Case BriefsSupreme Court

Supreme Court: The 3-judge bench of RF Nariman, BR Gavai and Hrishikesh Roy, JJ has held that an entry made in the books of accounts, including the balance sheet, can amount to an acknowledgement of liability within the meaning of Section 18 of the Limitation Act, 1963.

The Court referred to a number of authorities and in particular the decision in Bengal Silk Mills Co. v. Ismail Golam Hossain Ariff, 1961 SCC OnLine Cal 128, wherein it was held that though the filing of a balance sheet is by compulsion of law, the acknowledgement of a debt is not necessarily so. In fact, it is not uncommon to have an entry in a balance sheet with notes annexed to or forming part of such balance sheet, or in the auditor’s report, which must be read along with the balance sheet, indicating that such entry would not amount to an acknowledgement of debt for reasons given in the said note.

The bench explained that the filing of a balance sheet in accordance with the provisions of the Companies Act, 2013 is mandatory, any transgression of the same being punishable by law. However, what is of importance is that notes that are annexed to or forming part of such financial statements are expressly recognised by Section 134(7) of the Companies Act, 2013. Under Section 134, financial statements are to be approved by the Board of Directors before they are signed, and the auditor’s report, as well as a report by the Board of Directors, is to be attached to each financial statement. Equally, the auditor’s report may also enter caveats with regard to acknowledgements made in the books of accounts including the balance sheet.

The Court, hence, held that,

“… it would depend on the facts of each case as to whether an entry made in a balance sheet qua any particular creditor is unequivocal or has been entered into with caveats, which then has to be examined on a case by case basis to establish whether an acknowledgement of liability has, in fact, been made, thereby extending limitation under Section 18 of the Limitation Act.”

[Asset Reconstruction Company (India) Ltd. v. Bishal Jaiswal, 2021 SCC OnLine SC 321, decided on 15.04.2021]


*Judgment by: Justice RF Nariman

Know Thy Judge| Justice Rohinton F. Nariman

Appearances before the Court by

For appellant: Senior Advocate Ramji Srinivasan, learned Senior Advocate appearing on behalf of the appellant,

For respondent: Advocate Abhijeet Sinha

Case BriefsHigh Courts

Allahabad High Court: The Division Bench of Dr Kaushal Jayendra Thaker and Ajit Singh, JJ., allowed the appeal of the claimants in a motor vehicle accident claim while dismissing the appeal of the insurance company.

Claimants and Insurance Company on being aggrieved by the award and decree passed by Motor Accident Claims Tribunal, filed the present appeal.

Claimants were the legal heirs namely widow and parents of the deceased who died in the vehicular accident.

Deceased was earning Rs 25,00,000 and claimants claimed a sum of Rs 3,40,50,000.

Respondent’s truck was being driven by Afzal Sekh and was insured with National Insurance Company Limited who had been saddled with the liability to make good the amount of compensation.

Due to the truck rash and negligent driving the motorcycle of the deceased was dashed by the truck.

Insurance Company challenged the award on the grounds that the deceased was a contributor to the accident having taken place, that income considered by the Tribunal was on the higher side and the same would not have been made the basis of compensation.

Claimants felt aggrieved as the tribunal did not consider the amount for future loss of income and did not even grant proper interest. Tribunal also erred in directing 2/3rd of the compensation to be paid to the parents and 1/3rd to the widow.

What is Negligence?

Negligence means failure to exercise care towards others which a reasonable and prudent person would in a circumstance or taking action which such a reasonable person would not. Negligence can be both intentional or accidental which is normally accidental.

More particularly, it connotes reckless driving and the injured must always prove that the either side is negligent. If the injury rather death is caused by something owned or controlled by the negligent party then he is directly liable otherwise the principle of “res ipsa loquitur” meaning thereby “the things speak for itself” would apply.

Contributory Negligence

It means that a person who either contributes or author of the accident would be liable for his contribution to the accident having taken place.

In the present set of facts and circumstances, Bench while referring to the recent decision of the Supreme Court in Md. Siddiqui v. National Insurance Co. Ltd (2020) 3 SCC 57 would come to the aid of the claimants as there was no colossal connection of the deceased having contributed to the accident.

What is Liability?

Liability of the Insurance Company.

While considering the issue of breach of policy condition under Section 149 of the Act Bench relied to elaborately sift the documentary evidence on record and whether the owner had taken proper care and caution to see that the driver was authorised to drive the vehicle or not.

High Court opined that the Insurance Company’s contention that the driver was not holding valid and effective driving licence could not be accepted.

While considering the case of the Insurance Company, can it be said that the driver did not have valid driving licence? This question has to be answered in favour of the claimants and owner.

Owner of the vehicle was satisfied, and it was proved that he had taken all care and caution that vehicle was being driven by a person who was authorised to drive the same which was even apparent from the fact that the owner had gone to the extent of producing evidence so as to bring home the fact that there was no breach of policy condition.

Hence, it was held that no breach of policy conditions was committed.

Compensation

It was submitted that the tribunal did not grant the proper amount under the head of non-pecuniary damages to the widow who became a widow at the age of 24 and who was not re-married.

Even the Insurance Company felt aggrieved and challenged the compensation.

Supreme Court held that in the case of motor accident compensation, guess work is inevitable.

Compensation payable to the appellants in view of the decision of the Supreme Court in National Insurance Company Ltd. v. Pranay Sethi, (2017) 16 SCC 680

With respect to the issue of rate of interest, it should be 7.5% in view of the Supreme Court decision in National Insurance Co. Ltd. v. Mannat Johat, 2019 (2) T.A.C 705 (S.C.)

Disbursement and Tax at Source

Claimants Counsel Ram Singh submitted that several years elapsed, parents are at the fag end of their lives, therefore, on additional deposit being made, this Court may not direct deposit of said amounts in fixed deposits and though this Court had time and gain directed the Insurance Companies not to deduct TDS, the same was being deducted.

Bench relied on the Supreme Court decision in A.V. Padma v. R. Venugopal, (2012) 3 SCC 378.

Further, Court stated that people even rustic villagers’ have bank account which had to be compulsorily linked with Aadhar, therefore, what is the purpose of keeping money in fixed deposits in banks where a person, who suffered injuries or lost his kith and kin, was not able to see the colour of compensation.

“..time is now ripe for setting fresh guidelines as far as the disbursements are concerned.”

Court expressed that the guidelines in General Manager, Kerala, SRTC, Trivandrum v. Susamma Thomas, (1994) 2 SCC 176, are being blindly followed causing more trouble these days to the claimants as the Tribunals are overburdened with the matters for each time if they require some money, they have to move the tribunal where matters would remain pending and the tribunal on its free will, as if money belonged to them, would reject the applications for disbursements, which is happening in most of the cases.

The parties for their money have to come to court more particularly up to High Court, which is a reason for our pain.

In High Court’s opinion, Tribunal may release the money with certain stipulations and that guidelines have to be followed but not rigidly followed as precedents.

Further, it was added that while sitting in Single Bench of this Court, Dr Justice Kaushal Jayendra Thaker held that the Insurance Company should not deduct any amount under T.D.S in the case of Sudesna v. Hari Singh, F.A.F.O. No.23 of 2001, decided on 26.11.2020, which should be strictly adhered to.

Hence, appeals by claimants were partly allowed and the appeal preferred by the Insurance Company was dismissed.

Respondents shall jointly and severally liable to pay the additional amount with an interest at the rate of 7.5%

Court directed that on deposit of amount, Tribunal shall disburse the entire amount by way of account payee cheque or by way of RTGS to the account of the claimants. [National Insurance Co. Ltd. v. Anuradha Kejriwal, 2021 SCC OnLine All 269, decided on 13-04-2021]


Advocates before the Court:

Counsel for Appellant: Kuldip Shanker Amist, Manoj Nigam

Counsel for Respondent: Manoj Nigam, Amit Kumar Sinha, Deepali Srivastava Sinha, Mata Pher, Ram Singh

Case BriefsForeign Courts

High Court of Republic of Singapore, General Division: Aedit Abdullah, J., while addressing the matter on contributory negligence, observed that:

Having the right of way does not equate to a licence to collide with another road user in exercising that right.

Plaintiff was a passenger with a few others aboard on the taxi driven by the first defendant.

Factual Matrix

While the first defendant was executing a right turn at a junction, the vehicle was driven by the second defendant, who had priority as the lights were in his favour, collided with the taxi, causing injury to the plaintiff and some other passengers, and unfortunately, the death of one of them.

