Sardul Singh Caveeshar vs The State Of Bombay

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Criminal Appeals Nos. 53 to 56 of 1957

Decision Date: 23 May 1957

Coram: B. Jagannadhadas, Bhuvneshwar P. Sinha, P.B. Gajendragadkar

Sardul Singh Caveeshar appealed against the State of Bombay and related appeals, with the judgment delivered on 23 May 1957 by the Supreme Court of India. The bench comprised Justices B. Jagannadhadas, Bhuvneshwar P. Sinha and P. B. Gajendragadkar. The case is reported in 1957 AIR 747 and 1958 SCR 161. The matters before the Court involved the law of evidence, specifically the provisions of the Indian Evidence Act of 1872 relating to sections 10 and 14, and concerned a conspiracy to commit criminal breach of trust, the proof of a bogus character of certain transactions, and the intention of the accused. The prosecution alleged that a conspiracy had been formed between 1 December 1948 and 31 January 1949 to misuse the funds of a company in order to purchase a controlling block of its own shares for the benefit of the appellants. According to the prosecution, the alleged scheme was to disguise the use of the company’s funds by claiming they were advanced for legitimate purposes and were invested on proper security, whereas in reality the funds were diverted to pay the appellants. A principal issue before the Court was whether the advances of company funds made on 20 January 1949 were genuine loans or were fictitious and therefore fraudulent. The Court also examined whether evidence of later transactions undertaken in 1949 and 1950, which were intended to conceal the original transactions, could be admitted in evidence.

The Court held that, for the prosecution’s main purpose of proving the fraudulent nature of the January 1949 transactions, the subsequent transactions of 1949 and 1950 that occurred outside the period of the alleged conspiracy must be regarded as integrally connected and relevant. The Court explained that such evidence, although it may require reference to acts of the conspirators after the conspiracy period, is necessary to demonstrate the bogus character of the earlier transactions. Furthermore, the Court ruled that the conduct of each co‑conspirator, including any acts, writings or statements, can be relied upon by the prosecution to show the criminal intent of an individual accused, even if those acts occurred outside the period of the conspiracy. This principle is intended to counter any defence that, although participation in the conspiracy is proved, the participation was innocent. The Court found that such evidence is admissible under section 14 of the Indian Evidence Act. In reaching this conclusion, the Court relied on the authority of Makin v. The Attorney General for New South Wales, L.R. (1894) A.C. 57. The judgment further noted that, under section 10 of the Indian Evidence Act, evidence of acts, statements or writings of a co‑conspirator—whether the conspirator is on trial or not—relating to periods outside the conspiracy would not be admissible against other conspirators for the specific purpose of proving the existence of the conspiracy, as held in the precedent Mirza Akbar v. The King.

The judgment reported in Emperor (1940) L.R. 67 I.A. 336 concerned criminal appellate jurisdiction over Appeals Nos. 53 to 56 of 1957, which were taken by special leave from a decision dated 21 November 1956 of the Bombay High Court in Appeals Nos. 861‑864 of 1956. Those appellate decisions arose from a judgment and order dated 1 June 1956 rendered by the Court of the Additional Sessions Judge for Greater Bombay in Sessions Case No. 27/111 of 1955. Counsel for the appellants were A. S. R. Chari and M. S. K. Sastri, while the respondent was represented by K. J. Khandalawala, Porus A. Mehta and R. H. Dhebar. The judgment was delivered on 23 May 1957. The matter involved four individuals who, together with Ramniklal Keshavlal Jhaveri – later acquitted – had been committed for trial before the Sessions Judge of Greater Bombay on charges of conspiracy to commit criminal breach of trust involving the funds of Jupiter General Insurance Co. Ltd. (referred to as the Jupiter). The prosecution alleged that, in furtherance of the alleged conspiracy, some of the accused who were directors or agents of the Jupiter had actually committed criminal breach of trust, while others were charged with abetting that breach. The trial was conducted with a jury, and all the accused except Jhaveri were found guilty. Sardul Singh Caveeshar and Parmeshwar Nath Kaul, listed as appellants in Appeals Nos. 53 and 54 respectively, were convicted by a majority verdict, whereas Vallabhdas Phulchand Mehta and Charucharan Guha, appellants in Appeals Nos. 55 and 56 respectively, were convicted by a unanimous verdict. The jury’s findings were accepted by the Sessions Judge, who imposed the following sentences: Sardul Singh Caveeshar received three years of rigorous imprisonment and a fine of Rs 2,500; Parmeshwar Nath Kaul was sentenced to five years of rigorous imprisonment and a fine of Rs 5,000; Vallabhdas Phulchand Mehta was sentenced to five years of rigorous imprisonment and a fine of Rs 5,000; and Charucharan Guha received three years of rigorous imprisonment and a fine of Rs 2,500. The conspiracy charge covered the period from 1 December 1948 to 31 January 1949 and originally named eight persons. Two of those, Lala Shankarlal Hiralal Bansal (referred to as Lala Shankarlal) and Saubhagyachand Umedchand Doshi (referred to as Doshi), died before trial commenced. Another conspirator, Lala Ram Sharandas alias Ramsharan Lala Haricharan Mahajan (referred to as Mahajan), was also a party to the conspiracy but his trial was separated for unspecified reasons. The individuals actually tried in the present case were: Parmeshwar Nath Kaul, identified as accused No. 1 and appellant in Criminal Appeal No. 54 of 1957; Vallabhdas Phulchand Mehta, identified as accused No. 2 and appellant in Criminal Appeal No. 55 of 1957; Ramniklal Keshavlal Jhaveri, accused No. 3, who had been acquitted by the Sessions Judge; Charucharan Guha, accused No. 4 and appellant in Criminal Appeal No. 56 of 1957; and Sardul Singh Caveeshar, accused No. 5 and appellant in Criminal Appeal No. 53 of 1957.

In this case the Court listed the accused persons who were before the trial. The second appellant was identified as Vallabhdas Phulchand Mehta, who was designated as accused number two and was referred to as Mehta. The third accused was Ramniklal Keshavlal Jhaveri; he had been acquitted by the Sessions Judge and was therefore referred to as Jhaveri. The fourth accused was Charucharan Guha, who was accused number four and was the appellant in Criminal Appeal No 56 of 1957; the Court therefore called him Guha. The fifth accused was Sardul Singh Caveeshar, who was accused number five and the appellant in Criminal Appeal No 53 of 1957; the Court referred to him as Caveeshar. The prosecution also described Lala Shankarlal, who resided at No 16, Bara Khamba Road, New Delhi. Lala Shankarlal was the managing director of the Tropical Insurance Co. Ltd., New Delhi, and was therefore called the Tropical. He simultaneously held a directorship in the Punjab Central Bank, had founded and controlled the Delhi Swadesi Co‑operative Stores (referred to as Delhi Stores), and was a leader of the Forward Bloc in 1948. The Court then provided the professional backgrounds of each accused. Accused number one, Parmeshwar Nath Kaul, was a barrister who had remained in Lahore until the Partition of the country and was in Delhi in December 1948. Accused number two, Mehta, acted at all material times as the manager of the Bombay Office (General) of the Tropical. Mahajan, whose name appeared in the records, served at all material times as the secretary of the Tropical and also as director‑in‑charge of Delhi Stores. Accused number three, Jhaveri, was a solicitor practicing in Bombay at all material times. The deceased Doshi had also been a practising solicitor in Bombay until his death. Accused number four, Guha, was employed in December 1948 as an accountant of the Tropical. Accused number five, Caveeshar, was the managing director of Peoples Insurance Co. and also the managing director of the New Hindustan Bank; he had previously been a member of the All India Congress Committee and was a prominent member of the Forward Bloc. The prosecution’s case, as outlined by the Court, alleged that Lala Shankarlal was the mastermind of a conspiracy. At the time of the alleged plot Lala Shankarlal, as managing director, exercised control over the financially strained Tropical and conspired with his associates to gain control of the Jupiter, which was then financially sound. Their scheme involved acquiring the controlling block of Jupiter’s shares and using Jupiter’s own funds to purchase those shares. At the date of the alleged conspiracy the Jupiter held investments with a face value of two crore rupees. It had issued 1,24,966 ordinary shares of one hundred rupees each, of which fifteen rupees per share had been called up, and it had also issued cumulative preference shares. In 1948 the Jupiter was under the control of Rai Bahadur Girdharilal Bajaj (referred to as Bajaj) and Tulsiprasad Khaitan (referred to as Khaitan). Through New Prahlad Mills Ltd., Bajaj and Khaitan, together with their nominees, owned about sixty‑three thousand shares, constituting the controlling block of Jupiter. After these facts, negotiations began, first through certain persons identified as Mayadas, and subsequently through other intermediaries.

Negotiations conducted through certain persons, including Mayadas, Chopra and a man named Naurangrai, resulted in a bargain with Khaitan for the purchase of the controlling block of Jupiter shares at a price of fifty‑three rupees per share, amounting to a total of thirty‑three lakh thirty‑nine thousand rupees. Under the terms of this arrangement, five lakh thirty‑nine thousand rupees of the purchase price was to be paid directly in cash to Bajaj and Khaitan, while the balance of twenty‑eight lakh rupees would be recorded as the price for the shares. The agreement stipulated that upon receipt of the cash payment of five lakh thirty‑nine thousand rupees, the management of Jupiter would be transferred to Lala Shankarlal and his associates, and the remaining twenty‑eight lakh rupees would be paid to Khaitan on or before 20 January 1949. If the latter payment failed to be made by the prescribed date, Lala Shankarlal, acting on behalf of the Tropical, was required to pay Khaitan a penalty of five lakh rupees for breach of contract. In compliance with the agreement, a sum of four lakh eighty‑five thousand rupees was paid to Bajaj on or about 29 December 1948, and on that same day a formal agreement dated 29 December 1948 was executed, incorporating all the foregoing terms. On that very date Bajaj and other directors of the Khaitan group convened a meeting at which they allotted one thousand two hundred and fifty shares immediately to Lala Shankarlal and four of his nominees—Kaul, Mehta, Jhaveri and Doshi—each receiving two hundred and fifty shares as qualifying holdings. The transfer of these shares was ratified by a resolution, the nominees were co‑opted as directors, and the existing directors resigned their offices. Subsequently Khaitan resigned as managing director of Jupiter, and at the same meeting Lala Shankarlal was appointed as his successor.

The transfer of sixty‑one thousand seven hundred and fifty shares for the amount of twenty‑eight lakh fifteen thousand rupees, to be paid to Bajaj and Khaitan before 20 January 1949, was effected through a series of board actions. At a meeting of some of the newly appointed directors of Jupiter held on 11 January 1949, it was resolved to sell Jupiter’s securities, having a face value of fifteen lakh rupees, at prevailing market rates, and to obtain an overdraft facility of fourteen lakh rupees from Punjab National Bank, secured by pledging Jupiter’s government securities. In the same meeting the board purportedly authorized a loan of twenty‑five lakh fifteen thousand rupees to Caveeshar by way of an equitable mortgage, allegedly based on an application dated 4 January 1949 concerning his properties in Delhi, and supposedly supported by a valuation report prepared by a firm of surveyors. Another alleged resolution sanctioned the purchase of plots belonging to “Delhi Stores” for a price of two lakh sixty thousand rupees; the prosecution claimed that “Delhi Stores” was under the control of Lala Shankarlal and was a defunct organization at that time. The plan embodied in these resolutions was to generate cash from Jupiter by partially selling securities and partially pledging them, to record part of the proceeds as a loan to Caveeshar secured by his Delhi properties, and to record the remainder as an investment for acquiring the Delhi Stores plots. The prosecution alleged that Lala Shankarlal was to receive these amounts on behalf of Caveeshar and the Delhi Stores, and then to forward the cash as required by the earlier purchase agreement with Bajaj and Khaitan.

