 9 would be added since it does not reflect in the trial court’s math.
New total = Old total – loan income
i.e. Rs 34,76,65,654 – Rs 18,17,46,000
Add Item number 9 as extra loan = Rs 1,65,00,000
New total income = Rs 18,24,19,654
Now we apply this new total income to the formula used by the HC on Page 914 of the order, to arrive at the percentage of disproportionate wealth.
Disproportionate assets = Total assets – Total income
= Rs 37,59,02,466 – Rs 18,24,19,654
= Rs 19,34,82,812
This means the amount of disproportionate assets shoots up to Rs 19.3 crores from Rs 2.82 crores as given in the HC order.
Percentage = Disproportionate assets X 100 / Income
= Rs 19,34,82,812 X 100 / 18,24,19,654
The percentage now goes up to 106% as opposed to the 8.12% calculated by the HC, which was the number that acquitted Jayalalithaa and 3 others.
“There are a number of apparent errors in the High Court’s treatment of the funds that need to be gone into,” said Supreme Court lawyer Karuna Nundy. “For instance, the first item in Page 852 of the High Court judgment is a loan of Rs 1.5 cr (Ex.P.1027) – the High Court treats this as income that has been properly explained. The trial court though, examined the bank manager and saw documents that showed that the loan from the Indian Bank had already been paid back. This leaves an unexplained amount of over 1 crore. There are other gaps – take Ex.P.1330, a Rs 1.57 crore loan taken by VN Sudhakaran, again from Indian Bank. The trial court order clearly shows Sudhakaran only received Rs 1.33 cr of the Rs 1.57 cr, sanctioned.”
“This allegation is incorrect,” said a senior AIADMK leader who did not wish to be named. “We have thoroughly looked through the order and there is no discrepancy,” he said.
The 10% loophole
Jurists are spitting fire at the law used by Judge Kumaraswamy on Page 914 of his order acquitting Jayalalithaa. In this, the judge has cited the Krishnanand Agnihotri case, which states that “when there is disproportionate asset to the extent of 10%, the accused are entitled for acquittal.” He has also cited a circular issued by the Government of Andhra Pradesh which states, “Disproportionate asset to the extent of 20% can also be considered as a permissible limit.”
“Is the judiciary giving legal sanction to corruption?” asked a retired High Court judge who did not wish to be named. “Will this 10% sanction apply to its own officers and subordinate judiciary? So a court clerk found taking a bribe of Rs 1000 could be let off since it is less than 10% of his annual salary? Will this 10% be allowed on an annual basis or on the basis of tenure of the staff? And every time a chargesheet is filed henceforth, will this 10% rule apply? Is the judiciary giving a blessing to public servants for violating their oath by giving them 10% leeway?” asked the judge.
“Unfortunately the SC judgment in Krishnanand Agnihotri’s case has been misinterpreted,” said lawyer Nundy. “The HC says “when there is disproportionate asset to the extent of 10%, the accused are entitled for acquittal.” Nowhere does the Supreme Court judgment lay this down as a rule. Agnihotri’s case was explicitly decided in the context of his own offence, which was relatively minor. If the High Court thought Jayalalithaa deserved the benefit for much larger amounts it needed to explain why,” she said.
Legal eagles say that this ruling by the High Court judge could set a bad precedent, one that encourages bribery. Especially when the Supreme Court earlier observed that corruption is “the enemy of the nation” and had exhorted courts to show “zero tolerance” towards this scourge.
“It is an accepted legal precedent,” insisted the AIADMK leader. “The High Court judge is right in his assessment.”
Retired Madras HC judge K Chandru agrees. “The Andhra precedent and the other precedent have been followed in many cases and officers have been let out on the basis of the discount, it has become a judicial precedent by the judge made law. One need not argue specifically on such issues and it is left to the discretion of the court,” he said.
IT returns as proof of income
The Karnataka High Court overturned the guilty verdict of the trial court by arguing that the lower court had not considered the Income Tax returns of the defendants. Judge Kumaraswamy then added this income declared in the IT returns of the defendants to clear them of a large chunk of disproportionate assets.
“There are many prior cases where the Supreme Court has said that in cases involving disproportionate assets, the source of the income must be explained convincingly,” said the retired judge. “Income tax returns are not reliable since they do not verify the source of the income. It is wrong to accept IT returns as proof of income unless the source of the income is proven to be valid,” he said.
Legal experts also point out that in many instances, the High Court has accepted IT returns which have been filed much later, as in the case of Namadhu MGR. On Page 875 of the HC order, the judge agrees that IT returns filed as an afterthought cannot be relied upon. “When Income Tax returns have not been filed for many years, it disentitles the assessee substantially. A doubt arises in the genuineness of the Income Tax returns. But when it is produced before the Income Tax department after a long time and is not produced when its production was warranted, it is a suspicious circumstance against the genuineness of the claim of the assessee in respect of this subscription item i.e. Namadhu MGR.”
