M. G. Agarwal Vs. State of Maharashtra
 INSC 164 (24 April 1962)
24/04/1962 GAJENDRAGADKAR, P.B.
AIYYAR, T.L. VENKATARAMA SINHA, BHUVNESHWAR
P.(CJ) WANCHOO, K.N.
AYYANGAR, N. RAJAGOPALA
CITATION: 1963 AIR 200 1963 SCR (2) 405
R 1966 SC1775 (4) REI 1972 SC2020 (7) R 1973
SC 264 (4) R 1973 SC1204 (9) RF 1976 SC1750 (3) R 1984 SC1622 (156,161)
Appeal Against Acquittal-Presumption of
innocencePower of High Court-Conviction, when can be based on circumstantial
evidence-Code, of Criminal Procedure. 1898 (Act V Of 1898), s. 423 (1) (a),
Indian Penal Code, 1860 (Act XLV of 1860), s.120B.
Appellant Agarwal was an Income Tax Officer
and appellant Kulkarni, a clerk under him. They were put up for trial along
with another clerk of the Department on several charge the principal charge
being that they had entered into a criminal conspiracy to obtain for themselves
pecuniary advantage in the form of income-tax refund orders in the name of
fictitious persons and had thereby fraudulently misappropriated a large amount
of Government money. The trial judge held that the prosecution had failed to
establish criminal conspiracy and acquitted the appellants of the charge under
s. 120B and the second appellant of all other charges under the Indian Penal (
ode but while acquitting the third person also under s. 120B,, convicted him of
other offends as he had pleaded guilty. The State appealed against this order
of acquittal. The High Court allowed the appeal in part and convicted all the
accused persons under s. 120B of the Code and the second appellant also under
the other charges.
Held, that there was no doubt that the powers
of the High Court under s. 423 (1) (a) of the Code of Criminal Procedure in
dealing with an order of acquittal were as wide as those under s. 423 (1) (b)
in respect of orders of conviction;' but in dealing with an appeal against
acquittal that Court had to bear in mind the fact that the initial presumption
of innocence in favour of the accused person is strengthened by the order of
acquittal; But however cautious or circumspect the court might be, it was,
nevertheless, free to arrive at its own conclusions as to the guilt or
innocence of the accused on the evidence adduced before it by the prosecution;
Sheo Swarup v. King Emperor , 934) L. R. 61
I. A. 398 and Nur Mohammad v. Emperor, A.I.R. 1945 P. C. 151., referred to.
406 Observations made on' this point in
certain decided cases of this Court were not intended to lay down a rigid or
inflexible rule that should govern all such appeals and it is not necessary
that the High Court must characterise the findings as perverse, before it can
reverse a judgment of acquittal.
Surajpal Singh v. The State,  S.C.R.
193 and Ajmer Singh v. State, of Punjab,  S.C.R. 418, considered.
Sanwat Singh v, State of Rajasthan,  3
S.C.R. 120 and Harbans Singh v. State of Punjab, _"Supp. 1 S. C. R.
104 referred to.
It was settled law that a conviction can be
reasonably founded on circumstantial evidence if it is wholly inconsistent with
the innocence of the accused and Consistent only with his guilt. If the
circumstances proved are consistent either with innocence or guilt, the accused
person is entitled to the benefit of doubt. But in applying this principle a
distinction must be made between primary facts' which have to be proved in the
ordinary way and the inference of guilt to be drawn therefrom. It is in
connection with the latter aspect of the problem that the doctrine of benefit
of doubt can apply ;-and an inference of guilt can be drawn only if the proved
facts are wholly inconsistent with innocence, and consistent only with guilt.
CIVIL APPELLATE JURISDICTION: Criminal
Appeals Nos. 176 of 1959 and 40 of 1960.
Appeals by special leave from the judgment
and order dated August 26, 1959, of the Bombay High Court, in Cr. A. No. 1638
A. S. R. Chari, J. B. Dadachanji, O. C.
Mathur and Ravinder Narain, for the appellant (in Cr. A. No. 176 of 59).
Erenny Parekh and K. R. Choudhri, for the
appellant (in Cr. A. No. 40 of 60).
Jai Gopal Sethi, R. L. Mehta and R. H.
Dhebar, for the respondents.