In the scheme described by the prosecution, the cash obtained from the Jupiter Company was to be shown as a loan to Caveeshar secured by his Delhi properties, and an additional amount was to be presented as an investment for the purchase of plots of the Delhi Stores. Lala Shankarlal was to receive these sums on behalf of Caveeshar and the Delhi Stores and then to forward the cash he obtained to Bajaj and Khaitan according to the agreement between them. According to the prosecution, this arrangement was actually carried out. The safe‑custody account that held all of the Jupiter securities with the Bank of India was closed by a resolution of the new directors dated 11 January 1949, and the securities were transferred into the personal custody of Mehta. Subsequently, securities valued at Rs 30 lakhs were offered for sale through a broker, who succeeded in selling only shares worth Rs 15 lakhs. To raise the remaining Rs 15 lakhs, an overdraft was obtained from the Punjab National Bank on an application made by Lala Shankarlal and on the pledge of certain Government securities of the Jupiter. The sale of securities produced Rs 13,99,768, and the pledge of securities yielded Rs 14,21,812, together amounting to Rs 28,21,580. Of this total, Rs 28,15,000 was recorded as having been received by the Bank of India and was credited to the cash‑credit account of New Prahlad Mills Ltd. Consequently, Khaitan obtained the balance of the money due under the agreement dated 29 December 1948. To prove this case, the prosecution presented a substantial volume of evidence containing many detailed particulars. The salient features of that evidence were summarised by the prosecution in three chronological segments. The first segment covered the period of alleged conspiracy, namely 1 December 1948 to 31 January 1949. The second segment spanned from 1 February 1949 to the end of December 1949. The third segment dealt with events occurring in the year 1950. During the first period, negotiations for the purchase of a controlling block of Jupiter shares began around 10 December 1948. From the 10th to the 20th of December, the negotiations were conducted through a man named Mayadas, who had been introduced to Lala Shankarlal by a person named Chopra. On 15 December 1948, Lala Shankarlal, acting as managing director of the Tropical, gave Mayadas a letter of authority authorising him to buy, on behalf of the Tropical, the controlling block of Jupiter shares at a maximum price of Rs 49 per share, with a promised brokerage fee of Rs 40,000 upon completion of the transaction. Chopra also acted as a broker together with Mayadas. These intermediaries were later dropped, and further negotiations from the 20th onward were carried on through a person named Naurangrai, who had known Lala Shankarlal for about forty years.

From the twentieth day of December 1948 onward, the negotiations for acquiring the controlling block of shares were conducted through a man named Naurangrai, who had known Lala Shankarlal for roughly forty years. Through Naurangrai, the parties agreed to purchase a block of sixty‑three thousand shares at a price of Rs 53 per share, making the total purchase price Rs 33,39,000. Khaitra demanded an advance payment of Rs 5,39,000 in cash and indicated that the formal agreement would state a purchase price of only Rs 28 lakhs. Naurangrai was given possession of the Rs 5,39,000 after he executed a pro‑note dated 23 December 1948 (Ex. Z‑4) for that sum in favour of the Tropical. The advance was transferred by two cheques signed by Lala Shankarlal: one for Rs 1,00,000 dated 22 December 1948 (Ex. Z‑1) and another for Rs 4,39,000 dated 23 December 1948 (Ex. Z‑3). Naurangrai deposited both amounts into his account with the Bikanir Bank at Delhi. On 26 December, Lala Shankarlal, Naurangrai and Khaitan met in Bombay and discussed further details on the 26th and 27th. Khaitan insisted on receiving the advance of Rs 5,39,000 before any further steps. Lala Shankarlal asked for the list of securities and shares, the valuation report and the balance sheet of the Jupiter. Naurangrai then returned to Delhi, withdrew Rs 5,00,000 in cash from his bank account and paid Rs 4,85,000 of that amount to a man named Bajaj at Ghaziabad. He subsequently returned to Bombay and informed Khaitan of the payment. The parties then executed the agreement labelled Ex. Z‑171 on 29 December 1948.

The agreement stipulated that the Tropical would pay the remaining balance of Rs 28,54,000 on or before 20 January 1949, upon which the sixty‑three thousand Jupiter shares would be delivered. It required the shareholder‑directors belonging to the Khaitan group to resign and for nominees of the Tropical to be appointed as directors in their place. If the Tropical failed to make the payment by the prescribed date, it would owe damages of Rs 5,00,000 to the Khaitan group; conversely, if the Khaitan group failed to fulfil its obligations, it would owe damages of Rs 2,00,000. After the agreement, it was discovered that Khaitan had agreed to pay Naurangrai a commission of Rs 39,000, which Lala Shankarlal undertook to discharge, thereby reducing the amount payable by 20 January to Rs 28,15,000. Both Khaitan, acting for New Prahlad Mills Ltd. (the owner of the controlling block of Jupiter shares), and Lala Shankarlal, acting for the Tropical, signed the agreement on the same day. On that date a meeting of the Jupiter board of directors was convened, during which one thousand two hundred fifty shares were transferred to Lala Shankarlal, Kaul, Mehta, Jhaveri and Doshi—each receiving two hundred fifty shares—to qualify them as directors. The transfer was confirmed by a board resolution.

The prosecution asserted that no consideration was paid by the persons to whom the shares were transferred. At the board meeting where the transfers were recorded, the members of the former board tendered their resignations in a series of stages. After each resignation the remaining directors of the pre‑existing board accepted the resignation and co‑opted new directors who belonged to the group of Lala Shankarlal. As a result the whole Khaitan group of directors was replaced by the new Lala Shankarlal group, and Lala Shankarlal assumed the position of managing director. The first meeting of the reconstituted board of the Jupiter took place on 4 January 1949. At that meeting Kaul was appointed director‑in‑charge. The board also created a new Life sub‑committee composed of Mehta, Jhaveri and Doshi, and a new finance sub‑committee consisting of Lala Shankarlal, Kaul and Mehta. The two committees were tasked with reviewing the company’s investment position and with investing the company’s funds in securities, shares and stocks in such manner as the committees thought appropriate. A power of attorney was granted to Lala Shankarlal in his capacity as managing director. Kaul and Mehta were each individually authorised to operate the company’s banking accounts with all banks. Three directors who were policy‑holders together with the general manager, Joel, also resigned and their resignations were accepted by the board. A further meeting of the new directors was held on 11 January 1949. At that meeting the board passed a number of resolutions, some of which later became the subject of considerable controversy and were the focus of the evidence of Subramaniam for the prosecution. One resolution, which was not disputed, ordered the withdrawal of a letter written by the former general‑manager Joel dated 3 January 1949. In that letter (Ex. Z‑30) Joel instructed the Bank 22 of India, Safe Custody Department, not to transfer any of the securities held by the bank on behalf of the company until further notice. On 11 January 1949 a copy of the resolution to withdraw Joel’s letter was sent to the bank, signed by Mehta, for the bank’s information. On the same day a second letter, sent by the sub‑manager Baxi (Ex. Z‑32), directed the bank to close the safe‑custody account and to hand over all of the Jupiter’s securities to Mehta. Accordingly, all of the securities were removed from the bank’s custody, transferred to the Jupiter’s office, and stored in a steel cupboard.

During the 11 January meeting the board also passed two resolutions that later became disputed, identified as resolutions 7 and 8. Resolution 7 authorised the sale of Jupiter securities having a face value of rupees 15 lakhs at the prevailing market rate. Resolution 8 provided for the creation of an overdraft facility of rupees 14 lakhs with the Punjab National Bank, secured by a pledge of the Jupiter’s government securities. After the complete withdrawal of the shares and securities from the bank’s safe‑custody, Kaul approached a sub‑broker named Jagirdar, who was employed by the firm Messrs Harkisondas Laxmidas, share brokers. Kaul authorised Jagirdar to act on behalf of the Jupiter by issuing a letter (Ex. Z‑36) dated …​, thereby granting the sub‑broker permission to handle the securities in accordance with the board’s earlier resolutions.

On 13 January 1949, Kaul authorised the sub‑broker Jagirdar of Messrs Harkisondas Laxmidas, share‑brokers, by a letter dated the same day to sell a three‑per‑cent conversion loan of 1946 having a face value of Rs 30 lakhs at the best prevailing market rate. The brokers proceeded to sell securities amounting to a face value of Rs 15 lakhs on 13 and 14 January and then informed Kaul that the market was falling and that further disposal of the securities would not be practicable. The sale of the Rs 15 lakhs of securities generated a receipt of Rs 13,99,788. Subsequently, on behalf of the Jupiter company, Kaul opened a current account with the Punjab National Bank in Bombay on 13 January. Two days later, on 15 January, Kaul dispatched two separate letters, one addressed to the Punjab National Bank and the other to the Bank of India. In these letters he announced that the Jupiter would forward bearer Government securities of Rs 14 lakhs to the Punjab National Bank and of Rs 1 lakh to the Bank of India, directing each bank to deliver the securities to Messrs Harkisondas Laxmidas against payment and to credit the proceeds to the Jupiter’s account. Accordingly, the proceeds from the sale were deposited in the respective banks and the securities were handed over to the designated parties on 17 January. The prosecution alleges that on the same day, 17 January 1949, Lala Shankarlal approached the Punjab National Bank, Kashmere Gate Branch, Delhi, seeking a loan secured by Government promissory notes. He established a cash‑credit account pledged with securities having a face value of Rs 15 lakhs and executed a promissory note for that amount. The bank then advanced a loan of Rs 14 lakhs and issued a demand draft dated 17 January in favour of the Jupiter, drawn on the Punjab National Bank’s Currimjee House Branch in Bombay. A list of the securities pledged to secure the loan was admitted as evidence. The demand draft was taken to Bombay and credited to the Jupiter’s account at the Currimjee House Branch on 18 January. Consequently, by combining the proceeds from the securities sale with the loan obtained against the Jupiter’s own securities, a total of Rs 27,99,768 became available for the company’s use. On 19 January, Mehta wrote to the Punjab National Bank, Currimjee House Branch, Bombay, directing the bank to pay Rs 28,15,000 to the Bank of India where New Prahlad Mills Ltd. (Khaitan) held 61,394 Jupiter shares in a cash‑credit account and to obtain delivery of those shares on behalf of the Tropical. He also instructed the Bank of India, on the same day, to transfer the 61,394 shares to the Punjab National Bank’s Currimjee House Branch against payment of Rs 28,15,000, referring to Khaitan’s earlier letter dated 3 January 1949. Additionally, on 19 January Mehta issued a cheque for Rs 75,000 on the Indian Bank, which was subsequently deposited into the Jupiter’s account at the Punjab National Bank, Currimjee House Branch on 20 January.

On January 19, Mehta transferred a cheque drawn on the Tropical account into the Punjab National Bank, Currimjee House Branch, and deposited it into the Jupiter account maintained at that same branch. The bank credited this cheque on January 20. On the same day, Mehta also wrote a letter to the Punjab National Bank, Illaco House Branch, where the Jupiter maintained an account, instructing that the Jupiter’s account be transferred to the Punjab National Bank, Currimjee House Branch. At that branch, Kaul had opened a current account for the Jupiter on January 13. After the deposit of the cheque, the balance credited to the Jupiter’s account at the Currimjee House Branch amounted to Rs 28,74,768. According to the prosecution, the amount of Rs 28,15,000 paid to Khaitan on January 20 was drawn from this balance, the payment being made against the transfer of a prescribed number of shares. The prosecution alleged that this payment had been concealed by a series of intermediate transactions.

The prosecution then set out its detailed case. It asserted that between January 18 and January 20, 1949, five cheques were issued on the Jupiter’s account in the Punjab National Bank, and that each of those cheques was subsequently deposited into the Tropical account held in the same bank. The first of those cheques was for Rs 2,55,050, dated January 18, 1949. It bore the signature of Kaul on behalf of the Jupiter and was payable to Delhi Stores. The cheque was endorsed in favour of the Tropical by Guha, who was claimed to be the director of Delhi Stores, although the prosecution argued that he was not. The same cheque was further endorsed by Mehta on behalf of the Tropical before being placed into the Tropical account.

The second and third cheques were drawn on January 19, 1949. One was for Rs 14,36,000 and the other for Rs 1,42,450. Both cheques were drawn on the Jupiter account and were made out to the order of the Tropical or to the order. The prosecution alleged that these cheques were written by Guha and signed by Kaul on behalf of the Jupiter. On the reverse side, each cheque was endorsed by Mehta acting for the Tropical, and they were then deposited into the Tropical account of the Punjab National Bank.

The fourth and fifth cheques were dated January 20, 1949. They were for Rs 8,96,000 and Rs 36,000 respectively, drawn on the Jupiter account and payable either to the Tropical or to the bearer. According to the prosecution, Guha wrote both cheques and Kaul signed them on behalf of the Jupiter. All five cheques were deposited into the Tropical account using a pay‑in slip dated January 20, 1949, which the prosecution claimed bore Guha’s handwriting and his signature dated the 19th.

