disproportionate assets

Law

Good To Know: How A Person Is Prosecuted Under Disproportionate Assets Case

From our friends at
Nyaaya

April 5th, 2017

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The Prevention of Corruption Act 1988 defines who a public servant is and punishes public servants involved in corruption or bribery. The law counts the possession of ‘disproportionate assets’ by a public servant as criminal misconduct.


Corruption by people in positions of power has always been in the news. From the Jeep scandal in 1948, to the Fodder scam and more recently the Jayalalitha-Sasikala case, misuse of public office for personal gains has been constant and consistent. So, what happens if a public servant misuses their position in power? What if a public servant uses their office to gain assets for themselves? There are laws on this, though convictions are few and far between.

PART 1

When are assets disproportionate?

Within the law, the relevant section when talking about disproportionate assets is Section 13(1)(e). There are three main requirements for this section of the law to be applicable to a public servant

  • They should own assets, which cannot possibly be acquired by their legal sources of income.
  • They should be holding a public office.
  • They are unable to explain how they came to own these assets.

1There are often news reports that bureaucrats have been convicted under this law, but it is rarer for politicians to be punished.

For example, in October 2016, a former Deputy Police Commissioner of Delhi was found guilty of possession Rs. 10 lakhs, including clothes worth Rs. 2,38,000. The case had started in 2001, when the police had searched his home and found these assets. The special court decided that the officer had not managed to explain what the source was for this property, which was not in keeping with his legal, ‘known’ sources of income.


2Known sources of income means income from

  • any lawful source and
  • for which a receipt and paperwork can be shown.

3The law assumes that if a public servant has assets disproportionate to their legal sources of income, then such assets must have been acquired by either indulging in corruption or by abusing the power vested in their office.


4After this, the public servant has to prove that assets have been acquired through legal sources of income.


5Most importantly, the prosecuting authorities don’t have to prove that any corruption or abuse of power has taken place, in order to conduct criminal proceedings. They just have to prove that a public servant is in possession of assets which are disproportionate to their known sources of income.


6But how do you define what disproportionate is?

  • There is no fixed formula given in the law.
  • the Supreme Court has explained that when only a small amount of property or assets is unaccounted for, the officer should be given the benefit of doubt had its say on the matter.

 

PART 2

How did Sasikala get convicted for disproportionate assets?

Let’s first go through a brief timeline of the case and understand how it came about.

  • The case was initially filed against Jayalalitha in 1996 by Subramanian Swamy, alleging that she had amassed assets disproportionate to her known sources of income.
  • In 1997, prosecution was launched against Jayalalitha, Sasikala, Sasikala’s nephew V.N. Sudhakaran, and her sister-in-law J. Elavarasi, for criminal conspiracy as well as criminal misconduct.
  • In 2003, the case was transferred out of Tamil Nadu to a special court in Bengaluru, which, in 2014 convicted all four.
  • This was appealed on to the Karnataka High Court, in 2015 which acquitted Jayalalitha, Sasikala and the others.
  • This acquittal was then challenged by the Karnataka Government in the Supreme Court, which announced its verdict recently. The Supreme Court decided that the case against Jayalalitha had lapsed due to her death, while Sasikala and the two others were guilty.
  • They were sentenced under the Prevention of Corruption Act to four years’ prison and Rs. 10 crore fine each.

A question that often comes up, especially in reference to the recent verdict, is that when the law is for corruption by public servants, then how can Sasikala, who holds no public office be involved? It is important to know that the same law punishes bribery of public servants as well.


For example, it is illegal to try and influence a public servant through corrupt methods.

  • You are breaking this law if you accept money or gifts in return for influencing a public servant by illegal or corrupt methods.
  • It is also illegal to take money and influence a public servant through your personal relationship.
  • You are breaking this law if you accept money or gifts in return for influencing a public servant using your personal relationship with the public servant.

But this is not what happened in the Sasikala case. Instead, she was accused of being a co-conspirator who ‘abetted’ Jayalalithaa in her criminal misconduct. This means that she was regarded as having helped Jayalalitha to plan and execute her crimes.


The Supreme Court decided that it was obvious that Sasikala had helped Jayalalitha in hiding her financial transactions and acquiring a lot of land.


The court found it suspicious that

  • Sasikala and her associates opened 10 firms in one day and no business activity was undertaken by these firms other than buying property.
  • The court was of the opinion that these were shell companies established to help Sasikala and Jayalalithaa acquire property.
  • The Court also said that it was difficult to believe that Jayalalithaa was unware of all this since they all lived in the same residence and hence it was quite clear that this was a common conspiracy.

Conspiracy is punished under the IPC, with the same amount of punishment as the original crime. Section 13(2) of the Prevention of Corruption mentions the punishment for criminal misconduct and this is what Sasikala has been punished under as someone who has abetted the offence of disproportionate assets.


