'Reverse Onus' Clauses In Tax Law Creating Fear Among Businesses, Criminalising Honest Errors: Former CJI Sanjiv Khanna

Former Chief Justice of India Sanjiv Khanna has criticized the "reverse onus" clauses in tax statutes and the rising trend of prosecuting individuals and businesses for unintentional, technical lapses.

Speaking at a legal conference organized by the Terapanth Professional Forum, the Ex-CJI stated that the legal system is increasingly failing to distinguish between deliberate fraud and honest misunderstanding, creating a climate of fear for professionals and entrepreneurs to do business in India.

Justice Khanna pinpointed a fundamental shift in jurisprudence that is causing alarm: the principle that an accused must prove their innocence. "We now have reverse standard of proof that the accused will have to prove his innocence," he stated. "This is subject matter of challenge in various courts. What the way the courts will go in terms of constitutional protection will have to be looked into."

He questioned the fairness of this approach, asking, "However, will it be fair and just to punish a person who's acted without a deceit, bad or malicious?"

To illustrate the problem, he categorised financial wrongs into three tiers. The first and most serious involves premeditated crimes like fraud and bribery, motivated by greed. The second and third categories, however, are where the injustice lies, he suggested.

The second category consists of wrongs that are "unintentional, largely due to lack of awareness or knowledge. It is without malicious or bad mental intent." The third involves "technical or procedural wrongs like... filing errors, compliance, oversight which happens due to misunderstanding of law or lack of awareness."

"The Difficulty Arises" When Law Equates Error with Fraud

Justice Khanna asserted that the core of the problem lies in legislative overreach. "The difficulty arises when the legislature equates the first category of white collar crimes with other categories or disproportionate punishment is prescribed with minimum penalties or even sentence of imprisonment notwithstanding the lapse is involuntary or without intent to gain financially or cause harm but on account of lack of awareness, knowledge or confusion."

He emphasized that while "ignorance of law is no excuse," the reality is that modern regulations are "complex even beyond the understanding of those connected with the field or can be excessive overpowering."

He provided a compelling anecdote from his time as a lawyer, involving a BJP MP prosecuted for a technical tax violation related to a corporate law mandate. The MP, despite his company's precarious financial situation, was charged for not deducting tax on interest shown in a suspense account.

"The member of the parliament... went to the court he got up and said, please send me to jail, I accept everything but I'll fight this law," Justice Khanna recounted. The case, he noted, ultimately led to a legislative change, highlighting how a well-intentioned but poorly-drafted law can ensnare the innocent.

Justice Khanna's speech was a plea for a more humane and practical legal philosophy. "We are humans, we make mistakes and errors," he stated, pointing to laws in some developed countries that account for human error absent malicious intent.

He concluded by reinforcing that the strength of the justice system lies "not in severity of the punishment, but certainty of justice.", ensuring that the fight against complex white-collar crime does not criminalise simple human error or a genuine misunderstanding of an increasingly complex tax laws.

The speech can be heard here