The aggregate amount of the five cheques was Rs 27,65,700. The prosecution argued that, as a result of the instructions given by Mehta on January 19, the bank, on January 20, transferred Rs 28,15,000 from the Tropical account to the Bank of India. In exchange, the bank obtained delivery of 61,394 shares of the Jupiter from the Bank of India. The Punjab National Bank then held those shares in the Tropical’s account, and the payment of Rs 28,15,000 to Khaitan was effected from those funds.

It was observed that, when the 1,250 qualifying shares previously transferred were taken into account, the shares transferred by Khaitan fell short of the required 63,000 shares by 356 shares; however, the shortfall appeared to have been remedied very shortly thereafter. According to the prosecution, the payment made by the Jupiter for the purchase of its own shares was effected, in appearance, by the use of funds belonging to the Tropical in the Punjab National Bank. Those funds had been brought up to the necessary level by the deposit of five cheques described earlier, and the arrangement was characterised as a camouflaged scheme that derived its financial basis from certain resolutions of the newly constituted directorate of the Jupiter dated 11 January and 20 January 1949, and subsequently confirmed on 22 January. By virtue of resolution No 5, a loan of Rs 25,15,000 was granted to Caveeshar on his application of 4 January, based on a valuation report prepared by N C Kothari of Messrs Master Sathe and Bhuta, surveyors. The loan was secured by an equitable mortgage over Caveeshar’s properties in Delhi, with conditions that required a marketable title, a loan period of three years, and the usual clauses found in mortgage deeds. The same resolution authorised Kaul to advance the loan on those terms, to cause all necessary documents to be executed, and to have them registered in Delhi within the next eleven months. Resolution No 6 authorised the purchase of certain plots in Delhi, purportedly belonging to Delhi Stores, for a sum of Rs 2,60,000. On 20 January, the new directorate of the Jupiter met again, read and adopted the minutes of the 11 January meeting, and passed further resolutions. Resolution No 10 confirmed the payment of Rs 25,10,650 to Caveeshar on the basis of the equitable mortgage as previously approved by resolution No 5 of 11 January. Resolution No 11 confirmed the purchase of the Delhi Stores plots and authorised a payment of Rs 2,55,050 for the same. Resolution No 9 confirmed the sale of the Jupiter’s securities having a face value of Rs 15 lakh, while resolution No 12 confirmed the pledge of securities of the same face value as security for a cash‑credit facility with the Punjab National Bank for Rs 14 lakh. According to the prosecution, on 22 January 1949 a meeting of the board of directors of the Tropical, attended by Lala Shankarlal, took place. Resolution No 11 of that meeting confirmed the purchase, on behalf of the Tropical, of 63 000 Jupiter shares for Rs 28,15,000. Resolution No 12 confirmed the transfer of 48 399 of those shares to Delhi Stores as previously agreed. Finally, resolution No 13 approved the sale of the Tropical’s head‑office building to Caveeshar for Rs 23,50,000 and the sale of certain Tropical plots of land to Caveeshar for Rs 6,50,000, transactions that had been agreed on 23 December 1948 by the managing director Lala Shankarlal.

By resolution number fourteen, the board approved and confirmed the sale of certain plots of land and a building situated in Chandni Chowk, Delhi, which the managing director, Lala Shankarlal, had sold to the Delhi Stores for a consideration of Rs 2,60,000. The prosecution alleges that the resolutions passed at the Jupiter meetings on the eleventh and twentieth of the month, together with the resolution of the Tropical meeting on the twenty‑second, disclosed a scheme of camouflaging intended to conceal the fact that the payment for the purchase of Jupiter’s shares was drawn directly from Jupiter’s own funds. According to the prosecution, this arrangement, in its broad outline, illustrates the manipulations employed to achieve the alleged purpose. The prosecution introduced a considerable amount of evidence relating to the existence or absence of the required entries and documentary papers in the various books of account and other records of the three concerned entities – the Jupiter, the Tropical and the Delhi Stores. Further, the evidence sought to establish which of the accused persons was directly involved in each of the successive steps of the alleged plan. Direct testimony was offered by former employees of the Jupiter, notably a Mr Subramaniam and a Mr Rege, whose statements, the prosecution contended, bore significantly on the events of the period and, if accepted, would indicate a dishonest and deceitful basis for the alleged manipulations. In addition, it emerged that certain shareholders, having become aware of the transactions, sent formal notices through their solicitors to the newly appointed directorate of the Jupiter and to particular accused individuals, specifically Lala Shankarlal and Kaul, warning them against illegal and improper dealings with the company’s funds. The record also shows that two solicitors, identified as Sethia and Joshi, filed a suit on 19 January 1949 seeking an injunction to restrain the directors from disposing of the Jupiter’s securities so that the Tropical could not obtain the finances needed to purchase a controlling block of Jupiter’s shares. The defence suggested that these notices were followed by the institution of a suit at the instance of Khaitan himself and that, after the money was paid on the twentieth of the month within the stipulated time, the proceedings were withdrawn. Further evidence was adduced concerning the financial condition and property holdings of the Tropical, the Delhi Stores and Mr Caveeshar, intending to demonstrate that none of them were in any position that could justify the series of transactions carried out in their names. In particular, the prosecution produced evidence that Mr Caveeshar possessed no property capable of securing a loan of approximately Rs 25 lakhs and that the purported valuation report for such a loan either did not exist or was fraudulent. Moreover, the evidence established that the Delhi Stores was effectively a defunct company whose only assets comprised (1) thirty‑nine thousand seven hundred and fifty shares of the Tropical, each recorded at a book value of Rs 10 and lacking any market quotation, (2) other shares with a combined book value of Rs 16,879, (3) cash held in bank amounting to Rs 133‑14‑6, and (4) book debts totaling Rs 93,40,414, while it also carried liabilities to sundry creditors amounting to Rs 1,40,259‑3‑8.

In the first period, the evidence showed that the only assets of the Delhi Stores consisted of four items. First, the company owned a share that had no market quotation. Second, it possessed other shares with a book value of Rs 16,879. Third, it held cash in the bank amounting to Rs 133-14-6. Fourth, it claimed book debts equal to Rs 93,40,414. Against these assets the prosecution alleged that the Delhi Stores also owed sundry creditors a liability of Rs 1,40,259-3-8. This summary described the nature of the evidence presented concerning the first period of investigation.

The second period covered the time from February 1 1949 to the end of December 1949. According to the prosecution, during this interval Lala Shankarlal and his co‑conspirators were fully aware that the transactions recorded in January 1949 needed to appear settled before the year ended, so that they could avoid direct scrutiny. Consequently, they allegedly carried out further manipulations to show that the monies advanced to Caveeshar and to the Delhi Stores had been repaid before the close of the calendar year. On May 25 1949 the new directorate of the Jupiter met, and Lala Shankarlal informed the directors that Caveeshar was repaying his loan of roughly Rs 25 lakhs. He further stated that from this amount a sum of Rs 14 lakhs might be invested to purchase 40,000 shares of the Tropical, and Rs 2 lakhs could be raised on the equitable mortgage of the Tropical’s head‑office building. The contemplated loan of Rs 11 lakhs secured by the building never materialised. The prosecution then identified five transactions that occurred between May 25 and December 31 1949. The first was the Raghavji loan dated 5‑11‑1949, which resulted in a repayment of Rs 4,00,000. The second was a fresh Caveeshar loan of the same date, repaid by Rs 5,30,000. The third was the Misri Devi loan dated 20‑12‑1949, repaid by Rs 1,00,000. The fourth involved the purchase of 54,000 Tropical shares between 25‑5‑1949 and 20‑12‑1949, resulting in a repayment of Rs 14,00,000. The fifth was the transfer of Caveeshar from the Tropical to the Jupiter account on 31‑12‑1949, which produced a repayment of Rs 80,650. The total of these repayments amounted to Rs 25,10,650. To understand these transactions further, the prosecution explained that Raghavji, an about‑80‑year‑old gentleman residing in Cutch, owned a few properties there. His son Chandrakant, a member of the Forward Bloc and close political associate of Lala Shankarlal, was persuaded to allow his father’s name to be used for advancing monies on the basis of an equitable mortgage by depositing title deeds of the elder Raghavji’s property. This connection formed part of the scheme described for the second period.

On 5 November 1949 the board of directors of the Jupiter authorised the granting of a loan of five lakh rupees secured by an equitable mortgage on the properties of Raghavji, the sanction being conditioned upon a valuation report and a number of other terms and conditions that were specified in the resolution. Although the loan was formally required to be advanced only after the valuation report was completed and the conditions were complied with, the prosecution case and the evidence it produced indicated that the loan was actually disbursed in a different manner. The evidence showed that the total amount of five lakh rupees was paid out in two parts. First, three lakh rupees were taken out in cash directly from the funds of the Jupiter. Second, an amount of two lakh rupees was said to have been received back from Caveeshar and then handed over in cash to Raghavji. The payment of this two‑lakh sum, however, was not a straightforward cash transaction; it was recorded as a book adjustment. The adjustment reflected that two lakh rupees had been shown as having been paid by the Tropical to Caveeshar out of monies that belonged to Caveeshar with the Tropical. Those same two lakh rupees were then recorded as being credited to the Jupiter’s account by Caveeshar and immediately debited from that account to Raghavji.

From the remaining three lakh rupees that had been taken in cash from the Jupiter, the evidence further stated that two lakh rupees were not actually paid to Chandrakant. Instead, the records showed that Caveeshar had paid those two lakh rupees into the Jupiter’s account, thereby reducing the amount that Caveeshar owed to the Jupiter. As a result of these adjustments, a total of four lakh rupees of Caveeshar’s loan with the Jupiter was shown to have been reduced. The fate of the remaining one lakh rupees from this cash withdrawal was not clearly explained in the material before the Court.

The next transaction concerned a fresh loan to Caveeshar. At the same board meeting on 5 November 1949 in which the Raghavji loan was sanctioned, the directors also authorised a further loan of five lakh three thousand rupees to be advanced to Caveeshar. This second loan was to be secured by a pledge of shares in the People’s Insurance Company and the repayment period was stated to be two years. In practice, this entry functioned as a book adjustment: it reduced the balance of the loan already outstanding against Caveeshar and simultaneously created a new loan of the same amount on a different security. Consequently, the original indebtedness of Caveeshar to the Jupiter was further reduced by the amount of the fresh loan.

The third item recorded in the minutes was the loan to Misri Devi. At a board meeting held on 20 December 1949, an application for a loan of five lakh rupees from Misri Devi was considered. Misri Devi was described in the record as the daughter of Lala Dwaraka Das and also the wife of Lala Shankarlal. The board approved a loan of five lakh rupees to her, secured by her property in New Delhi, on the condition that the title to the property be marketable, that the loan be repayable within three years, and subject to the usual contractual clauses. In anticipation of disbursing this loan, two lakh rupees were apparently transferred on 22 November 1949 by Kaul from the Jupiter’s account held in the Punjab National Bank, Bombay, to the Jupiter’s account in Delhi. A further sum of two lakh rupees was sent on 27 December 1949 by the same Kaul, this time by telegraphic transfer from the Bombay account to the Delhi account, again in preparation for the disbursement of the loan to Misri Devi.