1962. April 24. The Judgment of the Court was
delivered by GAJENDRAGADKAR, J.-A criminal conspirac. to which, according to
the prosecution, M.G. Agarwal 407 M. K. Kulkarni and N. Laxminarayan, hereafter
called accused Nos. 1, 2 and 3 respectively, were parties between December,
1954, and June 1955, at Bombay, has given rise to the criminal proceedings from
which the two present appeals arise. At the relevant time, the three accused
persons were attached to the office of the Income-tax Officer, Ward No.
A-III in Greater Bombay. Accused No. I was
designated as the First Income-tax Officer, and accused Nos. 2 and 3 worked
under him as second and third Assessment Clerks respectively. The main charge
against these persons was that during the relevant period, they had entered
into a criminal conspiracy by agreeing to do or cause to be done illegal acts,
by corrupt and illegal means and by abusing their position as public servants
to obtain for themselves pecuniary advantage in the form of income-tax refund
orders and this criminal object was achieved by issuing the said refund orders
in the names of persons who either did not exist or were not assessees entitled
to such refunds. The prosecution case was that after the said refund orders
were thus fraudulently issued, they were fraudulently cashed and illegally
misappropriates. The ten persons in whose names these refund orders were
fraudulently issued were G.M.
Thomas, P.N. Swamy, K. S. Patel, S. R.
Bhandarkar, S. P. Jani, D. M. Joshi, C. B. Kharkar, Ramnath Gupta, V. M. Desai
and K. V. Rao. It appears that twenty-five bogus vouchers were issued in
respect of these ten fictitious cases ;
eleven accounts were fraudulently opened in
different Banks in Bombay and misappropriation to-the extent of Es. 54,000/has
thereby been committed. That, in. substance, is the main charge which was
levelled against the three accused persons.
Nine other subsidiary charges were also
framed against them.
Charges 2, 3 and 4 wore in respect of the
income-tax refund order issued on 408 the 7th January, 1955, in favour of Mr.
G. M. Thomas. The prosecution alleged that by their several acts in respect of
the issuance of this refund order, the three accused persons had committed
offences under sections 467 and 471 read with, s. 34 I.P.C., as well as section
5(2) of the Prevention of Corruption Act read with s. 5(1)(d) of the said Act
and a. 34 of 'the Indian Penal Code. Similarly, charges 5, 6, and 7 were
framed under the same sections respectively in regard to the income-tax refund
order issued in favour of Mr. G. M. Thomas on the 2nd April, 1955. In regard to
the income-tax refund order issued in favour of Mr. S. R. Bhandarkar on 2nd
April, 1955, charges, 8, 9 and 10 were framed under the said respective,
sections. That is how the case against the three, accused persons under ten
charges was tried by the Special Judge , Greater Bombay.
It would thus be seen that, in substance, the
prosecution case if; that in order to carry out the criminal object of the
conspiracy, the three accused, persons adopted a very clever and ingenious
modus operandi in defrauding the public treasury. They" decided to take
adequate steps to issue income-tax refund orders in the names of non-existing
persons and to misappropriate the amounts by encasing the said refund
certificates issued in pursuance of the said refund orders. In furtherance of
the conspiracy and in furtherance of the common intention of all the
conspirators, steps were taken to forge the signatures of the said fictitious
persons as claimants wherever necessary, to prepare some of the supporting
documents and to deal with the cases as though they were cases of genuine
assessees submitting a return and making a claim for refund. It is by adopting
this clever device that all the accused persons have succeeded in
misappropriating such a large amount as Re. 54,000/-.
409 It appears that when a return 'or refund
application is received in the Income-tax Office, first goes to the assessment
refund clerk who, in ue course, puts it up for orders before the Income tax
Officer. In ordinary course, the Income-tax Officer sends a notice to the
assessee, examines him and the accounts produced by him to see if the return is
correct. That done, an assessment order is passed by the Income-tax Officer.
Thereafter, a form known as I.T.