In view of the above incident, the first defendant was charged with a number of offences including a charge under Rule 5 of the Road Traffic (Motor Vehicles, Wearing of Seat Belts) Rules 2011 due to failing to ensure that his rear-seat passengers were belted up (Seat Belt Offence).

Plaintiff had claimed damages against the first and second defendant for negligence in driving their vehicles.

During the Trial the key issue was the apportionment of liability between the first and second defendant and another issue was whether the plaintiff had indeed used his seatbelt.

Bench had found no contributory negligence on the part of the plaintiff and the primary liability laid upon the defendants. Amongst them, the first defendant bore the greater part of the responsibility, at 65% liability and the second defendant at 35%.

Primary Issues:

(a) the respective liabilities of the two defendants, considering, in particular, the experts’ opinions concerning the speed of the second defendant’s vehicle up to and at the point of collision; and

(b) whether there was contributory negligence by the plaintiff in not wearing his seatbelt.

Analysis of the High Court

Bench while determining the second defendant’s speed, found that the momentum exchange analysis was less reliable than the video analysis and concluded that the video evidence was more reliable and preferred.

Adding to the above, Court also found that the second defendant failed to keep a proper lookout and drive with proper care at the junction.

Determination of second defendant’s responsibility in driving

Having the right of way essentially means that other users should yield or give way.

It was expressed in view of “right of way” that the said right would not absolve that particular road user of the need to exercise due care. In exercising such care, a driver must take heed of other road users, and adjust his speed lower if needed in the circumstances to reduce the risk of an accident occurring.

Though the second defendant was not going beyond the speed limit, yet since it was a large and busy junction, he ought to have proceeded slower than the speed limit so as to keep a proper lookout and respond to the turning traffic.

“Upon seeing vehicles turning, or at least one vehicle doing so, the appropriate reaction would have been to slow down, sound the horn if need be, and make sure no other vehicle was following suit in turning, either from behind or next to the one that took its chances.”

Apportioning liability between the defendants

Major Factors to be considered while apportioning the Contributory Negligence:

(a) the relative causative potency and

(b) the relative moral blameworthiness of parties’ breaches

Causative potency is the extent to which each party’s conduct contributed to the damage in question, whereas the assessment of blameworthiness entails a consideration of a wide range of conduct to arrive at a just and equitable result on the facts.

The above two factors are also to be considered in the case when liability is to be apportioned in respect of two tortfeasors who were both sued for negligence by the same plaintiff in the same suit.

In the Court’s opinion, the conduct of both the defendants’ were equally causatively potent. but since the blameworthiness attached is different, there would be a difference in their liability.

Hence, Bench found the 33% responsibility on the part of second defendant to be appropriate.

But while the first defendant could have avoided the collision if he had exercised due care, this did not mean that the second defendant was wholly without blame.

Bench observed that, the two defendants’ conduct were equally causatively potent – each of their acts and omissions was equally important in forming a continuous causal link leading to the plaintiff’s eventual injuries.

With regard to blameworthiness, Court expressed that:

Greater blameworthiness lay on the party executing the turn, as the signal light was in favour of oncoming traffic. The second defendant could not be made to assume the same degree of liability as the first defendant, even if the second defendant was speeding.

In view of the above discussion, High Court held that the first defendant should be responsible for 65% of the liability whilst the second defendant shall bear the remaining 35%.

Contributory negligence by the plaintiff

Determination of whether the plaintiff wore a seat belt

There was no evidence that the plaintiff’s injuries pointed to the likelihood or probability that the plaintiff had in fact not worn the seatbelt.  He was not even party to the criminal proceedings, nor was he convicted of any offence of not wearing a seatbelt.

Lastly, while concluding the Court held that the plaintiff was not contributorily negligent for his loss.[Ting Jun Heng v. Yap Kok Hua, [2021] SGHC 44, decided on 25-02-2021]

Case BriefsHigh Courts

Madras High Court: P.N. Prakash, J., decided a criminal original petition addressing an issue with regard to an offence under Section 138 of Negotiable Instruments Act, 1881.

Sree Gokulam Chits and Finance Corporation Private Limited initiated prosecution in the Court of Judicial Magistrate for the offence under Section 138 of the Negotiable Instruments Act, 1881 against Jaishankar (A1) and Nagalakshmi (A2).

Gokulam’s case was that Jaishankar (A1) joined some chit groups floated by them and became a subscriber. Jaishankar was given chit amounts towards which, he issued some cheques as security while so, Jaishankar defaulted on the repayment of the chits and when Jaishankar was informed that legal action would be taken against him, he and his wife came for settlement. His wife issued cheque, which on presentation at the bank was returned unpaid with endorsement “payment stopped by the drawer”.

Gokulam after the above incident issued a statutory demand notice and on non-completion of the said demand, Gokulam initiated a prosecution under Section 138 of the NI Act against them.

Decision

Bench noted that the impugned cheque in the present case was issued by the accused 2, i.e. Nagalakshmi from her personal bank account in discharge of the debt of her husband Jaishankar (A1).

Court added that the said cheque was not issued from the bank account of any juristic entity for invoking vicarious liability provisions viz. Section 141 of the NI Act.

If a cheque is issued by a person in discharge of the liability of another person and if the cheque is dishonored, the person, who issued the cheque can be prosecuted under Section 138 NI Act.

 High Court stated that just because Jaishankar (A1) was the beneficiary of the loan, he could not be prosecuted under Section 138 of the NI Act for the dishonour of the cheque issued by his wife Nagalakshmi (A2).

Hence, in view of the above discussion, Court while partly allowing the petition issued the following directions:

  • Prosecution against Jaishankar (A1) quashed.
  • Nagalakshmi was asked to appear before the Judicial Magistrate.
  • Nagalakshmi shall file a bail petition and cooperate in the expeditious disposal of the case without adopting any dilatory tactics.
  • If Nagalakshmi absconds, a fresh FIR can be registered under Section 229 A.

[M. Jaishankar v. Sree Gokulam Chits and Finance Corpn. (P) Ltd., 2020 SCC OnLine Mad 5550, decided n 04-12-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Consumer Disputes Redressal Commission (NCDRC): C. Vishwanath (Presiding Member), held that since the Insurance Company itself insured the complainant’s vehicle and the vehicle had been stolen during the currency of the Policy and the Police were informed immediately, the Insurance Company could not repudiate the claim.

The instant revision petition was filed under Section 21(b) of the Consumer Protection Act, 1986 against the Order passed by Rajasthan State Consumer Disputes Redressal Commission.

Facts of the case

Respondent obtained an Insurance Policy from the petitioner for his Car being temporary registration for a sum of Rs 6,17,800.

In the night of 28-07-2011, Complainant’s car was stolen from Geeta Guest House, Jodhpur. Police could not trace the vehicle and submitted a negative final report. Complainant submitted an insurance claim with the Opposite Party/Insurance Company. Petitioner/Opposite Party repudiated the claim, on the ground that intimation of theft of the vehicle was given to the Insurance Company with delay, which was in violation of the Policy condition and though temporary registration of the vehicle expired on 19-07-2011, the Complainant did not get the vehicle permanently registered. Thirdly, the Complainant left the vehicle unattended outside the guesthouse, in violation of the Policy condition.

District Forum dismissed the complaint stating “as at the time of the theft the vehicle is not registered, there was no deficiency in service on the part of the Opposite Party”.

Against the order of the District Forum, the Complainant preferred an Appeal before the State Commission and State Commission set aside the order of the District Forum while allowing the appeal.

Aggrieved by the State Commission’s Order, Opposite Party/Insurance Company preferred the present Revision Petition.

Analysis and Decision

Core issue for the adjudication was in regard to the registration of the vehicle after expiry of temporary registration.

Since the Petitioner/Insurance Company had received the insurance premium and there was no violation of any specific condition in the Insurance Policy, the Insurance Company was liable to indemnify the insured for the loss suffered by the insured.

Though plying a vehicle on road without registration is a violation of provisions of Motor Vehicle Act, the Competent Authority to take action against a non-registered vehicle is the Police and other Government authorities. Insurance Company after accepting the premium, cannot escape from its liability and repudiate the claim on this technical ground.

Commission in view of the instant matter stated that:

The temporary registration of the vehicle expired on 19-07-2011 and the car got stolen on 28-07-2011, mere 9 days later. The Motor Vehicle Act does provide for registration of vehicle after its expiry on payment of certain fee.

Commission held that when the Insurance Company itself insured the complainant’s vehicle and the vehicle had been stolen during the currency of the Policy and the Police was informed immediately, the Insurance Company cannot repudiate the claim of the Complainant on a technical ground.