In the December 20, 1949 meeting of the board, a cheque drawn on the Jupiter’s account with the Punjab National Bank at Delhi for four lakh rupees, made payable to the drawer or to bearer, was issued and a sum of one lakh rupees was recorded as having been received by the Jupiter from Caveeshar through his Tropical account and subsequently shown as paid to Misri Devi. This entry reduced the amount that Caveeshar owed to the Jupiter by an additional one lakh rupees. At the same meeting a resolution was entered on the record indicating that, on the suggestion of Lala Shankarlal, the Jupiter arranged a bargain for the purchase of fifty‑four thousand shares of the Tropical instead of the forty thousand shares that had been contemplated in the directors’ resolution dated 25 May 1949. The purchase price was fixed at fourteen lakh rupees and the transaction was confirmed. The fourteen lakh rupees purportedly paid by the Jupiter to the Tropical were then adjusted by recording that the Tropical had paid fourteen lakh rupees to Caveeshar and that Caveeshar, in turn, had returned fourteen lakh rupees to the Jupiter out of the original loan of twenty‑five lakh rupees and some change. By means of these four transactions the original loan granted to Caveeshar on the security of his alleged properties was reduced by twenty‑four lakh, thirty thousand rupees, leaving a balance of eighty thousand, six hundred and fifty rupees. This remaining balance was subsequently accounted for on 31 December by a book entry showing a transfer of the same amount from Caveeshar’s Tropical account to credit the Jupiter account. Consequently, by the end of 31 December 1949 the entire sum of approximately twenty‑five lakh rupees that had been advanced to Caveeshar in January 1949 on the security of his Delhi properties was recorded as fully repaid, and a fresh loan of five lakh, thirty thousand rupees was created on 5 November 1949, this time secured by shares of the Peoples Insurance Company. It may be recalled that the prosecution alleged that the cash used to pay twenty‑eight lakh, fifteen thousand rupees to Khaitan on 20 January 1949 originated from a loan of twenty‑five lakh, fifteen thousand rupees granted to Caveeshar and an additional two lakh, sixty thousand rupees paid to the Delhi Stores for the purchase of plots. By the close of 1949 the original loan to Caveeshar was shown, as noted, to have been completely extinguished. Regarding the alleged purchase of plots from the Delhi Stores, it appeared that although the Delhi Stores actually possessed no such plots, the transaction was presented in the records as follows: the board of directors of the Tropical passed a resolution on 22 January 1949 stating that certain land parcels and a building in Chandni Chowk, Delhi, belonging to the Tropical, had been sold to the Delhi Stores for a price of two lakh, sixty thousand rupees. When this resolution is read together with the earlier board resolution of 11 January 1949, it becomes evident that the outflow of two lakh, sixty thousand rupees from the Jupiter’s funds under that resolution was essentially the payment made by the Jupiter for the supposed acquisition of the Chandni Chowk plots and building, which in fact were assets of the Tropical.

In 1949, the payment of Rs. 2,60,000 by the Jupiter was essentially for the purported purchase of plots of land and a building located in Chandni Chowk that were owned by the Tropical. The Court observed that this transaction did not attract extensive examination or comment, and no record showed any subsequent effort to obscure the transaction through additional dealings. Beyond this payment, the prosecution introduced further evidence concerning a number of other occurrences that took place during the same second period. The most significant of those matters concerned a notice dated 13 May 1949, which had been sent by a former employee of the Jupiter named Rege through his solicitors to Lala Shankarlal and Kaul. In that notice Rege alleged that fraud had been committed in connection with the purchase of 63,000 shares of the Jupiter from Khaitan. Following the notice, Rege filed a petition for misfeasance in the High Court of Bombay on 10 August 1949, naming all of the directors of the Jupiter as respondents. According to the prosecution, the filing of that petition prompted intimidating actions allegedly carried out by Lala Shankarlal, Kaul and Mehta, actions that purportedly forced Rege to withdraw his petition. The petition was eventually dismissed by an order dated 15 September 1949. During the same interval, sharp disagreements arose between the directors of the Jupiter on one side and the brokers Chopra and Mayadas on the other concerning a brokerage sum of Rs. 40,000, which the brokers claimed they were entitled to receive for having negotiated the original purchase of a controlling block of Jupiter shares from the Khaitan group. The prosecution also asserted that, in order to create an appearance of regularity with respect to the alleged conspiracy that had taken place in December 1948 and January 1949, various back‑dated entries, vouchers and other documents were manufactured during this period. Further, letters dated 10 August, 21 December and 22 December 1949 were recovered or seized from the offices of the Tropical; the first letter was purportedly written by Kaul to Lala Shankarlal, while the second and third were alleged to have been written by Guha to Lala Shankarlal. The prosecution indicated that, if those letters were authentic, they were revealing, although they constituted evidence only against the authors themselves. In addition, the prosecution highlighted two letters that were claimed to have been sent by Caveeshar to the broker Chopra on 17 March and 30 March 1949. The first of those letters authorized Chopra to arrange negotiations for the purchase of the controlling block of shares of the Empire of India Life Assurance Co. Ltd., and the second offered to settle the dispute concerning Chopra’s and Mayadas’s claim for commission arising from the purchase of the Jupiter shares. The Court then identified a third chronological segment, referring to events that occurred in the year 1950, and noted that the prosecution would later set out the evidence relating to that third period.

In this case, the appellants primarily contested whether the evidence relating to the period under discussion could be admitted. The prosecution explained that the background of the events stemmed from the auditors’ rigorous stance during their audit of Jupiter’s affairs for the year 1949, a matter that was taken up at the beginning of 1950. The auditors said that the transactions carried out by Jupiter in 1949 had raised serious concerns, prompting them to investigate the original loan granted by Caveeshar in January 1949, which amounted to Rs 25,10,650. On 6 January 1950, the auditors addressed a letter to the Jupiter company demanding that the documents concerning that loan be inspected. They followed this with another letter dated 6 February, requesting that Jupiter produce a copy of the mortgage deed, the valuation report and all other papers relating to the Caveeshar loan, and also that the auditors be allowed to examine documents concerning (1) the Raghavji loan, (2) a fresh loan to Caveeshar, (3) the Misri Devi loan, and (4) the purchase of 54,000 Tropical shares for Rs 14 lakhs. In the February‑6 correspondence the auditors expressed that they considered the listed transactions “mostly unconscionable” and could not understand how a responsible management could sell Government securities and invest the proceeds in a large block of shares of Tropical Insurance Co. Ltd., along with substantial advances on shares of Peoples Insurance Co. Ltd. and loans on properties in Cutch. They further observed that they did not see any justification for paying nearly Rs 26 per share when the face value was Rs 10 for the Tropical Insurance Company shares, and they described the situation as extremely serious. Consequently, they requested that a copy of their report be sent immediately to the Superintendent of Insurance and that the shareholders be apprised of its contents at once. No response was received, and on 14 February 1950 the auditors forwarded a copy of the February‑6 letter to each director of Jupiter with an accompanying covering letter. Over the next five months, according to the prosecution, the directors of Jupiter attempted to delay or evade the auditors by engaging in extensive correspondence, oral explanations and personal meetings, yet they produced only a few of the demanded documents. This impasse led the auditors to issue a letter dated 24 July 1950, enclosing a draft report intended for the shareholders that outlined their criticisms of the directors’ 1949 transactions. In that letter the auditors noted that, with respect to the mortgage loan of Rs 25,10,650, they had been shown only a cancelled promissory note of Caveeshar and a receipt from him. The prosecution alleged that this development was followed by further actions of the directors, as described in the subsequent portion of the case.

In the prosecution’s case the directors of the Jupiter were described as having engaged in frantic efforts to conceal a series of transactions that had taken place between May and December 1949. These transactions included a fresh loan to Caveeshar, a loan to Raghavji, a loan to Misri Devi, and the purchase of shares in the Tropical company. The fresh loan to Caveeshar amounting to five lakh thirty thousand rupees was reportedly repaid to the Jupiter by raising money through the sale of the Tropical securities and then using that money to discharge Caveeshar’s loan. The Tropical securities, which had a face value of six lakh rupees, had previously been pledged with Grindlays Bank in New Delhi as security for an overdraft account held by the Tropical. According to the prosecution, those securities were released from the bank when they were substituted by the Jupiter’s securities having a face value of five lakh thirty thousand rupees. It was alleged that Kaul removed the Jupiter’s securities and handed them to Mehta, who travelled to Delhi, presented the securities to Grindlays Bank as if they belonged to the Tropical, and thereby obtained the release of the originally pledged Tropical securities. The released Tropical securities were then sold on 12 September 1950, realizing a sum of five lakh one thousand five hundred ninety‑two rupees and one anna. That amount was deposited in the Tropical’s account with Indian Bank.

Two days later, on 14 September 1950, Mehta is said to have drawn a cheque for five lakh thirty thousand rupees on Indian Bank, made it payable to the Jupiter, and sent it together with a covering letter stating that the cheque represented repayment by Caveeshar of his loan of five lakh thirty thousand rupees, a loan that the Jupiter had granted to him pursuant to a resolution passed on 5 November 1949. The required journal entries were recorded in the Jupiter’s books, and a receipt for the same amount was forwarded to Caveeshar. Subsequently, on 27 October 1950, Mehta is alleged to have brought a sum of seventeen thousand one hundred fifty‑eight rupees and twelve annas in cash to the office of the Jupiter, specifically to the room occupied by Kaul. In the presence of Kaul and Guha, Mehta handed the cash to the Jupiter’s accountant, and the amount was credited on that date as payment of interest due on the two loans that Caveeshar had taken from the Jupiter. As a result of the entries dated 14 September and 27 October 1950, the further loan to Caveeshar was shown to have been fully repaid together with interest. The Jupiter’s annual report for 1949 subsequently contained a narration stating that the loans advanced to Caveeshar, together with the interest thereon, had been completely repaid to the Jupiter and that all related documents had been returned to Caveeshar. The prosecution further alleged that the adjustments made for the repayment of the loans to Raghavji and Misri Devi, as well as the purchase in December 1949 of fifty‑four thousand Tropical shares by the Jupiter, were linked to the accused’s scheme to acquire a controlling block of shares in the Empire of India Life Assurance Company Limited.

In this matter, the Court observed that the prosecution’s case concerned the purchase of a controlling block of shares in the Empire of India, referred to as the Empire of India, to obtain funds for certain adjustments. The Court stated that the precise details of the negotiations leading to the acquisition of the controlling block need not be examined in depth for the purposes of this case and may be summarised only in broad terms. According to the prosecution, the directors, including Lala Shankarlal, anticipated difficulties arising from transactions carried out in 1948 and 1949 with the auditors. Consequently, as early as March and May 1949, they formulated a plan to acquire the controlling block of shares of the Empire of India from a person named Ramratan Gupta. The prosecution asserted that negotiations on this matter continued for nearly a year without producing a result. Finally, on 5 October 1950, an agreement was executed providing that an advance payment of ten lakh rupees would be made to Ramratan Gupta, followed by a further payment of approximately thirty‑three lakh rupees within thirty days, after which the controlling block comprising 2,618 shares would be transferred to Damodar Swarup Seth, who acted as a nominee of Lala Shankarlal. The Court noted that the total consideration of about forty‑three lakh rupees and some additional amount was discharged through a series of cheques. On 5 October 1950, two cheques were drawn: one by Damodar Swarup Seth for eight lakh rupees (Ex. Z‑10) and another by Bhudev Sanghi in favour of Damodar Swarup Seth for two lakh rupees (Ex. Z‑11), together amounting to the ten‑lakh‑rupee advance. On 16 October 1950, six further cheques were issued by Damodar Swarup Seth to various parties—Reyer Mills Ltd. for ten lakh five‑five thousand eight hundred forty‑four rupees, Laxmi Ratan Cotton Mills for eight lakh six thousand eight hundred ninety‑five rupees, Premkumar Gupta for six lakh seventy‑one thousand seven hundred eighty‑seven rupees, Stores India Ltd. for thirty‑six thousand seven hundred ninety‑nine rupees, Gulabchand Jain for ninety‑seven thousand five hundred rupees, and Biharilal Ramcharan for five lakh four thousand seventy‑two rupees. On 27 October 1950, an additional cheque by Damodar Swarup Seth (Ex. Z‑13) for two lakh eight thousand six hundred fifty rupees was drawn. The aggregate of the cheques issued after the advance amounted to thirty‑three lakh eighty‑one thousand five hundred forty‑seven rupees, which the prosecution presented as the consideration for the purchase of the 2,618 shares. Thus, by the payment of thirty‑one lakh seventy‑two thousand eight hundred ninety‑seven rupees on 16 October 1950 through the six cheques listed, the controlling block of shares was transferred to Damodar Swarup Seth. The prosecution further alleged that Damodar Swarup Seth was able to obtain these cheques, whose total value exceeded forty‑three lakh rupees, because securities of the Jupiter company, amounting to forty‑eight lakh seventy‑five thousand rupees in face value (Ex. Z‑47), were removed from the Jupiter’s possession following letters written by Kaul and Guha. These securities were allegedly taken away without proper authority and handed to Damodar Swarup Seth, who then opened a cash‑credit account with the Punjab National Bank using those securities as security. By securing these securities, Damodar Swarup Seth was able to acquire the controlling block of shares.