30 form is prepared. This form contains
several columns which, when filled in, give details about the income-tax
payable by the assessee the tax paid by him, the refund ordered by the
income-tax Officer or the collection demanded by aim. After this form is duly
filled, it is sent to another clerk for preparing the refund order. At that
stage, the refund order is prepared and the said order together with the demand
and collection register and I.T.
form 30 are sent back to the Income-tax
Officer who examines the record and signs the refund order and the I.T. form 30
and himself makes or causes to be made an entry in the demand and collection
register. At this time, he also cancels the refund certificates, such as
The Income-tax Officer also receives the
advice memo prepared by the refund clerk and signs it. The said memo is sent to
the Reserve Bank and the refund order is sent to the assessee. After the refund
voucher is cashed by the Reserve Bank, the advice memo is received back in the
Income-tax Office. It is thereafter that an entry is made in the Daily Refund
Register. The prosecution case is that the conspirators purported to adopt all
steps which they deemed necessary to carry out their criminal object in order
formally to comply with the procedure prescribed by the department in making
At this stage, it is relevant to state
briefly how, according to the prosecution, the fraud of the 410 conspirators
was discovered. In April' 1955, Mr. Sundararajan who was then the Commissioner
of Income-tax, Bombay City received a report that many irregularities were
being committed in respect of refund orders issued by A-III Ward. On receiving
this report, he told Mr. Gharpure who was the Inspecting Assistant Commissioner
of Income-tax, ARange, to carry out an inspection of the work of accused No. 1.
He, however, cautioned Mr. Gharpure to carry out his assignment as if he was
making an inspection in the normal course in order that no suspicion should
arise in the mind of accused No. 1. Mr. Gharpure accordingly made inspection
and submitted his report on the 6th ,Tune, 1955. It is common ground that Mr.
Gharpure was not able to discover any fraud.
On the 10th June, 1955, Mr. Sundararajan
asked Mr. Gharpure to produce before him all the refund books kept in A-III
Ward. They were accordingly produced before him. On examining these books, Mr.
Sundararajan found certain suspicious features. He came across one counter-foil
of the refund order in the Dame of G. M. Thomas and he noticed that the
relevant postal acknowledgment did not bear any postal stamp and presented a
clean and fresh appearance. That appeared to Mr. Sundararajan to be suspicious.
He also found that a number of refunds were made in round figures which was
very unusual. The files showed that on the back of the counter-foils the postal
acknowledgments were not stuck up nor were advice notes stuck up. His
suspicions having been raised by these unusual features of the files, Mr.
Sundararajan conducted a further scrutiny of the six counter-foil books
particularly to find out whether the refund orders were in respect of round
figures and he found that such refund orders had been passed, in the names of
Messrs G. M. Thomas, K. S. Patel, P. N. Swamy, D. N. Joshi and S, R.
411 After the refund orders were encashed
they we're sent to the Accountant-General's Office by the Reserve Bank and so,
Mr. Sundararajan thought that he could got them from the said office. All this
happened in the evening of the 10th June, 1955.
On the 11th June, 1955, which was a Saturday,
Mr. Sundararajan called for the income-tax files of some of the persons named
above including G. M. Thomas and K. S. Patel along with the files of twenty
other regular assessees. The files of the twenty regular assessees were
submitted to him but not of the ten fictitious persons. On enquiry he was told
that those files were not available. ' The nonproduction of the said files
confirmed his suspicion that something irregular must have happened in respect
That is why he sent for accused No. 1 at 2 p.
m. but he was not in his office. He came at 3 p. m. Mr. Sundararajan showed him
the relevant counter-foils and examined him. The statement made by accused No.
I was duly recorded by Mr. Sundararajan. As a result of the enquiry made by
him, Mr. Sundararajan was satisfied that the three accused persons had
fraudulently brought into existence several documents as a result of which a
large amount had been misappropriated, and so, he requested the Central Board
of Revenue to suspend accused No. 1.
At that stage, Mr. Sundararajan naturally
wanted to search the office of A-III Ward, but he could not carry out the
search since he was told that the key of the A-III Ward Office had been taken
way by accused No. 3. He then left instructions with the police guard of his
office that nobody should be allowed to enter the room of A-III Ward without
his permission. Next day, he attended his office but he found that no person in
A-III Ward had gone to work. Before he left the office, he got the office of
A-III Ward sealed and 412 left word with the Inspector on duty that if any
person came to work in that office thereafter, it should be reported to him.
After Mr. Sundararajan reached home, he received a telephone message that
accused No. 3 had come to A-III Ward Office with the keys. Mr. Sundararajan
directed the Inspector to take charge of the keys from accused No. 3 and ask
him to attend office the next day.