In view of the above-discussion, State Commission’s Order was justified and the same did not suffer from any illegality, therefore revision petition was dismissed. [United India Insurance Co. Ltd. v. Sushil Kumar Godara, 2020 SCC OnLine NCDRC 494, decided on 11-12-2020]


Advocates for the parties:

For the petitioner: Ms Suman Bagga, Advocate

For the Respondent: NEMO

Case BriefsHigh Courts

Chhattisgarh High Court: A Division Bench of P. R. Ramchandra Menon and Parth Prateem Sahu JJ., allowed the appeal and modified the impugned award.

The facts of the case are such that on 18-05-2011, Karan along with other labourers was travelling on a Dumper i.e. ‘offending vehicle’ to village Badeli when they met with an accident due to rash and negligent driving of offending vehicle by non-applicant 4 and Karan came under the offending vehicle and died. A claim application under Section 166 of the Motor Vehicle Act was filed before the learned Claims Tribunal and liability to pay the compensation was fastened on the insurance company.

Counsel for the appellants submitted that deceased was travelling as ‘gratuitous passenger’ in a ‘goods carriage vehicle’; the driver of offending vehicle was not possessing valid and effective driving licence, claimants are not entitled to any amount of compensation as it is a breach of conditions of the insurance policy.

Counsel for respondents submitted that it was a burden upon the Insurance Company to prove that on the date of accident, driver of the offending vehicle was not possessing a valid and effective driving licence, in which, it failed and no evidence has been brought on record by Insurance Company in support of their ground to prove that non-applicant No.4 was not possessing valid and effective driving licence.

Issue 1: The Court observed that in view of undisputed facts and evidence available on record it was clear that deceased was travelling in a goods carriage vehicle, he was not an employee of the owner of offending vehicle; the policy issued was only ‘Liability Only Policy’, no premium paid for any gratuitous passenger travelling in the vehicle, Insurance Company cannot be held liable to satisfy the amount of compensation against the death of Karan alias Phekan whose status was of ‘gratuitous passenger’.

Issue 2: The Court further observed that as far as the ground relating to no licence is Concerned the licence itself was not placed on record, then it cannot be said that Insurance Company has not discharged its burden to prove that non-applicant No.4 was not possessing valid and effective driving licence, in fact, it is a case of no licence. The Court thus held that nonapplicant No.4 was possessing valid and effective driving licence is perverse and it is hereby set aside.

Issue 3: The Court observed that as far as the ground that claimants are not entitled to any amount of compensation as they are not legal representatives and dependant upon the deceased is concerned, it was stated that In view of aforementioned evidence available on record when the claimants have not filed any document to show their relationship with deceased nor examined any independent witness of the village where the deceased was residing to prove that deceased was residing with claimants on the date of the accident.

The Court respect to maintaining an application by a person not dependant on the deceased observed that “the definition contained in Section 2(11) CPC is inclusive in character and its scope is wide, it is not confined to legal heirs only. Instead, it stipulates that a person who may or may not be legal heir competent to inherit the property of the deceased can represent the estate of the deceased person. It includes heirs as well as persons who represent the estate even without title either as executors or administrators in possession of the estate of the deceased. All such persons would be covered by the expression ‘legal representative’.”

 The Court thus held that the claimants failed to prove that they were dependant upon deceased, the relationship being respondent 1 to be real sister of deceased not proved. Non-applicant 2 is earning and nothing is mentioned about the husband of applicant 1 and father of applicants 2 to 7.

In view of the above, the appeal was allowed and Insurance Company was exonerated from its liability to satisfy the amount of compensation and instead it was cast upon non-applicant 3/registered owner of the offending vehicle.[United India Insurance Company v. Kimani Devi,  2020 SCC OnLine Chh 881, decided on 09-10-2020]


Arunima Bose, Editorial Assistant has put this story together

COVID 19Op EdsOP. ED.

1. INTRODUCTION

The on-going global Coronavirus disease (“COVID-19”) has affected a countless number of people around the world, businesses and the global economies alike. On March 11, 2020, the World Health Organisation declared COVID-19 a pandemic. In India too, the government has also termed COVID-19 as a pandemic. In testing times like these, India is slowly coming out of an unprecedented nationwide lockdown; which incidentally has been termed to be as one of the biggest lockdown in the world and has resulted in a temporary or partial shutdown of many businesses in India.

The Ministry of Home Affairs (“MHA“) along with various other relevant Indian governmental authorities to safeguard the interests of employees — ­particularly the inter-State migrant workers have come out with a series of notifications, advisories, circulars and orders (collectively referred to as  “the COVID Circulars”), many of which have cast onus on the ’employers’ and companies – whether they be in the industry or shops and commercial establishments,which (broadly) include but are not limited to the following:

(i) making payment of wages to their workers at their workplace, on the due date, without any deduction, for the period their establishments are or previously have been under closure during the lockdown (“MHA Circular”)[1]; and

(ii) ensuring fixed working hours and adequate safety of their employees[2], for the safety measures announced by the relevant governmental authorities, in light of the COVID-19 pandemic. ­

This article seeks to discuss in light of the COVID Circulars and keeping in view the ever-increasing popularity of the appointment of non-executive directors (“NED”) in Indian companies, whether such NEDs can be held liable for non-compliance of the obligations which the COVID Circulars have cast upon companies and employers.

2. ROLE OF NON-EXECUTIVE DIRECTORS WITH REGARD TO COVID CIRCULARS AND APPLICABLE INDIAN LEGISLATIONS  

2.1  Due to the ever-growing participation of private equity and venture capital investments by investors in Indian companies, as a recently evolving trend, such investors in return for their investments have been demanding a board seat of an authorised individual representative of their choice, usually by way of appointing a NED.

2.2 Obligations of Employers with Regard to the COVID Circulars

 As indicated above, several COVID Circulars have cast obligations on ’employers’, especially, when it comes to payment of wages to their workers employed at their workplace, during the period of lockdown. For instance, Labour Departments of States such as Maharashtra and Telangana had even prior to the MHA Circular, directed that during the lockdown period (which was announced by the said States before the nationwide lockdown was announced on March 24, 2020), the employees/workers were to be paid salary and allowances in full, as a paid holiday during such period. As on date, however, there is no clarification from the relevant governmental authorities as to whether a NED will constitute as an ’employer’ and hence, there remains ambiguity regarding whether a NED can be held accountable for any act of non-compliance by a company, in light of the COVID Circulars.

With no ‘explicit’ clarity on the issue of liability of a NED, with regard to COVID Circulars, as a stop-gap measure, guidance on the role and responsibilities, and general actions from the definitions, and cases which have dealt with the said issue in the past, interpretation can be drawn, in terms of the relevant Indian statutes, which include but are not limited to: (i) the  Companies Act, 2013[3] (“the Act”); and (ii) applicable provisions of the Indian labour legislations, which have been analysed (in brief) below.

2.3 Definition and analysis of a NED in line with the Act and the allied Rules made thereunder

 NEDs in India are viewed as a custodian of the company[4]. Under the Act, the liability in case of a default is cast upon the “officer who is in default”[5]. The question which has been repeatedly tested and challenged in the competent court(s) of law is whether a NED in a company can be equated on the same footing as an “officer who is in default”[6]. The extant law, provides a way out for the directors of a company including the NEDs, who can prove that any breach or non-compliance was not intentionaland neither was it an intentional breach by him/her, however, the burden to establish innocence would always lie on the NED. Additionally, the Act provides that a NED should be held liable only in respect of any contravention of any provisions of the Act which had taken place with his knowledge (attributable through board processes) and where he has not acted diligently, or with his consent or connivance[7], a fact which has been reiterated by the MCA, on numerous occasions[8].

To clear the ambiguity around the issue of liability of a NED, the Ministry of Corporate Affairs (“MCA”) had issued a circular[9] (“the Circular”), wherein it clarified that the liability of a NED (not being a promoter or KMP) under the Act, is only for the acts of omission or commission by a company which had occurred with his knowledge, attributable through the ‘board’ process, and with his connivance or where he had not acted diligently (“the Criteria”). The Circular further states that unless the Criteria is met, a NED (who is not a promoter or KMP), should not be arrayed in any criminal or civil proceedings under the Act. The Circular also discusses the need to examine the Criteria, before serving notices to the NED of a company, for a potential non-compliance and default by him/her.