In the case of the share purchase that took place in October 1950, the prosecution alleged that the parties moved quickly to create the appearance that two loans—one advanced to a person named Raghavji and another to a person named Misri Devi by the Jupiter company toward the end of 1949—had been repaid in cash together with interest, and that the “Tropical” shares, which the Jupiter records said had been bought in 1949, had been sold and the cash received from that sale had been realized. The prosecution further contended that on 17 October 1950, the day after the controlling block of Empire of India shares was acquired, a broker named Roshanlal Kohli purported to offer the Empire of India the opportunity to purchase securities belonging to the Jupiter with a face value of twenty lakhs of rupees. Two days later, on 19 October 1950, Kohli, claiming to act on behalf of the Jupiter, wrote to the Empire of India requesting an advance payment of twenty lakhs of rupees for that purchase. The Empire of India replied affirmatively and subsequently discharged the requested amount by issuing two bearer cheques: one dated 26 October 1950 for fifteen lakhs of rupees and another dated 27 October 1950 for five lakhs of rupees. According to the prosecution, the Jupiter’s books contain no entry recording the receipt of this twenty‑lakh payment, although the Empire of India’s records do show an entry reflecting the payment. The prosecution asserted that the entire sum of twenty lakhs was employed by the Jupiter to settle the Raghavji loan and to finance the purchase of the Tropical shares. Evidence presented by the prosecution indicated that out of the fifteen‑lakh cheque dated 26 October, fourteen lakhs were deposited in cash on that same day into the Jupiter’s account held with the Punjab National Bank in Bombay, and that the deposit was recorded as the proceeds of the sale of fifty‑four thousand Tropical shares—a transaction that the auditors had previously flagged as an unreasonable investment. The cash was actually deposited by two individuals, Bhagwan Swarup and Bhudev Sanghi. A letter signed by Bhudev Sanghi, identified as a nephew of Lala Shankarlal (Exhibit Z‑152), stated that he, acting as a broker, had sold the forty‑four thousand‑plus Tropical shares owned by the Jupiter and that the sale proceeds had been credited on the same day to the Jupiter’s account at the Punjab National Bank, Bombay, with corresponding entries made in the Jupiter’s investment register. Nevertheless, the prosecution claimed that despite this recorded sale, the Tropical shares continued to be held in the safe‑custody account of the Jupiter at the Bank of India until 2 January 1951. On that date a letter dated 2 January 1951 (Exhibit Z‑293) from Kaul to the Bank of India instructed the bank to deliver all of those shares. The shares were apparently handed over to a clerk of the Jupiter, after which they could no longer be traced.

After the Tropical shares were delivered to a clerk of the Jupiter, that clerk subsequently handed the shares over to an individual named Guha. According to the prosecution, those shares could not be located after they were transferred to Guha, rendering them effectively missing. A second bearer cheque, amounting to five lakh rupees and drawn from the funds of the Empire of India, was said to have been credited to the Jupiter account as repayment of Raghavji’s loan. On 27 October 1950 a cash sum of rupees five lakh one hundred eighteen thousand three hundred eighty‑eight and fourteen annas was deposited in the Comilla Bank. The deposit was claimed to represent repayment by Raghavji of the mortgage loan he had obtained from the Jupiter together with the interest due. A receipt signed by Kaul and addressed to Chandrakant, the son of Raghavji, acknowledged that the full amount of rupees five lakh one hundred eighteen thousand three hundred eighty‑eight and fourteen annas had been received. The receipt further stated that the amount represented complete settlement of the mortgage loan. An entry in the Jupiter’s cash book recorded that interest on the Raghavji loan had been paid up to date. Concerning the Misri Devi loan, the Jupiter’s books show an entry dated 7 October 1950 indicating a withdrawal of rupees one lakh twenty‑five thousand from the Imperial Bank. A second entry of the same date records a withdrawal of rupees four lakh twenty‑five thousand from the Bank of India, Bombay. On that day two cheques totalling rupees five lakh fifty thousand were deposited with the Punjab National Bank, Bombay. Kaul is alleged to have written a letter to Lala Shankarlal stating that the sum of rupees five lakh fifty thousand was being sent for the purchase of land. The letter also indicated that the amount was intended for acquiring a building belonging to Sir Sobha Singh. The Punjab National Bank, Bombay, was instructed to transfer the quoted amount to its branch at the Tropical Building in Delhi, crediting the Jupiter’s account there. All these transactions were carried out between 7 and 10 October as recorded in the books by the management. On 10 October a memo from the Punjab National Bank, Tropical Building, Delhi, confirmed that the sum of rupees five lakh fifty thousand had been received by that branch. The following day, on 11 October, Lala Shankarlal, acting in his capacity as managing director of the Jupiter, drew a cheque for rupees five lakh fifty thousand on that bank. Lala Shankarlal endorsed the reverse side of the cheque, and the prosecution alleges that cash was obtained on that instrument. It is further alleged that on 12 October a demand draft for the same amount was obtained from Grindlays Bank in favour of the Jupiter on behalf of Misri Devi, the wife of Lala Shankarlal. The reverse side of that draft was signed by Kaul, and the draft was received in Bombay and subsequently deposited in the Jupiter’s account held at the Bank of India. The loan taken by Misri Devi amounted to rupees five lakh, with accrued interest of rupees eighteen thousand sixty‑two and eight annas. Entries dated 16 October in the Jupiter’s cash book recorded that the loan of rupees five lakh together with interest had been recovered. An excess payment of rupees thirty‑one thousand nine hundred thirty‑seven and eight annas was initially credited to a suspense account and later shown as refunded to Misri Devi on 18 October.

In this case the Court explained that the loan of Misri Devi was recorded in the accounts as having been fully repaid. By means of a series of adjustments and manipulations the four transactions – (1) a fresh loan to Caveeshar secured by the securities of the Peoples Insurance Company, (2) a loan to Raghavji secured by his properties in Cutch, (3) a loan to Misri Devi secured by her building in New Delhi, and (4) the purchase of fifty‑four thousand Tropical shares by the Jupiter – were all shown as having been realised in cash by 27 October 1950. A letter drawn up by the solicitors of the Jupiter, acting on the instructions of Kaul, was sent to the auditors on 28 October 1950 requiring them to attend the Jupiter’s office on the following day to verify the accounts and the monies received from the repayment of the loans and from the sale of the Tropical shares. The auditors complied, visited the Jupiter on 29 October 1950, examined the relevant documents and were satisfied that the monies had indeed been received. The Court noted that the actual receipt of the repayments and of the proceeds from the share sale would, of course, remove the objections earlier raised by the auditors concerning the original Caveeshar loan, for the auditors had previously been unable to obtain the necessary supporting papers. Having been satisfied, the auditors signed the audit certificate and the Jupiter’s report for the year ended 1949, adding a note that they had objected to certain loans and purchases, but that those loans had now been recovered, the shares had been sold and the monies received. On 23 October 1950 a general body meeting of the Jupiter’s shareholders was held, attended by Lala Shankarlal, Kaul, Mehta, Guha and Caveeshar, at which the auditors’ final report and the directors’ response to the original objections were read. The directors told the meeting that the auditors had merely found “imaginary mistakes and nervous suspicion” in regard to the company’s management for the year and that the events of the preceding twelve months completely refuted the auditors’ earlier fear, suspicion and bias. The Court then turned to the task of tracing the distribution of the sixty‑three thousand Jupiter shares that had been purchased by Lala Shankarlal and his associates from Khaitan. It was recalled that on 20 January 1949 only sixty‑one thousand and sixty‑one shares, held in the name of the New Prahlad Mills, were transferred. The remaining one‑thousand‑nine‑hundred‑thirty‑nine shares, which were in the names of other persons—presumably also members of Khaitan’s group—were transferred in part before and in part after that date, thereby bringing the total to sixty‑three thousand shares. Of these, an initial allocation of two hundred and fifty shares each was made as qualifying shares in the names of Lala Shankarlal, Kaul, Mehta, Jhaveri and Doshi, amounting to one thousand two hundred and fifty shares, and these transfers were confirmed by the directors’ resolution dated 29 December 1948.

According to the record, the directors of the Jupiter had passed a resolution dated 29 December 1948 authorising the transfer of 250 shares to each of several individuals. An additional transfer of 250 shares was made to Sarat Chandra Bose on 20 January 1949; however, Bose later communicated that he did not accept those shares and his refusal was recorded at a much later date. Subsequently, on 31 August 1949, a large allocation of 37 949 shares was transferred to Delhi Stores and another allocation of 14 601 shares was transferred to the Tropical. In addition, two further parcels of 4 475 shares each were transferred to the names of Lala Shankarlal and Caveeshar respectively. On 13 September 1950, the shares that had been held in the name of Delhi Stores were partially redistributed. Specifically, 4 000 of those shares remained registered to Delhi Stores while the remaining 33 949 shares were allotted as follows: 3 025 shares each to Lala Shankarlal and Caveeshar; 50 shares to Kaul; 7 075 shares to Mehta; 7 500 shares each to Chandulal Ratanchand Shah, who was an employee of the Tropical, and to Himatlal F. Parikh, also an employee of the Tropical; and 5 774 shares to Himatlal Harilal Shah. From the lot of 14 601 shares that had been held in the name of the Tropical, 7 500 shares were transferred to Baburam and the balance of 7 101 shares were transferred to Kaul. Moreover, out of a separate purchase of 409 shares, 339 of those shares were transferred to Kaul. As a result of these transactions, the distribution of the Jupiter shares as of 13 September 1950 stood as follows: 7 750 shares in the name of Lala Shankarlal; 7 740 shares in the name of Kaul; 7 325 shares in the name of Mehta; 7 500 shares in the name of Caveeshar; 4 000 shares in the name of Delhi Stores; 7 500 shares in the name of Chandulal Ratanchand; 7 500 shares in the name of Himatlal F. Parikh; 5 774 shares in the name of Himatlal Harilal Shah; 7 500 shares in the name of Baburam; 250 shares each in the names of Jhaveri, Doshi and Sarat Chandra Bose; and 70 shares in the name of the Tropical, giving a total of 63 409 shares. This total comprises the original controlling block of 63 000 shares that were purchased from the Khaitan group together with an additional 409 shares that were bought later and are unrelated to the present proceedings. It is noteworthy that no shares were transferred to Guha, while a substantial number of shares were allocated to the various other accused. Additionally, three persons who are not parties to the case—namely Chandulal Ratanchand, Himatlal F. Parikh and Himatlal Harilal Shah—each received a considerable number of shares. The prosecution’s case is that the transfer of all these shares to the accused was effected without any payment by them and that the transfers represented a distribution among the accused of the major portion of the original acquisition of the 63 000 shares, which, according to the prosecution, were bought using the funds of the Jupiter that the accused had obtained control over.

According to the prosecution, the accused distributed among themselves the major portion of the original acquisition of sixty‑three thousand shares by using the very funds of the Jupiter that they had obtained control over. The prosecution argued that this use of the Jupiter’s money to purchase the controlling block of shares completed the chain of misappropriation by the various accused. The appeals before the High Court and before this Court challenged the convictions and sentences that were based on the jury’s verdict against each accused. Because the appellate courts are limited to interfering only where there is a material error, the scope for overturning the judgments was regarded as very narrow. Consequently, the counsel for the appellant presented only a few legal contentions. His principal argument concerned the admissibility of certain portions of the prosecution’s evidence. He objected strongly to the prosecution’s introduction of evidence relating to the acquisition of the controlling block of shares of the Empire of India and the subsequent steps allegedly taken by the conspirators, or by Lala Shankarlal in 1950, which were intended to conceal the transactions of the later part of 1949. The appellant’s counsel maintained that, on the substantive charge of conspiracy, all of those steps and actions were inadmissible in law.

The conspiracy, as charged, was essentially a conspiracy to commit criminal breach of trust with respect to the funds of the Jupiter by using those funds to purchase the controlling block of Jupiter shares for the benefit of the Tropical or for the benefit of the conspirators themselves. The alleged agreement was said to have been formed between 1 December 1948 and 31 January 1949. The appellant argued that, under section ten of the Indian Evidence Act, 1872, only the acts, writings and statements made by the conspirators during that specific period should be admissible against each other. The prosecution’s case described a modus operandi that involved disguising the use of the Jupiter’s money as legitimate advances and security‑backed investments, while actually employing the same money to pay the owners of the controlling share block. The appellant conceded that, strictly speaking, only the acts, writings and statements of the conspirators from December 1948 to January 1949 would be admissible, but he accepted that evidence concerning later steps taken in 1949—such as the Raghavji loan, a fresh loan to Caveeshar, the Misri Devi loan and the purchase of shares from the Tropical—could be admissible because they were directly connected to the attempts to conceal the January 1949 transactions. However, he contended that the transactions and actions undertaken in the year 1950 were purely aimed at covering the second set of 1949 transactions and lay outside the conspiracy period, rendering such evidence inadmissible under section ten because it was too remote and bore no direct relevance to the original conspiratorial acts.