Next day was a Monday (13-6-1955). On that
day, Mr. Sundararajan accompanied by certain other officers went to the office
of A-IlI Ward, opened the seal and the lock and after going inside, attached
six registers. He also made a search for the assessment records of the ten
persons in question but he did not find them. He then transferred accused No. 1
to an unimportant charge and instructed the Banks that no withdrawals should be
allowed from any of the eleven accounts, since the said accounts appeared to
him to be suspicious. He then sent for accused No. 3 and examined him. He also
sent for accused No. 2 but he was not available since he had gone on leave. He
directed one of his inspectors to enquire whether the said ten persons were
real persons or were merely fictitious Dames. All this happened on the 13th
On the 14th June, 1955, Mr. Sundararajan went
to A-III Ward Office along with accused No. 3. He wanted to search for the
missing papers, viz., the assessment record of the ten persons in question.
Accused No. 3 waited for some time and then opened accused No. 2's table and
took out some papers.
A list of these papers was made and they were
taken in charge. This list has been signed by Mr. Sundararajan and the officers
who accompanied him as well as by accused No. 3. Thereafter, accused Nos. 2
& 3 were suspended and as a result 413 of the investigation which followed,
all the three accused persons were put up for their trial before the learned
Special Judge for Greater Bombay on the charges already indicated.
Before the learned trial Judge, accused No. 3
pleaded guilt to all the charges framed against him, whereas accused Nos.
1 and 2 denied that they had anything to do
with the alleged commission of the offences charged.
The prosecution sought to prove its case
against all the three persons by producing before the learned trial Judge the
relevant documents including the files kept in A-III Ward office, and it
examined four witnesses from the department for the purpose of showing the
procedure that is followed in passing assessment orders and granting refunds
and with the object of showing that the conspiracy could not have succeeded
without the active assistance and cooperation of accused No. 1. These witnesses
are Sundararajan, P. W. 1, Nagwekar, P. W. 2, Subramanian, P.W. 5 and Downak,
P. W. 21. It also. examined Das Gupta, P. W. 26, to prove the handwriting of
the accused persons. Eleven other witnesses were examined to prove the identity
of accused Nos. 2 and 3 in respect of the steps taken by them to open accounts
in different banks in order to encash the refund vouchers issued in pursuance
of the refund orders passed by accused No. 1.
The learned trial Judge held that the
evidence accused by the prosecution did not establish beyond a reasonable doubt
'the existence of the criminal conspiracy between the three accused. He was not
inclined to hold that the ten alleged persons were non-existent. Even so, he
proceeded to deal with the case on the basis that the ten persons were nonassesses
and yet the refund orders had been passed in their favour. According to the 414
learned trial Judge, accused No. I may have innocently signed the, relevant
documents without looking to them in a hurry to dispose of cases, placing
confidence in his staff;
and so, it would be difficult to hold that he
was a member of the conspiracy. The utmost, said the learned Judge, that can be
argued against him is that he was negligent. That is how he acquitted accused
No. 1 of the principal charge of conspiracy under section 120-B &.ad as a
result, the other charges as well. In regard to accused No. 2, the learned
Judge was likewise not satisfied that the evidence adduced by the prosecution
to prove his signatures on the relevant documents established the fact that he
had signed those documents and he was not impressed by the other evidence led
before him to show that he assisted accused No. 3 in the matter of encashing
the refund vouchers. On these findings, accused No. 2 was acquitted of all the
charges framed against him. Since accused No. 3 had pleaded guilty to the
charges, the learned Judge convicted him under sections 47 1, of the I. P.C.
and s. 5 (2) of the Prevention of Corruption Act and sentenced him to different
terms of imprisonment which were ordered to run concurrently., He, however,
acquitted accused No. 3 so far as the charge of conspiracy was concerned and he
acquitted accused Nos. 1 and 2 of all the offences.
