Since the shock announcement by Prime Minister Narendra Modi on November 8 that all Rs 500 and Rs 1,000 notes would be demonetised, there have been several reports – from Nagaland to Delhi to Lucknow to Punjab to Chhattisgarh to Gujarat to Himachal Pradesh to Karnataka – of state police seizing large consignments of the so-called banned notes.
From these reports, it appears the police have seized these notes from the vehicles of people in transit and that these people have been detained or arrested before being handed over to the income tax department. It would be safe to assume that these reported instances are only a small part of the cash seizures that have taken place since the announcement.
Few of the news reports have mentioned the substantive legal provision under which the police conducted the searches that led to the discovery of the notes and the detention of the persons carrying them.
Possession no offence
To begin with, the nomenclature of banned notes is in itself problematic. As the prime minister said in his demonetisation announcement, the notes are now “worthless pieces of paper” but that does not automatically make their possession illegal under law. It only means that the Reserve Bank of India does not guarantee the notes anymore and it is not required under law to honour the bearer of the note who seeks to exchange it at the central bank. As of now, although the government has stopped over-the-counter exchange of the old currency, those with bank accounts can still deposit these demonetised notes in their accounts.
More pertinently though, the government has not enacted a law prohibiting the possession or exchange of the demonetised notes. By way of illustration, during the last demonetisation exercise in 1978, Section 4 of The High Denomination Bank Notes (Demonetisation) Act, 1978, specifically prohibited the transfer and receipt of high-denomination banknotes from January 16 that year. This is yet to happen with regard to the notes demonetised on November 8. Therefore, the old Rs 500 and Rs 1,000 notes are not banned in the legal sense. Two people willing to make a transaction in such notes can still do so, provided the recipient has a bank account where the notes can be deposited. Banks are obligated to accept such deposits till December 30. In fact, it is but obvious that some with black money will use this route to launder their cash, by making purchases from those in the retail business who can afford to deposit the notes in their bank accounts without raising the suspicion of the authorities. It follows, from this explanation, that the possession and exchange of such demonetised notes is also not a crime until Parliament enacts a law to the contrary.
Even if a person is in possession of bank notes that are a result of income tax evasion, then he or she is most likely liable for violation of the Income Tax Act. However, even in those circumstances, the police forces do not have the power under law to conduct search and seizure of undisclosed income. That honour lies with only with the income tax department.
Jurisdiction and powers
The law very clearly lays down the jurisdiction of different investigating agencies to investigate different violations of the law. Offences under the Indian Penal Code, 1860 come under the jurisdiction of the state police and their powers to investigate and prosecute these offences are governed by the Code of Criminal Procedure, 1973. Similarly, evasion of income tax due under the Income Tax Act, 1961 lies within the exclusive domain of the income tax department.
Each investigating agency is governed by different procedural laws. For example, while investigating offences under the Indian Penal Code or other criminal laws, the police can ordinarily, subject to some exceptions, search private property only if they have a search warrant (or arrest warrant) from a court under Section 93 of the Code of Criminal Procedure, 1973. On the other hand, the income tax department does not require court-sanctioned search warrants to conduct search and seizure on suspicions of tax evasion. Instead, Section 132 of the Income Tax Act empowers the Central Board of Direct Taxes to authorise certain ranks of officers from the Indian Revenue Service to conduct searches for violation of the Income Tax Act.
Each set of laws provides their own safeguards to limit the possible abuse of power by the authorities conducting the search. Thus, a police officer who recovers cash while investigating an offence such as theft or murder under the Indian Penal Code is well within his limits to seize it and follow the procedure under the Code of Criminal Procedure to preserve it as evidence. He cannot, however, conduct searches on the premise of investigating offences under the Income Tax Act because he lacks the power to do so under the law.
The logic of these procedural rules and delineation of jurisdiction between different agencies is to guarantee the protection of basic liberties of every citizen and ensure accountability of the various agents of the state. As the old saying goes, a “man’s home is his castle” and the state has no business entering it unless authorised by law.
The only laws lacking in such safeguards are terrorism-related laws such as the Armed Forces Special Power Act, 1958, which gives officers the right to search and seize without the need for a court-sanctioned warrant or any equivalent safeguards.
Poll season seizures
The only other time India has witnessed such a large number of illegal seizures of cash is during election season. These seizures typically take place from vehicles in transit and are conducted under the aegis of the Election Commission, which takes over the entire district administration during poll season. Except, as I’ve written elsewhere, these seizures are almost entirely illegal and the judiciary has severely reprimanded the Election Commission for authorising the search and seizure of such cash despite lacking the power to do so.
Traders who conduct their transactions in cash have constantly complained of abuse of power by the poll panel at times of elections. One such association of traders, Bhagyoday Janparishad, sued the Election Commission in the Gujarat High Court in 2012. In its judgement, the High Court said:
“We are of the opinion that in the zeal to ensure free and fair poll, a fundamental right as embodied under Article 21 of the Constitution of a common man no way concerned with any political party or election, except his right of franchise, cannot be permitted to be infringed in the manner as it is sought to be done as on today. Every citizen has a right of free movement throughout the territory of India. It is one of the fundamental rights. If that is to be curbed or restricted, it has to be in accordance with the law as existing and not otherwise even though on the instruction of the Election Commission. It is true that no right or fundamental right is absolute. Such rights can always be restricted and regulated. However, the reasonable restrictions have to be placed by making law and once such law exists, the rights cannot be restricted ignoring the law. It could not be said that there is no existing law under which the present situation could not be tackled by the state government or the commission. There cannot be any indiscriminate checking at any time of people travelling in their car with their families in the hope or suspecting that large amount of cash or any other valuables likely to be used in the election process may be recovered. The power which the Election Commission has bestowed upon its surveillance team is alien to our system.”
The court came down heavily on the Election Commission because there is no provision in the law that gives the commission the power to search and seize cash from vehicles in transit. At most, police forces working under the Election Commission can conduct search and seizure in pursuance of an investigation under Section 171B of the Indian Penal Code, which criminalises the bribing of voters. However, this offence is a non-cognisable offence, which means the police need the permission of the court to conduct an investigation.
The poll panel has demanded the conversion of this offence into a cognisable offence and while that proposal is pending with the government, it continues to conduct illegal searches during elections because the Gujarat High Court’s judgement has been appealed to the Supreme Court, where it has been pending for the last four years.
Fighting lawlessness with lawlessness
The sheer number of cash seizures over the last two weeks is astounding. The fact that these seizures have hardly raised a protest in the press is also worrying. Such selective silence, fuelled perhaps by the fact that these seizures are being made from wealthy people, is an invitation for future seizures, from those who are less fortunate.
Those guilty of tax evasion deserve to be prosecuted but that cannot be an excuse or invitation for law keepers to break the law. The heart of the black money problem is a culture of lawlessness that pervades our way of life. Surely, the state cannot tackle the problem with even more lawlessness?