In the proceedings, the respondent argued that the actions and steps taken in the year 1950 were intended solely to conceal the second group of transactions that occurred in the later part of 1949, and that they were not intended to hide the earlier transactions of January 1949. He maintained that evidence concerning those 1950 actions fell completely outside the period of conspiracy and therefore could not be admitted under section ten of the Evidence Act because it was too remote and had no direct connection with the original transactions that formed the subject of the alleged conspiracy. He pointed out that the alleged criminal breach of trust had taken place on 20 January 1949, when the monies of the Jupiter were paid to Khaitan, and that the purpose of the conspiracy had been accomplished when the first Caveeshar loan and the advance said to have been made to the Delhi Stores for the purchase of plots were completed. He further observed that the case involved a great number of details concerning events, statements and actions from 1 December 1948 to the end of December 1949, and that the evidence relating to the year 1950 was equally, if not more, voluminous. He argued that the inclusion of such material had overloaded the legitimate evidence, created confusion, and prejudiced the jury’s mind. He also noted that because of the large volume of allegedly inadmissible evidence, the trial had been unduly prolonged, extending for more than a year.

The counsel further explained that the outline of the prosecution’s case and the evidence admitted on behalf of the prosecution occupied about one hundred pages of typed material in the charge to the jury delivered by the trial judge and in the High Court’s judgment on appeal. He asserted that, given the nature of the case, the complex ramifications of the various transactions on which the prosecution relied, and the fact that the trial was by jury, every effort should have been made to exclude material that was not strictly admissible under the law. Including such material, he warned, would inevitably confuse the jury and prejudice its judgment. He conceded that if the evidence was clearly admissible, the court could not refuse to receive it, but emphasized that the court would have to take great care in directing the jury so that the effect and implications of such evidence were presented fairly and adequately. He then referred to the authority of the Privy Council in Mirza Akbar v. The King‑Emperor, which had definitively explained the limits of admissibility of evidence in conspiracy cases under section ten of the Evidence Act. In that decision, the Privy Council held that the provision must be interpreted in line with the principle that a thing done, written or spoken is admissible only when it was performed in furtherance of the conspiracy. This principle, he argued, supports the view that evidence of acts by co‑conspirators outside the specified conspiracy period should not be received. He acknowledged that the prosecution, through its counsel, conceded this position, but contended that the disputed evidence from 1950 might still be relevant under other sections of the Evidence Act, such as sections six, eight, nine, eleven and fourteen.

The Court observed that evidence admissible under section 10 of the Evidence Act could be received as a step in proving a conspiracy. It noted that section 10 permitted the admission of “anything said, done, or written, by any one of such persons,” meaning the conspirators, provided the material was “in reference to their common intention.” However, the Court explained that, despite the broad wording of the provision, the Privy Council in Mirza Akbar v. The King‑Emperor had held that the words could not be given an overly wide construction in light of the well‑known principle that a conspiratorial act must relate directly to the common purpose. Accordingly, the Court held that where the charge specified a particular period of conspiracy – as it did in the present case, referring to the period identified in (1) (1940) L.R. 67 I.A. 336 – any acts of co‑conspirators occurring outside that period were not admissible. The prosecution, represented by counsel, conceded this position. Nevertheless, counsel argued that the evidence in dispute, namely the acts and events of the year 1950, might be relevant under other provisions of the Evidence Act, such as sections 6, 8, 9, 11 and 14. The Court agreed that such relevance was possible, but warned that the broad language of those sections required a limited construction, as West J. had indicated in Reg. v. Prabhudas (1) when interpreting section 11. The Court then turned to the central factual issue: whether the loan of more than twenty‑five lakh rupees advanced on 20 January 1949 to Caveeshar, together with the sums allegedly paid to the Delhi Stores as an advance for the purchase of certain plots, were genuine commercial transactions or fictitious, make‑believe dealings. If the transactions were genuine, having been made on the basis of proper security and representing legitimate business investment, the Court would find it difficult to sustain a charge of criminal breach of trust. Consequently, the Court held that any evidence tending to show that the transactions were bogus was admissible, even if such evidence required reference to acts of the conspirators occurring beyond the stipulated period, provided the reference was not unduly remote. The Court further observed that the four new transactions carried out between May and December 1949, together with the additional dealings undertaken in 1950 to conceal the latter‑half‑1949 transactions by using the funds of the Empire of India after obtaining control of it and by misusing Jupiter’s securities, were relevant to demonstrate the fictitious nature of the original debts. The Court rejected the argument that this evidence was too remote, emphasizing that it was necessary to consider the subsequent manipulations to understand the true character of the contested loans.

It was pointed out by counsel for the prosecution that the urgent necessity to acquire control of the Empire of India in 1950 and to use that control to demonstrate that the alleged investments of the second half of 1949 had been realised in cash in 1950 arose because the auditors adopted a firm attitude when they suspected the bona fides of the original Caveeshar loan and of the transactions connected with the second half of 1949 while they examined the affairs of the Jupiter for the year 1949 in 1950. The transactions of 1950 were clearly undertaken not merely to conceal the transactions of the second half of 1949 but also, if not mainly, to dispel any lingering suspicion and to avert further scrutiny of the earlier transactions of January 1949, which were part of the period of conspiracy. Accordingly, with respect to the principal purpose of the prosecution – namely, to prove the bogus character of the January 1949 transactions – the transactions of the second half of 1949 and those of 1950 must, in the circumstances of this case and given their ramifications, be treated as integrally connected and relevant to establishing their fraudulent nature. The Court therefore could not accept the general objection that all evidence relating to the 1950 transactions was inadmissible. It was also reasonably clear that the conduct of each individual co‑conspirator, including his acts, writings and statements, constituted evidence against himself. There was no doubt that such conduct, irrespective of the time to which it related, could be relied upon by the prosecution to demonstrate the criminal intent of the accused in reference to his proven participation in the alleged conspiracy, thereby rebutting a probable defence that his participation, although proven, was innocent. The Court noted that each accused had advanced the defence that he was an unconscious instrument in the hands of a towering personality and mastermind such as Lala Shankarlal, whose criminal intentions he did not perceive. Consequently, it was wholly legitimate for the prosecution to anticipate such a defence and to present rebuttal evidence, which falls within section 14 of the Evidence Act. It is well settled that evidence intended to counter a likely defence on the issue of intention may be led by the prosecution as part of its case, as articulated by the Privy Council in Makin v. The Attorney‑General for New South Wales. Anticipating a probable defence and introducing evidence to refute it is, in substance, the admission by the prosecution of the requisite criminal intention beyond reasonable doubt. Counsel for the prosecution now urged that the entire evidence for the prosecution relating

In this case the trial judge classified evidence pertaining to the year 1950 within two recognized categories of admissible material. The first category consisted of evidence intended to demonstrate the fraudulent nature of the original transactions that occurred in January 1949, an issue that was central to all of the alleged conspirators. The second category comprised evidence aimed at establishing the criminal intent of each accused person, which could be introduced against the accused himself. Mr. Chari, counsel for the appellants, challenged this classification. He argued that the material admitted from the year 1950 extended far beyond the two categories identified by the trial judge. According to Mr. Chari, the admitted evidence actually included acts, writings and statements of individual conspirators that were made outside the period of the alleged conspiracy, and that this material was being used against other co‑conspirators on the principal issues of whether a conspiracy existed and whether each accused had participated in that conspiracy. He contended forcefully that such evidence was inadmissible, that its admission had seriously prejudiced the appellants’ case, and that it had made it extremely difficult, if not impossible, for the jury to reach a fair and rational verdict. In particular, Mr. Chari objected to evidence concerning the acts, writings and statements of Lala Shankarlal for the year 1950, emphasizing that Shankarlal had died before the trial and therefore had never been placed before the Court as a conspirator. His objection raised two questions for the Court: first, whether evidence of this sort was admissible to prove a conspiracy and the participation of individual accused; and second, whether such evidence had in fact been admitted and relied upon at trial on those issues.

The Court found it appropriate to address the second question first. To support his claim that conduct of individual conspirators in 1950 had been admitted and used against other co‑conspirators on the two principal issues, Mr. Chari cited numerous paragraphs from the trial judge’s charge to the jury, specifically paragraphs II, 55, 65, 73, 74, 75, 94, 101, 102, 136, 146, 388, 453, 541, 557, 588, 602, 657, 676, 678 and 689. After a careful review of these passages, the Court observed that the judge’s references related primarily to various pieces of prosecution evidence whose chief purpose was to establish the fraudulent character of the transactions under scrutiny. Although this evidence inevitably mentioned the deceased Lala Shankarlal or other co‑conspirators as participants in those acts, the Court concluded that such material was admissible for the limited purpose of linking the transactions to fraud. It was not, however, intrinsically relevant to prove the existence of a conspiracy itself. Consequently, the Court held that the trial judge had correctly treated the evidence as admissible for demonstrating the bogus nature of the original transactions, but not as substantive proof of the conspiracy.

In this case, the Court observed that the trial judge was fully aware of the distinction between evidence admissible to prove the conspiracy and evidence admissible only to show the bogus nature of the transactions. The trial judge evidently would not have permitted evidence that was offered solely to prove the conspiracy. This is shown by his interlocutory judgment numbered six, dated 22 August 1955, which dealt with the admissibility of a document identified as Exhibit Z‑71 in the committal proceedings. In that order the learned judge categorically excluded Exhibit Z‑71 from evidence after an extensive discussion of the legal principle involved. He stated his reasoning as follows. “I come to the conclusion that the statements and actions of any person mentioned in the charge are not admissible beyond the period of conspiracy unless they are authorised by any of the accused persons.” He continued: “In that event they are really the actions and statements of that accused person himself who has authorised the same.” He then concluded: “I, therefore, do not admit the document (Ex. Z‑71) in evidence.” The present Court did not have the actual Exhibit Z‑71 before it, because the document had been displayed only during the committal stage and had subsequently been excluded at trial. Nevertheless, there is no difficulty in understanding the trial judge’s position from the record. The trial judge’s view is further confirmed by the numerous passages in his charge to the jury. In those passages he repeatedly stressed that conduct of a conspirator occurring after the conspiracy period could be used only against that conspirator and not against any other accused. Those passages appear in paragraphs numbered 453, 541, 557, 588, 602, 657, 676, 685 and 689 of the charge. It is true that, in several of the paragraphs objected to by counsel, the reference to the acts and conduct of Lala Shankarlal in the year 1950 could potentially mislead the jury. That year was after the alleged conspiracy, and the evidence might therefore be inadmissible and could create prejudice. This risk, however, is an inherent feature of cases of this sort, as noted by the Privy Council in Walli Muhammad v. King. In that decision the Lords explained the difficulty that arises when two persons are charged with a crime. They added that evidence admissible against one accused may not be admissible against the other. The Lords observed that even when assessors or juries receive firm directions, a judge may try to shield one accused from the influence of evidence admissible only against the other. Nevertheless, the minds of jurors may be unintentionally affected by disclosures made by one accused to the detriment of the other. This important caution must always be borne in mind by judges and juries dealing with complex conspiracies. Nevertheless, the Court held that without a specific showing that serious prejudice was likely to have arisen in this particular trial, the convictions could not be overturned. The needed standard of prejudice was described in the Walli Muhammad case (1948) 53 C.W.N. 318, 321.