Against the order of acquittal passed by the
learned Judge in favour of accused Nos. 1 and 2, the State of Maharashtra
preferred an appeal in the Bombay High Co-art and this appeal succeeded. The
High Court has found that the learned trial Judge a misdirected himself by
assuming that accused No. I had pleaded that he had negligently signed the
relevant documents and passed the relevant orders in a hurry, placing
confidence in his staff. The High Court has pointed out that far from pleading
negligence, accused No. 1 had definitely stated 415 in his written statement
filed in the trial Court that before he directed the issue of refund in the ten
cases, be had examined the files containing the supporting documents and had
satisfied himself that it was proper to allow the refund in each one of those
cases. This position was conceded by the learned Advocate who appeared for
accused No. 1 in the High Court. The High Court then examined the question as
to whether the ten assessees were existing persons or were fictitious names and
it came to the.
conclusion that the ten names given for the
eleven accounts in which refund orders were passed were fictitious names.
The High Court then examined the
circumstantial evidence on which the prosecution relied in support and proof of
its main charge of conspiracy between the three accused persons and it came to
the conclusion that the said charge had been proved against all the three
accused persons beyond a reasonable doubt. That is how the High Court partially
allowed the appeal preferred by the State and convicted all the three accused
persons under section 120-B of the Indian Penal Code. It also convicted accused
No. 2 of the offences under ss. 467, 471, I. P. C., and s. 5(2) of the
Prevention of Corruption Act. In regard to the other offences charged, the
order of acquittal was confirmed. Having convicted accused Nos. 1 & 2 under
section 120-B, the High Court has sentenced each one of them to suffer rigorous
imprisonment for 18 months for the said offence. Accused No. 2 has also been
directed to suffer R.I. for 18 months in respect of each of the offences under
ss. 467, 471, I. P. C. and s. 5 (2) of the Prevention of Corruption Act. These
sentences are ordered to run concurrently with the sentence ordered under s.
120-B. It is against this order of conviction and sentence passed by the High
Court in appeal that accused Nos. 1 , 2 have come to this Court by special
leave by their appeals Nos. 176 of 1959 and 40 of 1960.
416 Since the impugned order of conviction
and sentence was passed against the appellants by the High Court in exercise of
its powers under s. 423 of the Criminal Procedure Code while hearing 'an appeal
against their acquittal, the first question which calls for our decision
relates to the extent of the High Court's powers in interfering with orders of
acquittal in appeal. This question has been discussed and considered in several
judicial decisions both by the privy Council and this Court. In dealing with
the different aspects of the problem raised by the construction of s. 423,
emphasis has sometimes shifted from one aspect to the other and that is likely
to create a doubt. about the true scope and effect of the relevant provisions
contained in s.
423. Therefore, we propose to deal with that
point and state the position very briefly.
Section 423 (1) prescribes the powers of the
appellate Court in disposing of appeals preferred before it and clauses (a) and
(b) deal with appeals against acquittals and appeals against convictions
respectively. There is no doubt that the power conferred by clause (a) which
deals with an appeal against an order of acquittal is as wide as the power
conferred by clause (b) which deals with an appeal against an order of
conviction, and so, it is obvious that the High Court's powers in dealing with
criminal appeals are equally wide whether the appeal in question is one against
acquittal or against conviction. That is one aspect of the question.
The other aspect of the question centers
round the approach which the High Court adopts in dealing with appeals against
orders of acquittal. In dealing with such appeals, the High Court;naturally
bears in mind the presumption of innocence in favour of an accused person and
cannot lose sight of the fact that the said presumption is strengthened by the
order of acquittal passed in his favour by the trial Court and so, the fact
that the accused person is 417 entitled to the benefit of a reasonable doubt
will always be present in the mind of the High Court when it deals with the
merits of the case. As an appellate Court the High Court is generally slow in
disturbing the finding of fact recorded by the trial Court, particularly when
the said finding is based on an appreciation of oral evidence because the trial
Court has the advantage of watching the demeanour of the witnesses who have
given evidence. Thus, though the powers of the High Court in dealing with an
appeal against acquittal are as wide as those which it has in dealing with an
appeal against conviction, in-dealing with the former class of appeals, its
approach is governed by the overriding consideration flowing from the
presumption of innocence.
Sometimes, the widthof the power is
emphasized, while on other occasions, the necessity to adopt a cautious
approach in dealing with appeals against acquittals is emphasised, and the
emphasis is expressed in different words or phrases used from time to time. But
the true legal position is that however circumspect and cautious the approach
of the High Court may be in dealing with appeals against acquittals, it is
undoubtedly entitled to reach its own conclusions upon the evidence adduced by
the prosecution in respect of the guilt or innocence of the accused. this
position has been clarified by the Privy Council in Sheo Swarup v. The, King
Emperor (1) and Nur Mohammad v. Emperor In some of the earlier decisions of this
Court, however, in emphasizing the importance of adopting a cautious approach
in dealing with appeals against acquittals, it was observed that the
presumption of innocence is reinforced by the order of acquittal and so,
"the findings of the trial Court which had the advantage of seeing the
witnesses and hearing their evidence can be reversed only for (1) (1934) L.R.