The MCA, through the said Circular, has also prescribed SOPs (standard operating procedures) for the Registrars, before initiating proceedings against the ‘officers in default’, for offences which include but are not limited to ascertaining the nature of default and officer in default. The MCA has further clarified that in case of any doubts pertaining to the liability of any director for proceedings to be initiated, guidance may be sought from the office of the Director General of Corporate Affairs, MCA, and consequently, such proceedings must only be initiated after receiving due sanction from the MCA. Also note, only where lapse(s) are attributable to the decisions which are taken by the board or its committees which include the NED, adequate care and responsibility must be taken to ensure that unnecessary proceedings are not initiated against such NEDs unless there is evidence to the contrary.

2.4 Definition of ‘Employer’: Guidance from various Indian labour statutes

In light of the COVID-19 Circulars, it appears that most of the advisories seem to be directed towards “employers”, and the roles and responsibilities which would need to be followed during the lockdown. For instance, in light of the hardships faced by the inter-State migrant workers, the MHA Circular called upon all “employers”– whether in industry or in shops and commercial establishments, to make payment of wages of their workers at their workplace on the due date without any deduction in the wages during the lockdown period. On similar lines, relevant State Government authorities of various States, such as (i) Maharashtra; (ii) Uttar Pradesh; (iii) Haryana; and (iv) Karnataka, had issued advisories/orders on similar lines refraining employers from terminating their employees and workers, and/ or to reduce their wages.

As indicated at Point 2.2. above, since the COVID Circulars are silent on who an “employer” is, nor have the relevant governmental authoritiesas on date clarified on who would fall under the definition and ambit of an “employer”, in the interim reliance can be placed on the relevant provisions of the applicable Indian labour laws, where an “Employer” has been defined under various statutes.

For instance, Section 2(7) of the Bombay Shops and Establishment Act, 1948[10], defines an “employer” as a person who owns or has ultimate control over the affairs of an establishment, whereas Section 2(g) of the Industrial Disputes Act, 1947, defines an “employer” to be: ‘(i) in relation to an industry carried on by, or under the authority of any department of the Central Government or a State Government, the authority prescribed in this behalf, or where no authority is prescribed, the head of the department; (ii) in relation to an industry carried on, by or on behalf of a local authority, the chief executive officer of that authority’. Additionally, Section 2(l) of the Code on Wages, 2019, defines an “employer” as: “a person who employs, whether directly or through any person, one or more employees in his establishment”.

Hence, who would fall under the definition of an “employer” would depend on factors such as:

(i) the nature of the business;

(ii) the type of workers employed; and

(iii) the place of operations of a business or an establishment.

3. JUDICIAL PRECEDENTS AND SUBSEQUENT RELAXATIONS BY RELEVANT GOVERNMENTAL AUTHORITIES

3.1 Judicial Precedents

3.1.1 The question of liability of the NEDs has been challenged and discussed upon in the court of law, time and again. Listed below is a brief analysis of the important judicial precedents on this issue, in the recent past:

  • In Chaitan M. Maniar v. State of Maharashtra[11], the Bombay High Court observed that for the acts of a few dishonest people, the NEDs, who were not concerned with the day-to-day functioning of the company will not be held responsible, unless there is valid evidence backed by proof, to prove the active participation of the NEDs in question.
  • In Poonam Garg v. Securities and Exchange Board of India[12],  the appellant (i.e. Poonam Garg) acted in the capacity of a NED in the company and her husband was the promoter, managing director and the compliance officer in the company. The Securities Appellate Tribunal, Mumbai Bench after examining the merits of the case held that: (i) as the appellant’s (i.e. Poonam Garg) husband, was also a promoter/Managing Director/Compliance Officer of the company, the same was sufficient to hold that the appellant (i.e. Poonam Garg) was an ‘insider’ ; (ii) it could be deduced that she was reasonably privy to the PSI or ‘Price Sensitive Information’; (iii) it was not open to the appellant (i.e. Poonam Garg) to feign ignorance of the Prohibition of Insider Trade Regulations; and (iv) take shelter under the violations committed by her husband.
  • For cases pertaining to liability under the Negotiable Instruments Act, 1881, the Supreme Court of India in Pooja Ravinder Devidasani v. State of Maharashtra[13] held that: “a non-executive director is no doubt a custodian of the governance of the company but is not involved in day-to-day affairs of the running of its business and only monitors the executive activity”.

As can be seen from the cases cited above the courts usually examine the liability of a NED, individually on a case-to-case basis, and as such, there is no ‘one size fits all’ formula of the judicial tests, which the judicial courts, examine and has been laid down, to determine the liability of a NED.

3.1.2 Further, as discussed above, several COVID Circulars have imposed various obligations on the “employers” until a few relaxations by the relevant governmental authorities were announced[14]. Additionally, many COVID Circulars, such as the MHA Circular has been challenged by numerous aggrieved parties, before various courts having judicial jurisdiction, primarily on account of the inability of companies to pay wages during the period of lockdown. Listed below is a brief analysis of a few of such cases:

  • The Supreme Court of India in the matter of Hand Tools Manufacturers Association v. Union Of India[15], in its order stated that no coercive action was to be taken against an association of 52 (fifty-two) companies from Punjab for failing to comply with the MHA Circular, wherein the employers were compelled to pay wages to workers during the period of lockdown on account of COVID-19. The Hand Tools Manufacturers Association had challenged the constitutional validity of the Notification dated March 20, 2020, issued by the Secretary (Labour & Employment) and select portion of Clause III of the MHA Circular, both of which compelled payment of full wages to workers and employees during the period of lockdown.
  • The MHA Circular was also  challenged in  Ficus Pax Pvt.    v. Union of India[16], in the Supreme Court of India, wherein the appellant (Ficus Pax Pvt. Ltd. ) approached the Court to quash the MHA Circular directing payment of full wages to workers and employees during the lockdown as  “arbitrary, illegal, irrational, unreasonable and contrary to the provisions of law including Article 14 and Article 19(1)(g) of the Constitution of India.”

3.2  Subsequent relaxations by the relevant governmental authorities at the Central level

 There have been a few relaxations announced by the relevant governmental authorities with regard to the liabilities which the COVID Circulars have placed on the ’employers’.  For instance, the relevant governmental authority on the issue of ‘payment of wages’ to temporary/casual/daily wage workers in light of the lockdown, has clarified that the lockdown period is part of the moral/humanitarian/contractual obligations of all companies irrespective of whether they have any legal obligation for CSR contribution under Section 135 of the Companies Act, 2013, and hence, payment of wages to temporary or casual or daily wage workers during the lockdown period will not count towards CSR expenditure[17].

Additionally, the MHA has by way of issuing an order[18] dated May 17, 2020 (“New Order”) announced various relaxations, wherein the previously issued SOPs, including the MHA Circular, has now been replaced with new guidelines. This would mean that the restrictions which had been imposed by the MCA Circular pertaining to mandatory payment of wages, during the period of lockdown would with effect from May 18, 2020, no longer be applicable and as a result of this move, any termination measures or reduction in wages by an employer would be governed by applicable provisions of the Indian labour statutes.

As on date, however, there appears to be ambiguity regarding the New Order i.e. whether it would apply to establishments which were not operational previously during the period of lockdown, and unless the courts decide otherwise, companies including the employers would be bound by guidelines issued by the MHA Circular from its enforcement (i.e. March 29, 2020), until the day of enforcement of New Order (i.e. May 18, 2020). Additional relaxations in the form of the previously issued standard operating protocol (“SOP”) have been now replaced with the new lockdown guidelines, for instance, it is no longer mandatory for the employer to ensure that its employees have installed the ‘Arogya Setu’ app but the same is to be done by the employer on a ‘best effort basis’ only.

3.3. Subsequent Relaxations by Various State Governments

In light of the COVID-19 pandemic, many State Governments have also provided a few relaxations in the compliance requirement for a few of the applicable labour laws, as a result of which the onus on the part of the employers or the “officer in charge” which may include NEDs by virtue of the role played by them in the company has significantly been reduced. For instance, the State of Uttar Pradesh provided relaxations to the “employers”, by way of issuing an Ordinance[19], in complying with certain requirements of the applicable legislation, such as exemptions from complying with the provisions of the Industrial Disputes Act, 1947 (“IDA”) and the Factories Act, 1948 for 3 (three) years, starting from the date of the said Ordinance.

4. CONCLUSION

4.1 To conclude and to answer whether a NED can be held liable for any non-compliance in light of the  COVID Circulars, the following points provide an overview of the issue:

(i) As discussed above, as on the date of this article, there is no explicit clarity from the relevant governmental authorities, regarding whether a NED would fall under the definition of an “employer”. Hence, the liability of a NED, would need to be determined individually and on a case to case basis, till the time further clarity by a relevant governmental authority is provided.