In the matter before the Court, the parties argued that there was no proof that any prejudice to the convictions had actually arisen, and the Court found that the material presented did not satisfy the requirement to show such prejudice. The acquittal of accused number three, Jhaveri, by a unanimous jury verdict was highlighted as evidence that the jury was able to heed the cautionary instructions given to it and to make a careful distinction between the evidence admissible against each accused. The Court observed that, consequently, the broader issue raised by counsel on both sides—namely whether the conduct of a co‑conspirator outside the period of conspiracy, including that of deceased co‑conspirators such as Lala Shankarlal and Doshi and of a living conspirator, Mahajan, who was not himself on trial—should be admitted to prove the two principal matters in the case, namely the existence of the conspiracy and the participation of each individual accused in that conspiracy, might not necessarily require a decision. However, the Court noted that the learned Judges of the High Court had expressly held that such evidence was admissible and had, on that ground, over‑ruled the contention advanced by Mr Chari that prejudice would likely result from admitting the evidence. In view of the differing views expressed, the Court considered it appropriate to examine the question anew and to reach a conclusion. Both sides had argued the point at length and had urged the Court to express its opinion on the matter. It was also observed that the trial judge and the High Court had reached opposite conclusions. After a detailed discussion, the High Court judges had unequivocally held that the evidence in question was admissible, as reflected in their stated conclusion: “In this manner, all the observations which the learned Judge made in paragraphs 11, 73, 74, 75, 94, 101 and 388, to which Mr Chari has objected on the ground of inadmissibility, would be relevant to show that there was a conspiracy in this case and that Lala Shankarlal was a party to it.” By contrast, the trial judge’s opposite stance was evident from his interlocutory judgment No 6 dated 22 August 1955, concerning the admissibility of the document marked Ex Z‑71 in the committal court. In that order, the judge set out the arguments of both parties, noting the common ground that the acts of any accused after the period of conspiracy are admissible only against that particular accused. Accordingly, Mr Khandalawala argued that the post‑conspiracy actions of Lala Shankarlal, Doshi and Mahajan should be admitted to prove their participation in the alleged conspiracy and to establish their individual guilt alongside the other accused, and he further submitted that section 10 of the Indian Evidence Act is permissive rather than an exception, as alleged by Mr Chari, and expressed that he did not…

The counsel for the prosecution explained that he did not intend to introduce any statements or actions of Lala Shankarlal as direct evidence against the accused persons. Rather, his purpose in seeking that evidence was to demonstrate before the jury that Lala Shankarlal himself had acted as a conspirator alongside the accused. The defence counsel, identified as Mr Chari, argued that the trial could admit no evidence which was not admissible against the named accused persons. He maintained that the question of whether Shankarlal, or alternatively Doshi or Mahajan, was guilty of the offense of conspiracy could not be raised in the present trial because proof of a conspiracy involving persons other than the defendants was irrelevant to the case at hand. According to his submission, any acts performed by Shankarlal during the period of the alleged conspiracy were binding on the accused, and the court was required to examine, with reference to that evidence, whether any of the defendants had conspired with Shankarlal, Mahajan or Doshi. He further emphasized that all evidence presented at trial must be directed against the accused and against no one else, and consequently contended that the prosecution’s attempt to lead the evidence concerning Shankarlal, Mahajan and Doshi was inadmissible.

Having set out the opposing arguments, the trial judge expressed his view that, in a criminal proceeding, evidence may be led only if it is admissible against the accused persons. He cited the decision reported in 1948 53 C.W.N. 318, 321, to support the principle that evidence consisting of the actions and statements of a third person, unless that person is shown to be an agent of the accused, is not admissible. The judge then referred to Section 10 of the Indian Evidence Act as explained by the Privy Council in the case of Mirza Akbar v. the King‑Emperor, holding that statements and actions of a co‑conspirator are admissible against the accused only when they relate to conduct within the period of the conspiracy. Applying that rule, the judge concluded that neither Lala Shankarlal nor Mahajan nor Doshi were parties before him, and that any conduct of those individuals occurring after the conspiracy, without a connection to the accused, could not be admitted. He therefore found that the evidence the prosecution sought to introduce was not admissible. The judgment then proceeded to examine precisely what the Privy Council had decided in Mirza Akbar’s case and whether the trial judge had correctly applied that authority, before summarising the relevant principle as articulated in the English case of The Queen v. Blake.

In the case under discussion, the first conspirator, designated as T, was responsible for making an entry that described the quantity of goods involved in the transaction. A duplicate of this entry was supplied to the second conspirator, B, whose role was to compare the copy with the actual goods. When the comparison showed that the goods corresponded with the entry, B was required to write the word “correct” on T’s original entry. Following this affirmation, T would receive the goods and make payment of the customs duty as reflected in his entry. The trial record demonstrated that B had indeed marked T’s entry as “correct,” that the entry matched B’s copy, and that payment was subsequently made according to the quantity specified in the entry. The goods were then delivered to T. Further evidence was introduced in the form of an entry from T’s day‑book, which recorded the charge he imposed on the importer. This charge indicated that T had calculated duty on a quantity larger than the one shown in the earlier entry and copy. The court held that this evidence was admissible against B because it was created in the ordinary course of the fraudulent scheme and directly related to the execution of the conspiracy.

The prosecution also attempted to admit a second piece of evidence concerning a cheque drawn by T after the goods had been transferred. The cheque’s counterfoil was presented, on which T had written an account suggesting that the cheque represented half of the total proceeds from several transactions. One of those transactions corresponded in amount to the difference between the duty that had actually been paid and the duty that was truly due on the goods. The court ruled that this cheque evidence was inadmissible against B because it was produced after the fraudulent transaction had been completed and was not part of the documents used to carry out the conspiracy. Referring to the Privy Council decision in Mirza Akbar’s case, the court quoted the Council’s observation that English law on the admissibility of evidence in conspiracies was a common‑law rule not limited by statutory language. The Council explained that, as illustrated by the leading case of R. v. Blake, evidence of entries made by one conspirator that were used in the execution of the fraud was admissible against the other conspirator, whereas documents created after the fraud’s completion, having no connection with the execution of the conspiracy, were not admissible. The Privy Council also endorsed two Indian High Court decisions, Emperor v. Abani Bhushan Chuckerbutty and Emperor v. G. V. Vaishampayana, which reflected the same principles regarding the limits of admissible evidence in conspiracy cases.

In the case of Emperor v. Abani Bhushan Chuckerbutty, the co‑conspirator named Abani gave a statement before a Magistrate after being arrested, in which he implicated himself and a large number of other persons in the alleged conspiracy. The Court was asked to determine the extent to which that statement could be used as proof of the existence of the conspiracy and to establish that the other individuals named were themselves co‑conspirators. The Lords held that the statement could not be treated as evidence within the meaning of section 10 of the Evidence Act, explaining that the provision was intended to admit communications made between conspirators while the conspiracy was ongoing and specifically relating to the execution of the unlawful plan. Moreover, the Court observed that the statement was regarded only as a confession falling within the scope of section 30 of the Evidence Act and therefore could be used solely against the co‑accused as a confession, not as evidence of the conspiracy under section 10.

In the subsequent case of Emperor v. G. V. Vaishampayana, another conspiracy was examined where an approver, himself a co‑conspirator, sought to introduce statements allegedly made to him by a fellow conspirator named Swamirao, who was not an accused before the Court. Those statements referred to a planned attack on the Lamington Road police station, which formed the object of the conspiracy. The statements were said to have been made after the attacking party returned to the approver’s residence, i.e., after the attack had been completed. An objection was raised to admitting those statements under section 10, and the objection was upheld because the statements were made after the completion of the act and could not be said to have been made “in reference to their common intention.” The Court pointed out that the word “intention” implies a future act, and therefore post‑event statements do not satisfy the requirement of section 10. It was further noted that the statements were made by a co‑conspirator who was not an accused at trial, and no argument was advanced that the statements might be admissible against him to demonstrate his own participation as a co‑conspirator with the accused.

The question of admissibility arose again in Mirza Akbar’s case, where the issue was whether a statement made by a co‑conspirator before a Magistrate after arrest could be admitted on a charge of conspiracy. The Court held that such a statement was not admissible. The consistent thread in all these authorities is that statements excluded under section 10 of the Evidence Act have not been rescued by invoking any other provision of the Evidence Act. Finally, the leading authority of The Queen v. Blake was mentioned to illustrate that the admissibility of such statements is governed solely by the special criteria applicable to conspiratorial evidence and cannot be admitted under any other general evidentiary rule.

In the decision of The Queen v. Blake (2), the Court examined the question of admissibility as a matter governed by general law, yet it emphasized that the sole test for admissibility in that case was the special test applicable to conspiracies. The judgment made clear that there was no suggestion that the evidence in question could be admitted under any other rule of evidence. Consequently, the Court held that the statement at issue was absolutely inadmissible for the purpose of proving a conspiracy. This outcome supports the proposition that the earlier case of Mirza Akbar (1) serves as a clear authority that, in criminal proceedings involving an accusation of conspiracy, any evidence that does not fall within section 10 of the Evidence Act and is offered to establish either the existence of a conspiracy or the participation of a particular individual in that conspiracy, is wholly excluded. It is essential to understand precisely what the prosecution seeks to admit in such circumstances. The material sought to be introduced is something said, done, or written by one conspirator without the knowledge of the others, which is then attributed in law to the entire group. The purpose of introducing that material is to demonstrate two matters: first, that a conspiracy existed between the alleged conspirators, and second, that a specific person was a member of that conspiracy. Such evidence is inadmissible unless it can be brought in under section 10 of the Evidence Act. In the ordinary category of cases, the same type of evidence is admissible only against the individual who made it, not against the other conspirators, except where a relationship of agency, representation, or joint interest exists, as contemplated in section 18 of the Evidence Act. The principle is well‑settled in civil law that a principal is bound by the acts of an agent who possesses either express or implied authority, provided those acts lie within the scope of that authority; consequently, the acts of an agent are admissible as evidence against the principal. An analogous principle is recognised in criminal law to the extent that it may be invoked under section 10 of the Evidence Act. Established authority confirms that the doctrine underlying the admission of statements, acts, and writings of one co‑conspirator against another under section 10 is the agency theory. This principle is affirmed in Emperor v. Shafi Ahmed (1) and Emperor v. G. V. Vaishampayana (2), the latter being the case previously cited with approval by the Privy Council in Mirza Akbar’s case (3). The nineteenth‑edition text Roscoe’s Criminal Evidence (16th Edition, p. 482) explains that, concerning criminal conspiracy, “an overt act committed by any one of the conspirators is sufficient, on the general principles of agency, to make it the act of all.” Both the English rule articulated in The Queen v. Blake (4) and the provision of section 10 of the Evidence Act limit this agency principle in criminal matters to acts of a co‑conspirator that occur during the period when those acts can be said to be “in reference to their common intention,” that is, while the conspiracy is ongoing, as the Privy Council explained in Mirza Akbar’s case (3). The Court therefore reiterated that evidence is admissible only when it relates to conduct, statements, or writings made while the conspiracy was “on foot” and in furtherance of that conspiracy.

In this matter, the Court observed that the principle of agency recognized in The Queen v. Blake (4) and embodied in section 10 of the Evidence Act is limited in criminal cases to the acts of a co‑conspirator that occur during the period when those acts can be said to be “in reference to their common intention.” The Court explained that this limitation corresponds to the ruling of the Privy Council in Mirza Akbar’s case (3), which held that admissible statements, deeds or writings must be “things said, done or written, while the conspiracy was on foot” and must be undertaken “in carrying out the conspiracy.” The Privy Council further clarified the basic principle by stating: “Where the evidence is admissible it is, in their Lordships’ judgment, on the principle that the thing done, written or spoken, was something done in (1) (1925) 31 Bom. L.R. 515, 519. (2) (1931) I.L.R, 55 Bom. 839. (3) (1940) L.R. 67 I.A. 336. (4) (1844) 6 Q. B. 126; 115 E.R. 49; carrying out the conspiracy, and was receivable as a step in the proof of the conspiracy.” Accordingly, the Court concluded that the trial judge was correct in holding that the type of evidence presently before the Court is excluded by the authority of Mirza Akbar’s case (1). The argument that evidence of the conduct of a deceased conspirator could be admitted under section 8 of the Evidence Act as relevant conduct was found untenable, both on the plain wording of section 8 and in light of the precedent set by Mirza Akbar’s case (1). Section 8 provides that “the conduct of any person, an offence against whom is the subject of any proceeding, is relevant, if such conduct influences or is influenced by any fact in issue or relevant fact.” This language clearly excludes the conduct of Lala Shankarlal, Doshi and Mahajan carried out behind the backs of others, rendering such conduct inadmissible. Such conduct could be admissible only to the extent that it falls within the limited scope of section 10 of the Evidence Act, which applies to the acts of a co‑conspirator regardless of whether that conspirator is alive, deceased, on trial or not. Counsel for the respondent, Mr. Khandalawala, raised several hypothetical scenarios to illustrate potential difficulties with this approach; however, a careful examination of those hypotheticals revealed no substantial problems, and the Court deemed it unnecessary to discuss them at length. The High Court judges, relying on certain English decisions that, with respect, do not directly bear on the issue, had opined that because a person’s conduct is admissible against himself without the restrictions of section 10, the conduct of Lala Shankarlal could be admitted to prove the existence of a conspiracy and his participation therein. The Court found this reasoning to be flawed.