Why did Sasikala get prevented from becoming Tamil Nadu Chief Minister?

Being convicted under the Prevention of Corruption Act also has some important consequences for anyone looking to get elected to a Public Office.Section 8(1)(m) of the Representation of People’s Act 1951 says that if anyone has been convicted for an offence punishable under the Prevention of Corruption Act then they are disqualified from elections till the time that they are imprisoned, and a further six years after that.


For example, Lalu Yadav was sentenced to jail for 5 years in 2013 for the fodder scam. This means that Sasikala can’t contest elections for 10 years. 4 years for the imprisonment and a further 6 years after that as per the law.


With reference to public corruption, there are some other related concepts. We have explained them briefly as well.

PART 3

What are Benami assets?

Benami assets are assets which are owned by an individual but is not held in his or her name.

  • Benami literally means without a name. It can include property held in the name of spouse or child for which the amount is paid out of known sources of income.
  • A joint property with brother, sister, or other relatives for which the amount is paid out of known sources of income also falls under Benami property.
  • Read more about it over here.

What are Shell Companies?
A shell company is a company which does not conduct any business itself but exists solely as a medium for another organization’s business activity. These companies typically exist only on paper and have no physical presence. They are used for activities such as tax avoidance or money laundering. They also help to disguise the actual ownership of a business from law enforcement authorities and the public.

PART 4

How does the IT department calculate assets? What if the assets are in the name of wife and children?

Regarding income tax, two types of assets must be kept in mind

  • House Property and
  • Capital Assets.

1Income from house property is taxable if the assesse is the owner of a property that’s been given out on rent. The property should not be used for business or professional purposes. Individuals and HUFs can claim one property as self-occupied, which means you and your family live there, and do not have to pay taxes on this.

Learn more about how income from house property is taxed here


2Income from capital assets is taxable if there has been any gain in the transfer of capital assets. Capital assets are property of any value that’s held by the assesse like land, buildings, equity shares, bonds, debentures, jewellery, art, assets, etc.

Learn more calculating capital gains here


3Any transfer of assets to close relatives (parent, spouse, sibling, lineal ascendant/descendant) is not taxed. This rule can be used to transfer assets to others to whom a lower tax bracket applies or who do not pay any tax to save tax on certain assets


4Section 64 of the Income Tax act specifically deals with this. It contains provisions which deal with clubbing of income. These make it clear that which any income from investment made or assets purchased in the name of close relatives (spouse, minor child or daughter-in-law) is clubbed with the income of the person making the investment and taxed accordingly .


5This applies to all types of investments such as shares, fixed deposits, land, building, post office savings and mutual funds.
Read more here


What will happen after the case? How will the govt recover the assets?

The Government can use the Criminal Law Amendment Ordinance, 1944 to ‘attach’ or basically take over property which has been obtained as a result of corruption or similar offences. Even if the exact property cannot be recovered, the government can take over property of similar value.


Even if this property has been transferred to someone else, the Government can still recover it if the transfer seems fake (for example, if the transfer was made for a much lower price).


Property of this nature can be ‘attached’ the moment a court takes notice of a case. It will remain in Government control till a final decision is made by the Court – if the person is found not guilty, the property is released. If he is found guilty, the amount of property gained as a result of criminal acts will be forfeited to the government.

PART 5

How can the officer who was caught can defend himself? What happens to his/her job?

1The officer can dispute the case on facts. S/He can argue that the property in question did not actually belong to him, and give explanations as to how that property was acquired through legal means.


2S/He can also dispute the assessment of the value of the property in question – for example, that a piece of land is in fact worth 10 lakhs instead of 20 lakhs.


3Where the question is of massive spending, he can argue that he did not bear the expenses.

For example, in the Jayalalithaa case, where the question was of the amount spent on her foster son’s marriage, the defence argued that it was party workers, and not the defendants, who had spent that amount. The officer can also argue that the assets are not ‘disproportionate’, that is, they do not form a large percentage of income above and beyond the income that is accounted for.


4If a Central Government Officer is convicted, his job status is decided by an authority called the Disciplinary Authority under the Central Civil Services (Classification, Control, and Appeal) Rules, 1965.


5The Authority will decide, based on the seriousness of the offence, whether the Officer should be dismissed. Even if he is not dismissed, other disciplinary action such as reduction of pay.


6Even if a Central Government Officer is acquitted because there is not enough evidence for a criminal charge, a departmental inquiry can still be held against him leading to dismissal or other penalties.


What type of evidence are accepted by the courts against the accused?
Most cases of disproportionate assets are proved through documents and witnesses, like any other civil case. Various agencies like the CBI and the Anti-Corruption Bureaus in states are empowered to conduct raids. They can unearth evidence like jewellery, property documents etc. which can be used as evidence. Witnesses can also be used to testify about Benami transactions, or about the amount of spending done by an accused person.

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