(ii) In the interim, guidance can be drawn to applicable provisions of the Indian legislations, as discussed in line at Points 2.3 and 2.4 of this article (i.e. the definition of NED and definition of an ’employer’).

(iii) Several petitions challenging the legality of the COVID Circulars, have been filed by affected parties, many of which are still pending to be adjudicated upon by the courts, and are likely to be answered in the coming few days.

4.2 In the interim, in light of the COVID Circulars, to better protect the interest of the NEDs, the following measures should ideally be adopted by the companies:

(i) Obtaining a D&O (director and officer) insurance to better protect the interests of NEDs in a company;

(ii) Indemnification rights as part of the definitive agreements to protect the rights of the NED should be sought by the investors wanting to appoint a NED (i.e. in the form of their representative on the board of a company);

(iii) Clear demarcation of the roles and responsibilities of a NED in the company should be ideally defined and documented; and

(iv) As a stop-gap arrangement, companies may choose to nominate an individual/group of individuals (which may also include NEDs), to oversee the compliance requirements, including the requirements stemming from the COVID Circulars. This may however not be a fool-proof method to safeguard the interest of NEDs, as different courts, may take a different view on this.

4.3 In continuation to recommendations discussed at Point 4.2 above, NEDs may also make a recommendation to the KMPs or the members of the board of directors (as the case may be) and ensure that the employees are paid their wages on time – in line with the advisories issued by the relevant governmental authorities from time-to-time, and further, written consent of employees stating that the company is complying with the norms laid down by the relevant governmental agencies can be obtained, to protect the interests of the NEDs in a company.


*Lawyer from New Delhi/Mumbai, India. Author can be reached at ‘aseem.sahni@outlook.com’.

[Disclaimer: The content of this article is intended to provide a general guide to the subject. Specialist advice should be sought about your specific circumstances.]

[1] Refer to Order issued by the Ministry of Home Affairs – No. 40-3/ 2020- DM-I (A), dated March 29, 2020.

[2]MHA in its directive issued on May 1, 2020 had made installation of ‘AarogyaSetu’ App mandatory for both private and public sector employees and had called upon the head of the respective organisations to ensure 100 per cent coverage of the app among the employees.

[3] The Companies Act, 2013

[4] Chintalapati Srinivasa Raju  v. Securities and Exchange Board of India, (2018) 7 SCC  443, dated May 14, 2018.

[5] Section 2(60) of the Act defines an “Officer who is in default” and provides a list of officers of a company, who will be held accountable in case of default by the company, which include but are not limited to: (i) whole-time director; (ii) key managerial personnel; or (iii) any person in accordance with whose advice, directions or instructions, the board of directors of the company is accustomed to act, other than a person who gives advice to the board of directors in a professional capacity.

[6]Please refer to Point 3.1 of this article, for a discussion on an overview of the judicial interpretation.

[7]Section 149(12) of the Companies Act, 2013.

[8]Refer to ‘Report of Expert Committee’, available at:http://www.mca.gov.in/Ministry/reportonexpertcommitte/chapter4.html (last visited on May 24, 2020).

[9]Refer to General Circular No. 1 / 2020 (F.No. 16/1/2020-Legal) dated March 2, 2020.

[10]Also referred to as the Maharashtra Shops and Establishment Act, 1948.

[11]2004 SCC OnLine Bom 139

[12]  2018 SCC Online SAT 99.

[13] (2014) 16 SCC  1 

[14]Brief analysis of the relaxations announced by the various relevant governmental authorities in light of the COVID Circulars has been discussed at Point(s) 3.2 and 3.3 of this article.

[15]Writ Petition (Civil) Diary No. 11193/2020, order dated 15-5-2020.

[16] (2020) 4 SCC 810

[17]Ministry of Corporate Affairs  General Circular No. 15/2020 (F. No. CSR-01/4/2020-CSR-MCA), ‘COVID-19 related Frequently Asked Questions (FAQ No. 6) on Corporate Social Responsibility (CSR)’ dated April 10, 2020.

[18]Refer to order issued by the Ministry of Home Affairs – No. 40-3/2020-DM-I(A) – dated May 17, 2020, available at https://www.mha.gov.in/sites/default/files/MHAOrderextension_1752020_0.pdf

[19]Refer to Ordinance entitled “Uttar Pradesh Temporary Exemption from Certain Labour Laws Ordinance, 2020”, dated May 08, 2020. It has since been withdrawn.

Case BriefsHigh Courts

Kerala High Court: R. Narayana Pisharadi, J., while observing the instant matter asked the trial court to reconsider the question whether the suit document is a bond or an agreement.

The instant suit was filed for the realisation of money and certain other reliefs. The claim for money was based on the document allegedly executed by the first defendant in favour of the plaintiff.

When the said document was tendered in evidence, the defendants raised an objection to the marking of the document on the ground that it is a bond and it is an insufficiently stamped document.

Trial Court in its decision had found that the suit document was only an agreement and not a bond.

Defendants had also raised an objection contending that the document was a mortgage deed and it should be compulsorily registrable.

Analysis

Section 2(a) of the Kerala Stamp Act, 1959 defined a bond as follows:

“(a) ‘bond’ includes —
(i) any instrument whereby a person

obliges himself to pay money to another, on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be;

(ii) any instrument attested by a witness and not payable to order or bearer, whereby a person obliges himself to pay money to another; and

(iii) any instrument so attested, whereby a person obliges himself to deliver grain or other agricultural produce to another;”

It was observed that the above-stated definition is identical to the definition of bond in Section 2(5) of the Indian Stamp Act, 1899. The said definition includes all types of instruments.

Petitioner’s Senior Counsel submitted that the suit document comes under Clause (ii) mentioned above. But, learned counsel for the first respondent would contend that in order to attract Clause (ii) of Section 2(a) of the Act, the obligation created by the document shall be to pay a definite or specified amount and not something to be determined by the Court.

Further, it was submitted that in the instant case the document does not create an obligation to pay a definite or specified amount and therefore, it is not a bond but only agreement.

Suit document is styled as an agreement. But, for finding out the true character of the instrument, one has to read the instrument as a whole and then find out the dominant purpose. The test is not what the document calls itself or what form it adopts but what is the true meaning and effect of the terms contained therein.

Delhi High Court’s decision in Hamdard Dawakhana (Wakf),1967 SCC OnLine Del 36, the full bench of the court considered the distinction between the bond and an agreement. In this decision, it was observed that it is trite to say that every bond is an agreement and so is the case with a mortgage or sale or exchange but what the court has to see is whether that agreement has acquired the character of a “bond”.

Distinguishing Feature of a Bond

Bond has an obligation to pay money created by the instrument itself.

A document which evidences acknowledgement of an antecedent obligation or a pre-existing liability would not normally become a bond.

The real test to decide whether a particular document is a bond or not is to find out, after reading the document as a whole, whether an obligation is created by the document itself or whether it is merely an acknowledgment of a pre-existing liability.

Where the obligation is a pre-existing one, the subsequent document or the document executed subsequently, giving the nature of the obligation or the terms and conditions of the contract, shall be a mere agreement.

Trial Court failed to take into consideration the fact that, as per the terms of the document, a liability is created for a fixed amount, that is, the amount borrowed and 10% of that amount. Adding to this, it also did not consider whether the stipulation in the document is sufficient to treat it as a bond. Principles mentioned in the Supreme Court cases have also not been referred by the trial court.

High Court allowed the original petition and further stated that the trial court shall consider the question of whether the suit document is a bond or an agreement. [A.V. Ravi v. M.M. Abdulkhadar,  2020 SCC OnLine Ker 8185, decided on 01-12-2020]

Case BriefsHigh Courts

Allahabad High Court: Dr Kaushal Jayendra Thaker, J., directed the insurance company to indemnify the claimants of the deceased who died in an accident, subject, inter alia, to recovery/deduction of 10% of the amount since the present is a case of contributory negligence.

 Present appeal arose from the accident which injured the family of the deceased (late District Judge) and in which the sole bread earner of the family lost his life in the accident. It has been stated that both the driver of the car and owner of the car died whereas the driver of the truck also lost his life.

Claimants preferred the present appeal against the judgment and award passed by Additional District Judge/Motor Accident Claims Tribunal, Allahabad.

