Featured image for Supreme Court Judgment dated 17-10-2019 in case of petitioner name Central Bureau of Investigatio vs Arvind Khanna
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Foreign Contribution Case: Supreme Court’s Ruling on Alleged FCRA Violation

The case of Central Bureau of Investigation vs. Arvind Khanna revolved around allegations of violating the Foreign Contribution (Regulation) Act, 1976 (FCRA, 1976). The Supreme Court had to decide whether the proceedings initiated under the FCRA, 1976, could be quashed when the respondent claimed that the foreign funds received were personal gifts from his father.

Background of the Case

The respondent, Arvind Khanna, was a Member of the Punjab Legislative Assembly from February 24, 2002, to February 27, 2007. During this period, he received a total of Rs. 9.04 crore from eight foreign entities, including New Heaven Nominees and trusts managed by CI Law Trust. The Central Bureau of Investigation (CBI) alleged that the funds were foreign contributions received in violation of the FCRA, 1976.

On April 2, 2007, the CBI registered an FIR under Section 23(1) read with Section 4(1) of the FCRA, 1976. The case was built on the grounds that the respondent had received foreign funds without obtaining prior permission from the Indian government.

Petitioner’s Arguments

The CBI, acting as the petitioner, argued:

  • The funds received by the respondent were from foreign entities and thus fell under the purview of the FCRA, 1976.
  • The respondent, being an MLA at the time, was required to seek prior permission from the government before receiving foreign contributions.
  • The funds were not personal gifts but were funneled through multiple foreign accounts to avoid detection.
  • The prosecution was based on evidence collected with proper authorization from the Ministry of Home Affairs.

Respondent’s Arguments

Arvind Khanna, the respondent, countered the allegations with the following claims:

  • The funds received were personal gifts from his father, Vipin Khanna, an Indian passport holder.
  • The foreign entities transferring the funds were acting on behalf of his father, and therefore, the transaction did not violate the FCRA.
  • Income tax authorities had accepted the funds as gifts under Section 147 of the Income Tax Act, 1961, and no tax violations were found.
  • The Ministry of Home Affairs failed to process his application for compounding the offense under Section 41(1) of the FCRA, 2010.

Supreme Court’s Observations

The Supreme Court scrutinized the evidence and legal arguments, making the following key observations:

“The very fact that the High Court, in this case, went into the most minute details on the allegations made by the CBI and the defense put forth by the respondent, led us to a conclusion that the High Court has exceeded its power, while exercising its inherent jurisdiction under Section 482 Cr.P.C.”

Furthermore, the Court noted:

  • The High Court prematurely quashed the FIR and proceedings without allowing the trial court to assess evidence.
  • The assertion that the funds were gifts was not conclusively established and required a full trial.
  • The burden of proof was on the respondent to demonstrate that the funds did not violate the FCRA.

Final Verdict

The Supreme Court ruled in favor of the CBI, stating:

  • The High Court’s order quashing the FIR and proceedings was set aside.
  • The case was remanded back to the trial court for proper adjudication based on evidence.
  • The revisional order by the Special Judge, CBI-03, New Delhi, was quashed and sent back for reconsideration.
  • The respondent was required to appear before the revisional court within four weeks.

Legal and Policy Implications

The ruling has significant implications for foreign contributions and financial regulations in India:

  • FCRA violations must be thoroughly investigated, and individuals cannot claim exemption based on personal interpretations of gifts.
  • Income tax rulings do not override FCRA requirements, and both laws operate independently.
  • High Courts must exercise caution while quashing FIRs in financial crimes to ensure due process is followed.

Conclusion

The Supreme Court’s ruling reinstates the necessity for proper legal scrutiny in foreign contribution cases. By remanding the case for trial, the Court ensures that financial transactions involving foreign entities are thoroughly examined. This decision sets a precedent that foreign contributions, even if claimed as gifts, must comply with FCRA regulations to prevent financial crimes and money laundering.


Petitioner Name: Central Bureau of Investigation.
Respondent Name: Arvind Khanna.
Judgment By: Justice R. Banumathi, Justice R. Subhash Reddy.
Place Of Incident: New Delhi, India.
Judgment Date: 17-10-2019.

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