61 1. A. 398.
(2) A.I.R. 1945 P.C. 151, 418 very
substantial and compelling reasons": vide Surajpal Singh v. The State (1).
Similarly in Ajmer Singh v. State of Punjab (2), it was observed that the
interference of the High Court in an appeal against the order of acquittal
would be justified only if there are "very substantial and compelling
reasons to do so.') In some other decisions, it has been stated that an order
of acquittal can be reversed only for "good and sufficiently cogent
reasons" or for "strong reasons". In appreciating the effect of
these observations, it must be remembered that these observations were not
intended to lay down a rigid or inflexible rule which should govern the
decision of the High Court in appeals against acquittals. They were not
intended, and should not be read to have intendedto introduce an additional
condition in clause (a) of section 423 (1) of the Code. All that the said
observations are intended to emphasise is that the approach of the High Court
in dealing with an appeal against acquittal ought to be cautious because as
Lord Russell observed in the case of Shoo Swarup, the presumption of innocence
in favour of the accused "is not certainly weakened by the fact that he
has been acquitted at his trial." Therefore, the test suggested by the
expression "substantial and compelling reasons" should not be
construed as a formula which has to be rigidly applied in every case. That is
the effect of the recent decisions of this Court, for instance, in Sanwat Singh
v. State of Rajasthan (2), and Harbans Singh v. The State of Punjab (4); and
so, it is not necessary that before reversing a judgment of acquittal, the High
Court must necessarily characterise the findings recorded therein as perverse.
Therefore, the question which we have to ask ourselves in the present appeals
is whether on the material produced by the prosecution, the High Court was
justified in reaching the conclusion that the (1) (1952) S.C.R. 193, 201. (2)
(1953) S.C.R 418 (3) (1961) 3 S C. R. 120. (4) (1962) Supp. I.S.C.R 104.
419 prosecution case against the appellants
had been proved beyond a reason-able doubt, and that the contrary view taken by
the trial Court was, erroneous. In answering this question, we would, no doubt,
consider the salient and broad features of the evidence in order to appreciate
the grievance made by the appellants against the conclusions of the High Court.
But under Art. 136 we would ordinarily be reluctant to interfere with the
finding of fact recorded by the High Court particularly where the said findings
are based on appreciation of oral evidence.
There is another point of law which must be
considered before dealing with the evidence in this case. The prosecution case
against accused No. 1 rests on circumstantial evidence. The main charge of
conspiracy under section 120 B is sought to be established by the alleged
conduct of the conspirators and so far as accused No. 1 is concerned, that
rests on circumstantial evidence alone. It is a well established rule in
criminal jurisprudence that circumstantial evidence can be reasonably made the
basis of an accused person's conviction if it is of such a character that it is
wholly inconsistent with the innocence of the accused and is consistent only
with his guilt. If the circumstances proved in the case are consistent either
with the innocence of the accused or with his guilt, then the accused is
entitled to the benefit of doubt. There is no doubt or dispute about this
But in applying this principle, it is
necessary to distinguish between facts which may be called primary or basic on
the one hand and inference of facts to be drawn from them on the other. In
regard to the proof of basic or primary facts the Court has to judge the
evidence in the ordinary way, and in the appreciation of evidence in respect of
the proof of these basic or primary facts there is no scope for the application
420 of the doctrine of benefit of doubt. The Court considers the evidence and
decides whether that evidences proves a particular fact or not. When it is held
that a certain fact is proved, the question arises whether that fact leads to
the inference of guilt of the accused person or not, and in dealing with this
aspect of the problem, the doctrine of benefit of doubt would apply and an
inference of guilt can be drawn only if the proved fact is wholly inconsistent
with the innocence of the accused and is consistent only with his guilt. It is
in the light of this legal position that the evidence in the present case has
to be appreciated.
The Court then considered the evidence and
the findings of the High Court and dismissed the appeals.