Insurance company challenged the grant of compensation in Durga Verma v. Ranno Devi, FAFO No. 1359 of 2001 and FAFO No. 1365 of 2001 whereby the insurance company challenged the judgments qua quantum and alleged breach of policy condition and have also challenged the finding of the tribunal as far as negligence attributed to the driver of the truck was concerned.

Facts that lead to the present appeals

Husband and father of the claimants respectively died in an accident which occurred in the year 1994. The car which the deceased was driving dashed with another vehicle (a truck) causing the death of drivers of both the vehicles who succumbed to injuries caused by the said accident.

The insurance company contested that the vehicle in which the Fiat car dashed was not involved in the accident and the insurance company was not liable and the driver was not having a valid driving license, hence there was a breach of a policy condition. Insurance company contended that it was a case of contributory negligence on the part of the driver of the car.

Insurance Company preferred two appeals against the award in favour of the heirs of driver of Fiat car and heirs of owner of Fiat car. The injured and heirs of both driver and owner have also filed appeals for enhancement.

Analysis & Decision

The Bench stated that it will advert to the principles of negligence: both contributory as well as composite negligence. Further, it added that it is a case of composite negligence but qua the driver of the Fiat car, it can be a case of contributory negligence.

Relying on the decision of Supreme Court in Pappu v. Vinod Kumar Lamba, (2018) 3 SCC 208 and Sant Lal v. Rajesh, (2017) 8 SCC 590, the Bench stated that the liability would arise if a number of the licence was given and issuing authorities whereabouts were given in absence of the same, the insurance company has to be granted recovery rights from the owner of the truck to recover subject to the procedure suggested in the above two cases.

Insurance company did not file any documentary evidence, however, subject to the fact that the driver of the truck did not possess a proper driving license, they are granted recovery rights from the owner.

Negligence

Negligence means failure to exercise the required degree of care expected of a prudent driver. Negligence is the omission to do something which a reasonable man, guided upon the considerations, which ordinarily regulate the conduct of human affairs, would do, or doing something which a prudent and reasonable man would not do. Negligence is not always a question of direct evidence. It is an inference to be drawn from proved facts.

What may be negligence in one case may not be so in another.

Well-Settled Law

At the intersection where two roads cross each other, it is the duty of a fast-moving vehicle to slow down and if the driver did not slow down at the intersection, but continued to proceed at a high speed without caring to notice that another vehicle was crossing, then the conduct of driver necessarily leads to the conclusion that vehicle was being driven by him rashly as well as negligently.

In the instant matter, the Bench observed that:

“Merely, because the driver of the truck was driving a vehicle on the left side of road would not absolve him from his responsibility to slow down vehicle as he approaches the intersection of roads, particularly when he could have easily seen, that the car over which deceased was riding, was approaching intersection.”

Court added that, even if courts may not by interpretation displace the principles of law which are considered to be well settled and, therefore, court cannot dispense with proof of negligence altogether in all cases of motor vehicle accidents, it is possible to develop the law further on the following lines; when a motor vehicle is being driven with reasonable care, it would ordinarily not meet with an accident and, therefore, rule of res-ipsa loquitor as a rule of evidence may be invoked in motor accident cases with greater frequency than in ordinary civil suits [per three-Judge Bench in Jacob Mathew v. State of Punjab, (2005) 6 SCC 1.

It was held that by the above process, the burden of proof may ordinarily be cast on the defendants in a motor accident claim petition to prove that motor vehicle was being driven with reasonable care or that there is equal negligence on the part the other side. In the present case, the vehicles are of unequal magnitude: one is a fiat car and the other a truck; the oral testimony of the witnesses go to show that the truck driver driving the vehicle at an exorbitant speed could not control itself, but at the same time if the driver of the Fiat car would also had been cautious, he would have averted the accident taking place and therefore he is held to be also “co-author” of the accident but to the tune of 10%.

Bench held that, it is case of composite negligence as far as the other inmates of Fiat car are concerned and therefore the insurance company will have to indemnify the claimants however it may recover the said amount to the tune of 10% from the owner-driver and insurance company of the Fiat car. As far as the claimant is concerned who is the widow of the driver of the Fiat car the compensation would be lessened to the tune of 10% as the driver has been held to be negligent to that effect. The driver of the Fiat car should have also taken proper caution and having not done so some negligence is attributed to him also.

Hence, the appeals preferred by the insurance company are decided likewise.

Appeals of claimants were partly allowed. [National Insurance Co. Ltd. v. Durga Verma,  2019 SCC OnLine All 6696, decided on 10-12-2019]

Case BriefsTribunals/Commissions/Regulatory Bodies

Customs, Excise and Services Tax Appellate Tribunal (CESTAT): Anil Choudhary (Judicial Member), allowed an appeal which was filed aggrieved by the judgment and order given by Commissioner (Appeals). The issue before the Tribunal was whether the demand of interest was to be calculated from the date of clearance of goods upto the date of actual payment of duty or from the date of determination of due amount till the actual date of payment of duty.

Appellant was engaged in the manufacture of chewing tobacco falling under Chapter 24 of the CETA and the goods being notified under Section 3 A of the Central Excise Act, the appellant was working under Chewing Tobacco and Unmanufactured Tobacco Packing Machines (Capacity Determination and Collection of Duty Rules) 2010 (CTPM Rules). Appellant valued and paid excise duty under Section 4 A of the Excise Act. The officers of Anti-Evasion visited the factory premises of the appellant and objected to the clearance of retail packages of less than 10 gms, show cause notice was issued proposing to demand differential excise duty on wholesale packages This show cause notice was adjudicated by the Dy. Commissioner confirming the proposed demand. This show cause notice was adjudicated by the Dy. Commissioner confirming the proposed demand, the first appeal before the Commissioner (Appeals) was rejected further, the appeal before this Tribunal was dismissed by the Tribunal confirming the demand. The appeal of the appellant /assessee was allowed by the Commissioner (Appeals) observing that the retail packs weighing upto 10 gms were not liable for MRP based assessment and excise duty has been rightly paid under Section 4 of Central Excise Act. Accordingly, being successful in appeal, they filed a refund claim, which was allowed. Against the Order-in-Appeal Revenue preferred an appeal before this Tribunal in favour of the appellant and against the Revenue. Pending litigation before this Tribunal, Revenue had issued 25 show cause notices for the succeeding period Meanwhile, Rule 2 (j) and Rule 17 of the Package Commodity Rules (Successive Rules to SWM Rules) were omitted from the Statute. Pending adjudication of the aforementioned 25 show-cause notices, the appellant closed down its manufacturing activities and surrendered its registration, the Additional Commissioner confirmed the demand raised under 25 show cause notices with interest and also imposed penalty equivalent to 50% of the duty confirmed.

Being aggrieved, the appellant/assessee preferred appeals before the Commissioner (Appeals) which were rejected. In order to buy peace with the Department, the appellant deposited the differential duty. Further, being aggrieved with the imposition of penalty the appellant preferred appeal before this Tribunal. This Tribunal allowed the appeal and dismissed all the appeals filed by the Revenue. During the pendency of the appeals before the Tribunal the Department directed the appellant to pay interest on differential duty, in response, the appellant objected to the manner of calculation adopted by the Department for demanding interest. The appellant against the Department’s letter being coercive in nature, filed an appeal before the Commissioner (Appeals), Central Excise & CGST, Jaipur which was rejected. Finally aggrieved by which the instant appeal was filed.

The Tribunal applied the ruling in the judgment of CCE v. Lucas TVS Ltd. – 2010 (262) ELT 444 (Tribunal-Chennai), and held that setting aside of the original order and remanding the matter for de novo consideration means, that there is no order and party is relegated to fresh adjudication and adjudication culminates into an order.

The Tribunal while allowing the appeal found that in the facts of the present case the Commissioner (Appeals) has redetermined the duty liability by his order as the demand was set aside and only re-determined for the further period. The Tribunal observed that the appellant /assessee was liable to pay interest for one month which they have admittedly paid, thus the impugned order is set aside.[Arora Products v. Commr., CE & CGST,  2020 SCC OnLine CESTAT 255, decided on 26-10-2020]


Suchita Shukla, Editorial Assistant has put this story together

Case BriefsTribunals/Commissions/Regulatory Bodies

Securities and Exchange Board of India (SEBI): Anant Barua (Whole-time member) passed the order in exercise of his powers under Sections 11 and 11B read with Section 19 of the Securities and Exchange Board of India Act, 1992.