The Court expressed great respect for the material presented but held that the reasoning adopted by the learned judges was fundamentally fallacious. It observed that admitting evidence to prove a conspiracy or to establish that a person was a co‑conspirator could not be treated as evidence against that person alone; rather, such evidence would be admissible only against the other individuals who were on trial. In this regard, the Court cited the authority (1940) L.R. 67 I.A. 336 to support the proposition that the admission was not against the accused himself but against his co‑accused.

The Court explained that whenever the issue of the existence of a conspiracy and the participation of a particular individual as a co‑conspirator becomes relevant at trial, the proof must be founded exclusively on evidence falling within section 10 of the Evidence Act. That provision is an exceptional rule confined to conspiracies aimed at committing an offence or an actionable wrong. The Court further noted that the learned judges had omitted to recognise that evidence of conduct admissible under section 8 of the Evidence Act pertains only to conduct of a person who is a party to the proceeding.

Consequently, the Court found it clear that acts, statements or writings of a co‑conspirator—whether that co‑conspirator is presently on trial or not, and whether the material relates to a period outside the alleged conspiracy—cannot be admitted for the specific purpose of proving the existence of the conspiracy. The Court added that the judges preferred to defer their opinion on this precise legal question because it did not require determination in the present case.

Nonetheless, the Court reiterated a point made earlier in the judgment: in certain factual circumstances, evidence relating to events outside the period of the alleged conspiracy may be admissible if it bears on a substantial issue in the case. For example, in the present matter, evidence concerning the fictitious nature of the loans and the criminal intent of each accused could be relevant. In such contexts, the statement, act or writing of an individual co‑conspirator occurring outside the conspiracy may serve merely as a link in the evidential chain, or as a prefatory or explanatory piece of information, provided it remains within reasonable limits.

In that limited sense, the Court held that such evidence would be admissible, but it would not operate to attribute the act or statement to the other co‑conspirators on the theory of agency, even if the evidence was obtained behind their backs. The Court further observed that, as already noted, the trial judge had admitted any evidence of the acts, statements or writings of Lala Shankarlal and other co‑conspirators only on this limited footing.

Accordingly, the Court concluded that the contention advanced by counsel for the appellants—that a substantial portion of inadmissible evidence had been allowed—could not be sustained. The Court then turned to the next issue raised, namely that several documents tendered into evidence, alleged to be written by one or another of the accused, had been sent to a handwriting expert for opinion. The Court noted that the prosecution had not called the expert as a witness, nor produced his report, yet the jury had been instructed to compare the handwriting in the disputed documents with the handwriting already admitted into evidence.

In the trial the jury were instructed to examine the documents and reach their own conclusions. The defence argued that this procedure was unfair because the prosecution had not called the handwriting expert for cross‑examination nor produced his report. The Court, however, reiterated the established principle that it cannot normally compel the prosecution to examine a witness that it has chosen not to call, and that a fair prosecutor’s duty is limited to examining those witnesses whose testimony is essential to unfolding the prosecution’s case in its core elements (see Habeeb Mohamed v. The State of Hyderabad (1)). Counsel for the prosecution, Mr Khandalawala, asserted that the testimony of the handwriting expert was not necessary for presenting the prosecution case, and the Court expressed agreement with that view. Even assuming a different perspective on the prosecution’s duty to call such an expert, the usual course is to allow the defence to comment on the omission and to permit the jury to draw an adverse inference regarding the portion of the case that would have relied on the expert’s evidence. Mr Khandalawala further noted that the defence counsel, Mr Chari, had in fact raised this point while addressing the jury, and that he himself had told the jury that they were free to consider it. The grievance of Mr Chari is that the trial judge’s charge to the jury did not expressly direct the jurors to make such an inference. The Court acknowledges that this omission occurred, but considering the complexity and the numerous details of the case, it saw no reason to conclude that the failure to include that specific instruction caused any substantial prejudice to the accused. The Court also considered a related objection concerning the failure to call three individuals—Chandulal Ratanchand Shah, Himatlal F. Parikh, and Himatlal Harilal Shah—as witnesses. It was pointed out that shares had been allotted to these three persons alongside the conspirators, and that examining them might have clarified the circumstances of the share distribution, potentially demonstrating that the transfers were innocent rather than fraudulent. The same reasoning applied to the handwriting expert’s non‑examination was deemed applicable to these three witnesses. Moreover, it was noted that the share transfers to these individuals occurred before the amendment of section 6A of the Insurance Act, 1938 (IV of 1938), and therefore their absence from testimony was unlikely to have caused serious prejudice. Nonetheless, the Court found no sufficient basis to declare the trial void on account of the non‑examination of either the handwriting expert or the three aforementioned witnesses.

The Court observed that it could find no satisfactory basis for concluding that the trial had been compromised by the failure to call the three witnesses or the handwriting expert to give evidence. The next contention put forward by counsel for the appellants, identified as Mr Chari, was that the prosecution had been allowed to invite the jury to convict the accused on the basis of prosecution evidence that purported to establish alternative sets of facts concerning one of the central questions in the case, and that such an approach was contrary to legal principle. This line of argument was said to affect both the overall case against all the accused and the specific case against the appellant, Caveeshar. In support of this argument the appellants referred to a particular segment of the prosecution’s case. According to that segment, the original loan of twenty‑five lakh rupees and a further amount, drawn from the funds of the Jupiter company and extended to Caveeshar on the alleged security of his supposed property in Delhi, was said by the prosecution to have been buttressed by the conspirators through several documents. These documents were described as an application for the loan, a valuation statement of the alleged properties, other necessary papers, and resolutions numbered five, six, seven and eight passed by the directorate of Jupiter at its meeting held on 11 January 1949, which were claimed to have sanctioned the loan on the basis of those papers. The prosecution’s narrative asserted that, in fact, those papers never existed and that the resolutions numbered five, six, seven and eight had not been passed on the date on which, according to the entries in the minutes book, the Board of directors had taken up the matter at its 11 January 1949 meeting. To establish this claim the prosecution relied, among other things, on the testimony of Subramaniam, who served as the secretary of the directorate and whose regular duties included attending every meeting and recording the minutes of the business conducted. The prosecution further alleged that the necessary documents and the resolutions were fabricated at a later stage, back‑dated and interpolated into the record. Referring to this portion of the prosecution’s case, the learned trial judge, in paragraph 545 of his charge to the jury, explained: “The question whether the resolutions Nos. 5, 6, 7 and 8 were passed or not (on January 11, 1949) is an important question to consider so far as the criminal intention alleged on the part of the accused Nos. 1, 2, 3 and 4 are concerned. In this case what you have to consider is whether you are prepared to believe the evidence of Subramaniam or not that no such resolutions were passed at the said meeting. If you disbelieve his evidence on this point, then consider whether apart from his evidence, there is sufficient evidence on record to lead you to the conclusion that no such resolutions were passed. If you come to the conclusion that there is no other convincing evidence to show that the resolutions were not passed, then you…”

In the charge to the jury, the trial judge explained that the jurors had to decide first whether the resolutions numbered five, six, seven and eight had been passed at the meeting held on 11 January 1949, because that question was crucial to the allegation of criminal intent against accused persons one, two, three and four. The judge then told the jurors that, if they chose to disbelieve the evidence of Subramaniam that no such resolutions were passed, they must consider whether any other evidence on record was sufficient to lead them to the conclusion that the resolutions had indeed been passed, as shown in the minutes. If the jurors found that no other convincing evidence existed to prove the resolutions had not been passed, they were to conclude that the resolutions were passed. Having established that the resolutions had been passed, the jurors were then required to determine whether the accused honestly believed that they were authorised to handle the company’s funds and to pay the amount due to Tropical Insurance Co. on behalf of Caveeshar.

The Court observed that nothing in this portion of the charge supported the allegation that the prosecution was permitted to rely on alternative sets of facts. It recognised that, in a case of this nature, the prosecution could rely on both direct evidence and circumstantial evidence and could maintain that, even if Subramaniam’s direct testimony was rejected, the circumstantial evidence alone could establish the prosecution’s version of events. The alternatives mentioned by the trial judge were, first, the alternatives that arose from the prosecution’s reliance on both direct and circumstantial evidence; and second, the alternatives that the accused could consider if both the prosecution’s direct and circumstantial evidence were found unacceptable. The Court held that the alternatives presented for the prosecution did not amount to an inconsistent case. Although a prosecution is not allowed to introduce evidence that reflects inconsistent narratives, the Court found that no such inconsistency had occurred in the present proceedings and therefore the contention of inconsistency lacked substance.

The Court further noted that none of the documents relating to the Caveeshar transaction were available at the time of trial. Even in 1950, when the auditors requested those documents, the directors explained that the loan to Caveeshar had been repaid in full and that all relevant documents had been returned to the loan‑grantor. Caveeshar himself maintained that he was not a party to the alleged loan, that he was unaware of any such documents, and that any alleged manipulations had been carried out without his knowledge. The Court recorded the defence counsel’s complaint that the trial judge had misdirected the jury by instructing them to disregard the fact that, by the time the complaint was filed in 1951, the money taken out of the Jupiter on 20 January 1949 through the two disputed transactions had already been returned in cash, that the auditors had ultimately been satisfied with this return, and that the shareholders at the 1950 general meeting had accepted Lala Shankarlal’s explanation.

The Court concluded that, in view of the prosecution’s evidence indicating that the return of the money had been hastily arranged in October 1950 by using the Jupiter’s securities to purchase a controlling block of shares in the Empire of India and to obtain funds from the Empire of India, it would not have been appropriate for the prosecution to direct the jury to ignore that portion of the case either for or against the accused. Accordingly, the Court found that the trial judge was correct in directing the jury to disregard that particular aspect of the evidence. The Court then turned to the next argument raised by the defence, which concerned alleged irrational features of the prosecution’s case and highlighted certain circumstances that, assuming the accused were parties to the conspiracy as charged, could only be …

In October 1950 the securities of the Jupiter were allegedly employed to acquire the controlling block of shares of the Empire of India and to draw money out of the Empire of India. The prosecution could fairly have asked the jury to regard the apparent return of the Jupiter’s monies, as shown in the various investment records, as a true indication that the alleged misappropriation was in fact merely an unfounded suspicion. In view of this, the learned judge was correct in directing the jury to disregard that portion of the case, whether it might have been used for or against the accused.

The next point raised required notice because it concerned what were described as irrational features of the prosecution case. The defence counsel, in arguments addressed to the jury at trial, identified a number of circumstances relating to the alleged manipulations which, assuming the accused were parties to the conspiracy as charged, could only be characterised as irrational conduct on the part of the various accused. The defence argued that these circumstances must be taken as prima facie assistance to the accused, showing that they had no knowledge of any criminality in the transactions that might have influenced Lala Shankarlal and that, as far as they were concerned, they had acted in perfect good faith. Mr Chari, for the defence, complained in both the High Court and here that the trial judge had not dealt adequately with these matters in his charge to the jury and that the appellants had therefore been prejudiced. The trial judge addressed this issue in paragraph 556 of his charge, and the High Court judges treated it more fully on pages 159 to 162 of the typed judgment. Mr Khandalawala, for the prosecution, pointed out that the alleged irrational features had been dealt with by the trial judge in his charge, referring to each item of evidence as it arose in the general narrative or in relation to each individual accused. He observed that the trial judge did not repeat the same explanation when specifically responding to Mr Chari’s argument, which bundled the thirty alleged irrational features together. The Court agreed with the High Court that there was no reason to hold that the somewhat summary manner in which paragraph 556 dealt with the matter could be taken as an error in the circumstances of the case.

The Court observed that there was no material non‑direction in the judgment. A special argument was put forward on behalf of the appellant Caveeshar. He contended that he had never been a director of the company Jupiter and that he had not attended any of the meetings of the conspirators when they met as directors of Jupiter. He further asserted that the evidence against him was, for the most part, on the same footing as the evidence against Jhaveri, who was identified as accused number three and who had been acquitted, at least with respect to the period of the alleged conspiracy. Caveeshar also maintained that his case had been prejudiced by the impact of evidence relating to the acts of Lala Shankarlal that occurred beyond the period of the alleged conspiracy, and that such evidence might have influenced the jury’s mind against him.

For the prosecution, counsel presented sufficient admissible evidence relating to Caveeshar. The Court noted that if the jury chose to accept that evidence, it could reasonably support a conviction. After giving full and careful consideration to all the submissions made by both the defence and the prosecution, the Court concluded that there was no sufficient ground to interfere with the convictions on the basis of the special leave petition. The trial judge’s acceptance of the jury’s verdict was therefore left undisturbed. Accordingly, all the appeals were dismissed.