In 2011, the Supreme Court wanted the privacy of account holders protected till there was reason to believe they contravened the law. In May 2014, it went in another direction and allowed names to be disclosed

By Kartikeya Tanna

In addition to the main headline-grabbing order on Tuesday (notably oral) asking the Modi government to provide it with all the names of foreign account holders, the Supreme court also said that it "cannot touch" its previous order and won’t change "even a word of it".

What is this order that cannot be changed and why has the SC said so?

This requires going back to 2011. In a landmark 67-page judgment in July 2011, the court ordered the then UPA government to disclose names in respect of which proceedings were initiated and constituted a Special Investigation Team (SIT) which would take over the investigation of individuals having foreign bank accounts.

More critically, for disclosure of names against whom no evidence of wrongdoing was found, SC said (in Para 73) that “instantaneous solutions to systemic problems” would “lead to dangerous circumstances in which vigilante investigations, inquisitions and rabble rousing by masses of other citizens could become the order of the day.”

Therefore, in Para 77, the SC categorically said that revealing the details of bank accounts of individuals without the establishment of prima facie grounds to accuse them of wrongdoing would be a "violation of their rights to privacy" and that "it is only after the state has been able to arrive at a prima facie conclusion of wrongdoing, based on material evidence, would the right of others in the nation to be informed enter the picture".

However, what muddied the waters was the court’s order of 1 May 2014 which said that the names of eight persons, against whom investigations were concluded and no evidence of wrongdoing found, must be given to the petitioner (i.e. Ram Jethmalani and others).

In other words, an earlier SC judgment talked of violation of the right to privacy since it observed that "public dissemination of banking details, or availability to unauthorised persons has led to abuse", whereas the later one ordered the Centre to disclose those very names against whom nothing was found, to Jethmalani. These names, as we know, found their way into the public domain.

So much for the SC’s utterance on Tuesday (28 October) that it will not change even a word of its previous order when it has contradicted itself repeatedly. As the author has pointed out earlier, the SC has spoken in drastically different tunes in respect of fast-tracking cases against politicians.

The Modi government’s application earlier this month was, among other things, to seek clarification on which order it should follow.

In fact, due to such disclosure, the Germans wrote to India in June 2014 (as per the government’s application) seeking an explanation as to how this information about eight persons got into the public domain. This disclosure, the Germans wrote, clearly violated the provisions of the DTAA (double tax avoidance agreement) with Germany under which information was shared with India.

Another issue in the SC’s order of 2011 which has created some problems in the signing of further treaties is the interpretation of the confidentiality clause in treaties. Below is an excerpt from the DTAA with Germany:

Any information received by a contracting state shall be treated as secret in the same manner as information obtained under the domestic laws of that state and shall be disclosed only to persons or authorities (including courts and administrative bodies) involved in the assessment or collection of, the enforcement or prosecution in respect of, or the determination of appeals in relation to, the taxes covered by this agreement. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.[emphasis added]

Why do I underline the word ‘they’? This is the crux of the dispute with interpreting the confidentiality clause which has impeded Modi government’s efforts in securing further cooperation from countries.

The use of the word ‘they’ implies tax assessment/enforcement officers. Ergo, only tax assessment/enforcement officers may disclose the information in public court proceedings or in judicial decisions. This obviously means court proceedings relating to tax evasion.

However, instead of focusing on the word ‘they’, the SC’s order of 2011 (in Para 62) ignored it and focused on the words ‘public court proceedings’ stating that the latter words mean proceedings before the SC in a petition such as one filed by Ram Jethmalani. In other words, the information received from Germany and others could also be disclosed to the SC since it is a ‘court proceeding’, never mind the fact that the SC isn’t hearing any case pertaining to tax evasion and the disclosure to SC isn’t by the tax assessment/enforcement officers!

What this did was to alert nations that India’s apex court has interpreted the confidentiality clause broadly. This did invite some comments. For example, after the SC’s order of 2011, this Global Forum on Transparency and Exchange of Information for Tax Purposes report (in the chapter on India’s compliance with the standards on page 107, para 359 onwards) referred to the 2011 order and concluded that “India should monitor developments in this area and, if needed, take appropriate action to ensure confidentiality of the exchanged information.”

Moreover, as the Centre’s application states, in March 2009, when Germany provided information to India, it clearly stated that the information was subject to the confidentiality clause of the DTAA and it further wrote in 2011 that such information could only be used for tax purposes as the DTAA clearly stipulates. Due to the SC’s rather broad interpretation of the confidentiality clause, the Modi government was facing difficulties in securing further cooperation and signing new treaties with similar clauses.

A question may, however, arise as to why a confidentiality clause is needed in a treaty that is supposed to help nab black money holders.

The simple answer is that the list provided by these nations is a bland list of any and every foreign account holder in those nations’ banks. It hasn’t been investigated into for evasion; indeed, it cannot be.

Therefore, before any evidence of wrongdoing is found, the West fiercely guards an individual’s right to privacy – naming and shaming isn’t the way of life. Instead, these nations have strong investigative processes and prosecution systems which ensure quick justice. And that is what the West expects India to do if India is to receive information from it – adhere to confidentiality obligations while conducting a robust investigation and prosecution to punish them.

Moreover, a direct comparison of what the US and others could do with what India has not done falsely draws a parallel between our and their arm-twisting abilities. The US, for example, threatened severe penalties on foreign banks having a presence in the US (where its nationals had undisclosed accounts) and even threatened economic sanctions of a damaging kind.

The Modi government had two choices in the wake of this deadlock of a kind.

One, raise its hands and give up since countries are skeptical of entering into treaties with India, given the SC’s broad interpretation and unauthorised disclosure by petitioners; or

Two, take a huge perception risk of approaching the SC to reconsider its incorrect interpretation and obvious contradiction so that the judiciary is not on a different tangent from the executive which can jeopardise further cooperation in international for a.

The Modi government took the latter approach. Those who concluded that the government wanted to protect black money holders have quite obviously jumped on a running train. And the SC didn’t help allay those fears either. It not only refused to have an open mind about its incorrect interpretation and glaring contradiction between different orders, it scathingly attacked the Modi government yesterday.

However, as today’s developments in the SC indicate, the Modi government now has to take its arguments to the SIT. Hopefully, the SIT will have a more open mind and the government will take this unfair attack on its chin and persist with its efforts to end the black money menace.