The facts in the instant case are such that the company PDS Agro Industries Ltd. i.e. PAIL was incorporated on 20-04-2010 and noticee 3 (subject of this order) was signatory to the Memorandum of Association of the company having subscribed to 4000 shares and was thus a promoter of PAIL. Noticee 3 was also the non-executive director in the Company from April 20, 2010, to July 30, 2010. PAIL had raised Rs 50,29,300 during the financial years 2010-11 and Rs 2,53,200 during the financial year 2011-12, from the public through issue of RPS, in violation of the provisions of the Companies Act, 1956. Hence SEBI passed an ex parte interim order dated 26-04-2018 against the company PDS Agro Industries Ltd. and its directors for a violation under Sections 56, 60(1) and 73(1) of Companies Act, 1956 thereby

  1. Restraining / prohibiting the access to the securities market or buy, sell or otherwise deal in the securities market, either directly or indirectly, or associate themselves with any listed company or company intending to raise money from the public;
  2. Prohibiting /retraining to dispose of, alienate or encumber any of its /their assets nor divert any funds raised from public through the offer and allotment of Redeemable Preference Shares;
  3. Cooperating with SEBI and shall furnish all information/documents in connection with the offer and allotment of Redeemable Preference Shares sought vide letters dated February 13, 2017.

The interim order also called for show cause by PAIL and its directors, promoters by filing a reply within 21 days to show cause or seek opportunity of hearing related to reasons why suitable directions/ prohibitions under Sections 11, 11(4), and 11B of the SEBI Act, 1992 should not be issued/ imposed along with certain prohibitory directions failing which the interim order will deemed to be considered as final and absolute.

Noticee 3 i.e. Sumana Ghosh Roy being the only one who served a reply dated 20-06-2018 and accepted the opportunity of hearing. Counsel submitted that Noticee 3 does not in any manner is involved in the running of the respondent-company and they have nothing to do so as far the present case is concerned.

The Court relying on the judgment titled Pritha Bag v. SEBI (Appeal no. 291 of 2017) observed that the liability for refund under Section 73(2) of the Companies Act, 1956, lies on the company along with the director who is ‘officer in default’ as per Section 5 of the Companies Act, 1956.

In view of the observations above, the Court held that Noticee 3 was appointed as a non-executive director in PAIL on April 20, 2010 and remained so till July 30, 2010 whereas during the same period Mr. Prabir Roy (Noticee 4 to the interim order) was the Managing Director of PAIL. Hence Noticee 3 was not the ‘officer in default’ in terms of Section 5 of the Companies Act, 1956. The Court further held that Noticee 3 to not be liable for refund in terms of Section 73(2) of the Companies Act, 1956. However, the violations under Sections 56 and 60 of the Companies Act, 1956, has prejudicially affected the interest of investors and the securities market which has not been denied/ raised contention by Noticee 3. Therefore, Noticee 3 may not be liable for refund but was found liable for directions under SEBI Act, 1992.

The Court while disposing off the petition held that Noticee 3 be refrained/prohibited from accessing the securities market by issue of prospectus/ offer document/ advertisement or otherwise in any manner whatsoever, and shall be refrained/prohibited from buying, selling or otherwise dealing in securities in any manner whatsoever, directly or indirectly, for a period of 3 years.[PDS Agro Industries Ltd., In Re.,  WTM/AB/ERO/ERO/9380/2020-21, decided on 07-10-2020]


Arunima Bose, Editorial Assistant has put this story together

Case BriefsHigh Courts

Allahabad High Court: Attau Rahman Masoodi, J., allowed the appeal and modified the impugned order by applying the principle of res judicata.

The factual matrix of the case is such that the present appeal has arisen out of the judgment and award dated 16-02-2016 delivered by Motor Accident Claims Tribunal (MACT) Lucknow in Claim Petition No. 275 of 2007 whereby compensation along with interest was awarded to the claimant who suffered serious eye injury. The accident involved two vehicles i.e., a truck and a car whereby the truck was insured by the appellant.

The correctness of the award is in question whereby the entire liability has been imposed on the appellant although the case was that of composite negligence and the tribunal ought to have considered the judgment delivered by MACT Gonda in the same matter. The appellant has also questioned the multiplier applied for calculation of the claim.

A plea of finality on the aspect of proportionate liability was advanced by the counsel for the appellant, Bhanu Prakash Dubey and Kartikey Dubey in the subsequent proceedings before MACT Lucknow on the basis of the judgment delivered by MACT Gonda. It was further submitted that since the judgment rendered in the earlier proceedings concerns the same accident, therefore, this issue too was liable to be decided in the manner already settled between the parties.

It was contended by Alka Dubey, counsel for the respondent that MACT Lucknow has not committed any error since it has exclusive jurisdiction and is not bound by Section 11 CPC.

The Court referred to Section 169 of Motor Vehicle Act, 1988 and Rules 209, 215, 220 of U.P. Motor Vehicle Rules, 1998 while deliberating over the present matter and observed that that the MACT is obligated to frame the issues on which the right decision of the claim appears to depend.

The Court relied on the judgment titled Canara Bank v. N.G. Subbaraya Setty, (2018) 16 SCC 228 and held that the findings of MACT Lucknow are not justifiable as it should have considered the objections of the appellant and weighed the same in accordance with law. The principle of res judicata was applicable between the parties and the same should have been applied on the aspect of proportional liability of both the parties, accordant with the earlier judgment/award.

Thus, the Court modified the award rendered by MACT Lucknow by fixing the liability to pay compensation equally to both the appellant and respondent. With respect to the appellant’s contention regarding multiplier, the Court accepted the same and held that MACT Lucknow ought to have applied the multiplier as 16 based on the age of the claimant.

In view of the above, the impugned judgment/award was modified to the aforesaid extent and the appeal was accordingly disposed of. [New India Assurance Co. Ltd. v. Vikas Sethi, 2020 SCC OnLine All 921, decided on 31-07-2020]

Case BriefsHigh Courts

Uttaranchal High Court: A Division Bench of Ravi Malimath, A.C.J. and Narayan Singh Dhanik, J., allowed an appeal and modified an order passed by the CESTAT, New Delhi directing the appellant to pay a sum of Rs 40,00,000/- as pre-deposit.

The counsel for the appellant, Pulak Raj Mullick contended that the demand made on the appellant was of the sum of Rs 1,48,42,255, since the year 2017-18, there had been no production and that there were various liabilities on the appellant. It was contended that the appellant was not in a position to make the pre-deposit of such an amount placing his arguments on the amended Section 129-E of the Customs Act, 1962. He further pleaded that the appellant was willing to pay Rs 5,00,000 as pre-deposit, within a period of five months from that day, and the appeal may kindly be considered on merits. The counsel for the respondent, Shobhit Saharia on the contrary contended that the pre-deposit was a mandate of law and there was no hardship which the appellant was able to show and Section 129-E postulates payment of duty of 7½ % of the duty demanded.

The Court while allowing the appeal stated that the non-functioning of the assessee was undisputed, and material on record indicated various other losses and if the appellant was directed to make the ordered deposit it would cause undue hardship. Accepting the offer made by the appellant to pay Rs 5,00,000 within five months the Court modified the order given by CESTAT reducing the sum of pre-deposit to Rs. 5,00,000. [Texplas India (P) Ltd. v. Commissioner Customs, 2020 SCC OnLine Utt 459, decided on 06-08-2020]

Case BriefsHigh Courts

Kerala High Court: Anu Sivaram, J. allowed the Writ Petition by directing the respondent to only decide the amount of liability after having afforded the petitioner the chance to put forth his side

In the present case, the Petitioner who is the former Director of T.K. Manufacturing Enterprises Private Limited had entered into a contract for manufacture and supply of electricity poles to the respondent Board. The contract was awarded in the year 2000 and terminated in 2002, alleging delay in executing the work. The Company had while entering into the contract, given security by way of Bank Guarantee which, according to the petitioner, was encashed by the respondent Board towards liquidated damages.

The petitioner was served with a revenue recovery notice by the respondent. The petitioner raised objection against the recovery proceedings and approached the Court.

The Court had directed the respondent Board to consider the representation submitted by the petitioner on merits. Having afforded an opportunity of hearing to the petitioner, he submitted evidence to prove his contentions.

The Court reprimanded the respondent and held that the Chairman was bound to deal with those contentions and take a reasoned decision. Moreover, nothing was brought on record to indicate that a proper process of quantification of liability with notice to the petitioner was undertaken prior to the initiation of the revenue recovery proceedings.

It is settled law that one party to an agreement cannot unilaterally quantify the liability and proceed for recovery.

