Author: Dhanya Hegde, Student at MKPM RV Institute of legal studies
ABSTRACT
The infamous Hawala case also known as the jain diaries case was all about Indian political and financial scandals that involved national bureaucrats and leading politicians who made payments (black money) by way of four hawala brokers, namely jain brothers. The money involved in the case was about 18 million US$ which is about 650 million Indian Rupees which was a major bribery scandal and it was alleged that these payments were directed towards a terrorist group in Kashmir. When the public interest litigation was filed before the supreme court by Vineet Narain, a journalist, the court pointed out the importance of giving freedom for government agencies to carry out their work.
INTRODUCTION
Hawala is an informal money transfer system operating outside traditional banking channels, typically involving a network of hawala dealers to facilitate transactions. There is no physical movement of cash and brokers are the only key persons in this transaction. Hawala transactions rely entirely on trust and personal connections between the dealers and clients. The dealers hold separate informal journals to record these transactions. It is important to note that Hawala brokers are neither supervised nor licensed.
BACKGROUND
In 1991, two Kashmiri militants named Shahabuddin Ghauri and Ashfaq Lone were arrested under the Terrorist and Disruptive Activities Act (TADA). The officers while investigating found out that Surendra Kumar Jain and his family were acting as a conduit for passing on hawala money to terrorist organisation Hizbul Mujahideen. On the basis of the information received during interrogation conducted by the Central Bureau of Investigation (CBI), there were multiple raids conducted on the premises of Surendra Kumar Jain, his brothers, his relatives and businesses. The CBI seized two diaries, two notebooks and foreign currencies in these premises. These diaries contained details about the accounts and payments made to people, identified only by initials. Later it was revealed that the initials in the diary were of High rank politicians who were in power as well as out of power and high ranking bureaucrats.
FAILURE OF GOVERNMENT AGENCIES TO CONDUCT INVESTIGATION
As the world’s largest democracy, India’s political landscape was severely polarized, with the three major parties, including the ruling Congress Party, facing significant turmoil, particularly after seven ministers resigned due to overlapping responsibilities. Authorities including the CBI were reluctant to investigate and prosecute the prominent figures. Meanwhile the officers involved in the investigation were transferred to other places by the orders of the government.
On 4th October 1993, a writ petition was filed under Article 32 on public interest litigation by Vineet Narain, a journalist. It was alleged that government agencies fell short in their duties by not thoroughly investigating the leads stemming from the seized Jain diaries. The arrest of terrorists revealed that they were receiving financial support through these hawala transactions. The investigation also exposed a deep-seated connection between politicians, bureaucrats, and criminals, who were receiving illegal funds for illicit purposes. Furthermore, it highlighted the failure of the CBI and other government agencies to thoroughly probe the matter, follow it through to its conclusion, and prosecute those involved in wrongdoing. The principles of integrity in public life, adherence to the rule of law, and protection of democracy demanded that government agencies be required to fulfill their legal duties and take action according to law against every individual involved, regardless of their position in the political hierarchy.
LEGAL PROVISIONS INVOLVED
In India, hawala transactions are illegal due to their anonymous nature, as they don’t disclose the identities of the parties involved. This system operates solely on trust between the parties, but it also fosters a parallel economy that can hinder a nation’s growth. Built on trust, this system generates a parallel economy that hampers national growth. The Hawala transactions are in violation of Section 3 of the Foreign Exchange Management Act, 1999 (FEMA) which forbids foreign transactions through unauthorised persons and The Prevention of Money Laundering Act, 2002, deems hawala transactions illegal when receipts are used for money laundering purposes. Prevention of money laundering Act, 2002 which considers hawala illegal if the receipts are used for money laundering.
The politicians and bureaucrats who were involved in this case were charged under Section 120B of Indian penal code (IPC) for abetting a criminal conspiracy, Section 7 of Prevention of corruption Act, 1988 which criminalized the act of public servant for demanding or accepting a bribe to influence their actions in their official capacity, Section 13(1)(d) of Prevention of corruption Act, 1988 of deals with criminal misconduct by public servants.
CBI REPORT
Based on Vineet Narain’s complaint, Surendra Kumar Jain was taken into custody.
On the basis of a complaint made by Vineet Narain, Surindra Kumar jain was arrested. A formal report was prepared ,containing the information revealed by Surindra Kumar jain. There was also a complaint filed alleging that the Prime Minister was influencing the enquiry. The court ordered the CBI not to reveal any information regarding this case to the higher authorities or to politicians. The prime minister Mr. Narasimha Rao denied the allegations and said that, until the contrary is proved, he and all the other politicians and bureaucrats who were speculated to be connected in this case should be deemed innocent. He also denied the allegations that he and his associates were intervening in the hawala issue.
SUPREME COURT DECISION
The Supreme Court proceedings in this case did not relate to the hawala case, but focused on the suspicious transfer of the officers investigating this case and the misuse of power by politicians and high rank bureaucrats. The court framed certain guidelines and stated that whenever there is a failure from the appropriate authorities to perform their duties, the judiciary should take reasonable actions to uphold the principles of natural justice. To promote transparency and fairness, the court introduced the concept of ‘continuing mandamus’, a judicial tool that compels public authorities to fulfill ongoing duties and comply with legal obligations.
To ensure transparency and fair proceedings the court evolved a new concept called “continuous mandamus” which is a judicial remedy that requires a public authority to perform an ongoing duty or comply with a legal obligation. It’s used when a one-time court order isn’t enough, and the court needs to oversee ongoing compliance. The court directed the establishment of the Central Vigilance Commission, superseding the CBI’s authority, and also struck down the government’s order requiring the CBI to seek permission before conducting investigations.
CONCLUSION
This case brought the problem of corruption and Hawala transactions into broad daylight. The scandal involving high-ranking bureaucrats and politicians drew widespread attention from the public and media. It was alleged that government agencies fell short in their duties by not thoroughly investigating the leads stemming from the seized Jain diaries. Public interest litigation and media trials played an important role in this case. The court established a new concept called continuous mandamus. The politicians who were involved in the scam were forced to resign. The Central vigilance commission was given statutory status in 1997. Even after decades the case still steals the limelight whenever the case related to hawala transactions comes into picture.
FAQS
What are the powers of the Central vigilance commission (CVC)?
The Central Vigilance Commission (CVC) possesses various powers and functions to oversee and combat corruption in India’s public administration. Key powers include supervising the Delhi Special Police Establishment (CBI) regarding corruption investigations, conducting inquiries into corruption allegations, and advising the government on vigilance matters. The CVC also has the power to call for information and reports from government bodies and to review the progress of investigations.
What is the punishment for the offenders of hawala?
In India, Hawala transactions are illegal under the Foreign Exchange Management Act (FEMA) and the Prevention of Money Laundering Act (PMLA). Violations can lead to imprisonment and fines. Specifically, the PMLA can impose rigorous imprisonment for a term between three to seven years and a fine of up to five lakh rupees.
According to the PMLA, anyone involved in money laundering, including through Hawala, can face imprisonment of at least three years, potentially extending to seven years, and a fine of up to five lakh rupees, according to the Department of Economic Affairs.