Experts say that under the Nallammal vs State ruling of 1999, the term “income” has been clearly defined by the Supreme Court. “… ‘known sources of income’ means 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.” They say that this would, in effect, rule out IT returns as proof of income, since source of that income is not often verified while assessing returns.
However, Kumaraswamy proceeds to accept the income in part i.e. a sum of Rs 4 crores. “In effect, this is an afterthought explanation that anyone can give in a DA case,” said the retired judge. “So basically I can wait until a chargesheet is filed, then I can add all my unexplained income and file my IT returns after that – I will get away scot free. This judgment can be quoted in cases involving IT returns as well. Jurists should wake up to the impact this could have on the social structure, the economy and political structure. If afterthought IT returns are accepted, this means black money can easily come into the system and be laundered by filing a simple IT return,” he said.
“Under this head, the High Court may be wrong and there was no justification to ignore the findings given by Cunha,” said retired judge Chandru. “Sec 19 (3) (a) of the Prevention of Corruption Act does not allow an appellate court (in this case Karnataka HC) to take a different view from the special court in such matters unless there was a failure of justice,” he said.
The AIADMK says relying on IT returns is a legally sound decision. “The IT department is under an IT law and decisions taken by it are final,” said the AIADMK leader. “There is nothing wrong with relying on IT returns.”
Apart from the acceptance of IT returns which were filed belatedly, in the case of birthday gifts too, a curious case of a foreign remittance included in this list draws attention. This Rs 77 lakh remittance is the subject of a CBI investigation. The case was dismissed by the Madras High Court and the matter has been mired in legal technicalities and pending before the Supreme Court since 2012.
“Receiving gifts from foreign countries by a minister is completely prohibited by the Foreign Exchange Regulation Act (FERA),” said retired judge Chandru. “It can be accepted as an income for the purpose of the present case if it is shown that it was remitted by a bonafide person.”
The retired judge quoted the Supreme Court to ask whether this means the judiciary encourages politicians to take bribes in kind rather than cash. “If public servants are allowed to accept presents when they are prohibited under a penalty from accepting bribes, they would easily circumvent the prohibition by accepting the bribe in the shape of a present,” he said.
The AIADMK insists that this is an accepted precedent.
The legal fraternity points out other errors in the judgement. One is that of a virtual lack of prosecution in the case. After the Supreme Court struck down the appointment of then Special Public Prosecutor Bhavani Singh in January 2015, a new SPP was appointed by the Karnataka government. BV Acharya was given only a day’s time to submit written arguments (“not more than 50 pages” as per Justice Deepak Mishra’s order) and oral arguments were not allowed.
Another error pointed out is that of the HC dismissing government rates for construction materials as being “too high” and thereby reducing the costs of construction and renovation in the properties of the defendants.
“In the absence of other proper evidence, only government rates i.e. rates prescribed by the Public Works Department can be taken into account,” said the retired judge. “It is standard practice in all courts,” he said.
Retired judge Chandru disagrees. “Judge Kumaraswamy even said that when he purchased tiles for constructing his house, it was almost the same as claimed by Jayalalithaa,” he said.
Rental income added by the HC too appears to be unexplained. On Page 833 of the HC order, the judge simply takes into account a sum of Rs 3.22 lakhs. A perusal of the trial court order shows that rental income has been taken into account. Legal experts say this is a mystifying figure.
Image of the judiciary
Jurists warn that the High Court verdict could set many precedents for erroneous verdicts in the future. They say that this is the first time a powerful politician has been brought to book by a trial court and therefore, an important order that should not be taken lightly.
“The Supreme Court has to remember that the world is watching India,” said the retired judge. “This judgment will bring down the image of the Indian judiciary in the world. The apex court must look into this closely and seriously,” he said.
“This case became significant because right from the beginning there were attempts to delay the hearing by opposing the constitution of a special court,” said Chandru. “Then the accused was two times Chief Minister during the investigation and the police was under her Home Ministry. Then the Supreme court intervention on the transfer of the case to another state, appointment of Special Public Prosecutor, fixing time limit for hearing the appeal and even fixing the quantity of stationary to be used for the written brief and not allowing oral arguments. All these make it a unique case involving corruption,” he said.
SC lawyer Nundy agrees. “It’s important that the Supreme Court hear this case in appeal,” she said. “In fact, given the level of detail and the vagaries of prosecution, it might also be a fit case to appoint an amicus curiae, or ‘friend of the court’, to make sure justice is not only done but seen to be done – beyond reasonable doubt,” she added.
And while the Karnataka government dithers over whether or not to head to the Supreme Court on appeal, the legal fraternity is certainly chafing at what has taken place.