The Curious Case of Missing Gold From Kasturi Lal to Recent Agni Pareeksha of CBI

Recently, a Writ Petition came before the Madras High Court, seeking a Writ of Mandamus directing the CBI (Central Bureau of Investigation) to hand over the 103.864 Kgs of Gold missing from CBI custody. The Madras High Court calling it “Agni Pareeksha” of CBI has directed the CB-CID to lodge an FIR and investigate the matter.

The Missing Gold Case Before the Madras High Court

In this case, the CBI conducted a raid at the office of Surana Corporation Limited and seized 400.47 Kgs of Gold. The seized Gold was kept in safe vaults of Surana under the seal and lock of CBI in the presence of witnesses.

As per the CBI, the keys of the vault were handed over to the Special Court, but the CBI could not give the exact date of handing over the keys. During the investigation it was found that the seized Gold was not required for the case registered earlier, but is required for another case alleging violation of Foreign Trade Policy; consequently, the Gold was transferred from file of earlier crime number to the subsequently registered criminal case. However, no physical handing over was done; it was all happening on files.

The CBI completed the investigation in both the cases and filed a final report, which was accepted by the Court. In the meanwhile, the lender banks of Surana filed insolvency proceedings before the National Company Law Tribunal. Surana and State Bank of India (leader of the consortium of lenders) agreed that the seized Gold should be given to the Bank in lieu of loan of Rs. 1160 Crores.

After few litigations ultimately the NCLT directed that the seized Gold shall be transferred to the State Bank of India. As directed by NCLT, the CBI along with the representatives of the Bank and Surana, opened the vault for the very first time and to their great shock and surprise the total Gold found in the vault was 296.696 Kgs, not 400.47 Kgs, so 103.864 Kgs of Gold was missing.

The Madras High Court passed a detailed order and directed that the CB-CID Metro Wing Chennai shall register an FIR for theft and investigate the matter of missing Gold of more than 100 KG.

Kasturi Lal Judgment and Sovereign Power

Now let us travel back in time and deal with a similar case which was decided by the Apex Court. 

In the case of Kasturi Lal Ralia Ram Jain vs State of Uttar Pradesh (1965) SCC 375; AIR 1965 SC 1039, the issue before the Supreme Court was that 

Whether the State Government is liable to compensate M/s Kasturi Lal for the loss of Gold caused by the negligence of the Police Officer employed by the State.

M/s Kasturi Lal Ralia Ram Jain, a registered partnership firm, dealt with bullion and other goods at Amritsar. On 20.09.1947, one of the Partners, Ralia Ram, arrived at Meerut in the midnight, with the object to sell Gold and silver and other like goods. While he was passing through the marker, he was arrested by three police constables. He was searched, and Gold weighing 103 tolas and odd along with silver weighing two maunds were seized and kept in police custody. Ralia Ram was put in lockup, and after some time he was released on bail, and the silver seized from him was returned to him, but the seized Gold was not given.

After repeated requests when the seized Gold was not given to him, he filed a Suit praying that either the seized Gold be returned to him or the value of that Gold. The State opposed the suit and submitted that the seized was taken into custody by the then Head Constable, Mohd. Amir and it was kept in the Police Malkhana, but Mohd. Amir misappropriated that Gold and fled to Pakistan.

The Trial Court decreed the suit and ordered to pay the value of Gold to the Plaintiff. The Judgment of Trial Court was challenged before the Allahabad High Court, which set aside the same observing that the State is not liable to pay for the negligence of its employee.

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Concept of Sovereign Immunity

The matter came to Supreme Court in Appeal. A bench of Chief Justice P.B. Gajendragadkar, Justices K.N. Wanchoo, M. Hidayatullah, Raghubar Dakar, Cjand Knwanchoo, M held that the Gold was seized in the exercise of the statutory power of arrest, which is Sovereign Powers; therefore the claim of the M/s Kasturi Lal cannot be sustained. The Court observed that this doctrine of immunity is derived from the Crown of England that King Can Do Now Wrong

After referring to various judicial pronouncements of Privy Council and Supreme Court, the Court held that where the act committed by the Public servant is referable to exercise of delegated sovereign power, then no action for damages or loss caused by such tortious act shall lie.

The Court also observed that not all the activities of State should be granted the immunity of Sovereign power, as in pursuit of the welfare state, the Government will enter into various commercial activities, which have no nexus with the traditional concept of government activities for the exercise of sovereign power. Therefore it is necessary that if acts are committed concerning such non-sovereign activities, citizens may not be precluded from raising their claim in the Court of law.

But the Court also added a word of caution that this is the time when the legislature should come up with a law to control the immunity of the State on the line of Crown Proceedings Act 1947.

Concept of Sovereign Immunity Diluted

After the Kasturi Lal Judgment, the Supreme Court itself diluted the concept of Sovereign Power in the case of Neelbatti Behra vs State (1993) 2 SCC 746.

A Bench of Justices J.S. Verma, Dr A.S. Anand and N.V. Venkatachala dealt with the Kasturi Lal Judgment and held that the concept of Sovereign Immunity has no application in the scheme of the constitution and can not be a defence to the remedy under Article 32 and 226 of the Constitution of India. It was further observed that for contravention of Fundamental Rights, the citizens could claim compensation under Article 226 and 32 of the Constitution of India. The Court also observed that in Kasturi Lal it was a claim of damages for the tortious act of the Government Servants, not a claim of violation of fundamental rights, therefore is not applicable for proceedings under Article 226 and 32 of Constitution of India.

After this Judgment, the scope of Sovereign Immunity has narrowed day by day and in the case of D.K. Basu, the Supreme Court, made it inapplicable in case of arrest also.


As such, it can be concluded that in the case before the Madras High Court, the State/ CBI could not take the plea of sovereign immunity, as the proceedings were under Article 226 of the Constitution of India and also the criminal proceedings have been launched against the erring officials, for which the State can claim no immunity.

Now the concept of Sovereign Immunity has become so oblivious that with the advent of Public Function concept, a large number of private entities are amenable to writ jurisdiction of High Court and liable to compensate for violation of Fundamental Rights.

Now a days even the pure sovereign acts such buying defence jets and tackling a pandemic have been put to judicial scrutiny and no immunity could be claimed.


Rajat Rajan Singh
Editor-In-Chief at Law Trend
Allahabad High Court Lucknow

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