The Writ Petition was allowed on the grounds that the liability of the petitioner cannot and should not be quantified without giving him a chance to appear and give his side. [Sundeep Abraham v. Kerala State Electricity Board, 2020 SCC OnLine Ker 3048, decided on 04-08-2020]

Case BriefsTribunals/Commissions/Regulatory Bodies

National Green Tribunal (NGT): Bench of Justice Adarsh Kumar Goel (Chairperson) and Justice S. P. Wangdi (Judicial Member) and Dr Satyawan Singh Garbyal (Expert Member), reaffirmed the decision passed by the tribunal in the case of LG Polymer Chemical Plant, In Re,  2020 SCC OnLine NGT 129, which observed that safety of citizens and the environment are of great concern calling for strict action against failure at all levels and for strengthening the regulatory mechanism, holding Oil India Limited liable under the principle of absolute liability to pay compensation of Rs 25 crores for the oil well blow-out in Assam.

Background

The issue pertains to a claim for compensation to the victims and to the environment on account of damage in an incident of oil well blow-out on 27-05-2020 at Baghjan in the Tinsukia District of Assam. The oil well released propane, methane, propylene which caused great damage to flora and fauna present around and also spread into the Dibru-Saikhowa National Park which is a home to a huge population of wildlife in it. It also affected the people living around the area as 1610 families were displaced due to the gas leak.

Issue

Whether the direction of the Tribunal in its earlier order for compensation of Rs 25 Crores to District Magistrate by Oil India Limited is required or not?

Decision

  • The Tribunal committee ordered for immediate deposit of Rs 25 crore to the District Magistrate to meet the liability for compensation to the victims and the cost of restoration of the environment.
  • On the issue of the other funds set up by Oil India Limited for the rehabilitation of the victims and restitution of the environment, the committee decided that “it is not a substitute for the information sought to be gathered by this Tribunal for exercise of its jurisdiction which is sui generis”. It decided that liability of Oil India Limited to pay compensation is absolute, relying on the judgement of MC Mehta v. UOI, (1987) 1 SCC 395. Tribunal primarily relied on the decision of    LG Polymer Chemical Plant, In Re, 2020 SCC OnLine NGT 129 which was similar to the current incident and has been discussed above.
  • The committee in its order, while acknowledging the relief funds made by Oil laid emphasis on the fact that the company is still bound to pay compensation to the State. [Bonani Kakkar v. Oil India Limited, I.A. No. 30 of 2020, decided on 02-07-2020]
Case BriefsHigh Courts

Kerala High Court: R. Narayana Pisharadi J., allowed a criminal revision petition in part in a matter relating to Section 138 of Negotiable Instruments Act, 1881.

In the present case, the accused had obtained an amount of Rs 5, 00,000 from the complainant on the promise that he would arrange a licence for the complainant for conducting petrol pump. Upon demanding the repayment of the amount the accused issued a cheque dated 05-02-2007 for Rs 5,00,000 in discharge of the liability. The cheque was dishonoured upon presenting it to the bank for the reason that there was no sufficient amount in the account of the accused. 

The trial court had found the petitioner guilty of offence punishable under Section 138 of Negotiable Instruments Act, 1881 and sentenced him to simple imprisonment for a period of four months and to pay a fine of Rs 5,00,000. The appellate court had also affirmed the conviction and the sentence imposed on the petitioner and dismissed the appeal. 

High Court upon perusal of the facts and circumstances allowed the revision petition in part. The Court affirmed the conviction passed by the trial court and affirmed by the appellate court thereafter but the sentence imposed upon the petitioner has been set aside. In supersession of the sentence, accused has been sentenced to pay a fine of Rs 5,10,000 and in default of payment of fine, to undergo simple imprisonment for a period of two months. [C.K. Mohini v. Varghese. M. Mathew, 2020 SCC OnLine Ker 492, decided on 05-02-2020]

Case BriefsForeign Courts

Supreme Court of the Democratic Socialist Republic of Sri Lanka: A Full Bench of Buwaneka Aluwihare, Priyantha Jayawardena and Murdu N. B. Fernando, JJ., dismissed an appeal which was filed on the ground that the High Court Judge had erred in attaching liability to the defendant to pay damages.

The original action in the High Court was filed in order to recover damages with legal interest from the defendant-appellant for breach of contract. The defendant had entered into an agreement with the Commissioner-General of the Department of Educational Publications in the Ministry of Education (hereinafter “Commissioner-General”) to print several school textbooks and the parties had agreed to print the whole order for a specific amount within a specified deadline. The contention of the Plaintiff was that the defendant had failed to meet the deadline and complete the order and whatever part of the order was complete even that was delivered after the specified deadline because of which the Commissioner General was compelled to commission three other printing agencies to print the remainder. Exercising rights stipulated in clauses (15), (21) and (23) of the Agreement the Commissioner-General, on behalf of the State, sought to recover the damages as it was the defendant’s default that had caused additional expenses. Having failed to secure the recovery by way of a letter of demand, the Attorney General had instituted an action in the High Court, where the Court had answered all the issues raised in favour of the plaintiff. The counsel for the defendant-appellant had submitted that the facts of the case were not disputed but he only wished to canvass the conclusions reached by the trial Judge, the defendant had contended that the Agreement was terminated by mutual consent and not pursuant to a breach basing their arguments on the conduct of the plaintiff such as not serving notice to show cause, not blacklisting the defendant, awarding subsequent contracts and making payments without any deductions in the form of a penalty but there was stark paucity of any evidence and the High Court had held that the defendant had failed to substantiate their position that they were not in breach of the agreement.

The Court while dismissing the appeal explained that they agreed with the Judgment of the High Court as the defendant-appellant had neither produced evidence establishing that they had not fulfilled their obligations nor had they controverted the evidence led by the Plaintiff to this effect. [Tisara Packaging Industries Ltd. v. Attorney General, SC CHC Appeal No. 17 of 2010, decided on 18-10-2019]

Case BriefsHigh Courts

Bombay High Court: Vibha Kankanwadi, J., while allowing a writ petition, quashed a complaint under Section 138 of the Negotiable Instruments Act, 1881, filed against the petitioner in a cheque dishonour case. It was held that the complaint filed by the respondent-complainant could not be treated as a “complaint” in the eyes of law.

The complainant, in her complaint, had alleged that the petitioner had taken a loan from her, which he failed to repay. He issued a cheque for the discharge of the said liability, which was dishonoured on presenting for encashment. Therefore, she filed the subject complaint before the Magistrate against the petitioner.

Aggrieved, the petitioner filed the instant petition praying for quashing of the complaint against him. His counsel, M.D. Thube-Mhase, submitted that when, as per the contents of the complaint, the accused had refused to accept the notice on 3-1-2017, the period of 15 days for the compliance after the service or refusal of the notice would have been till 18-1-2017, and the complainant could have filed the complaint on or after 19-1-2017 within the statutory period. However, when she has filed the complaint on 18-1-2017 itself, it cannot be taken as a complaint, and therefore, the complaint is liable to be quashed.

Per contra, A.N. Gaddime and A.V. Indrale Patil, counsel for the complainant, contended that though the complaint was filed on 18-1-2017, the complaint was registered on the next date, i.e., 19-1-2017, and the cognizance was taken by order of issuing process on 15-04-2017, therefore the complaint was maintainable.

The High Court considered the law as laid down in Yogendra Pratap Singh v. Savitri Pandey, (2014) 10 SCC 713, wherein the Supreme Court disapproved the view that if the complaint under Section 138 is filed before the expiry of 15 days from the date on which notice has been served on the drawer/accused, the same is premature and if on the date of taking cognizance a period of 15 days from the date of service of notice on the drawer/accused has expired, such complaint was legally maintainable.

Finally, observing that the date of 15th day or conversely the day on which the refusal was there should be excluded, the High Court held that complaint, which was filed on 18-1-2017, was definitely premature, i.e., before the expiry of 15 days of the refusal of the notice. Therefore, it was held, that the subject complaint could not be treated as a “complaint” in the eyes of law. Consequently, the writ petition was allowed and the complaint was quashed. [Afroj Khan v. Mandodra, 2019 SCC OnLine Bom 5422, decided on 12-12-2019]

Case BriefsHigh Courts

Patna High Court: Madhuresh Prasad, J. disposed of the application by giving him an opportunity to approach the Board of Directors in order to get his punishment reviewed. 

The petitioner was a Branch Manager of the respondent Bank which alleged that he did not observe the norms regarding maintenance, safety, upkeep and security of documents including banker’s cheque book in the Branch. 

The petitioner being on leave from 15.12.2001 to 27.12.2001, had handed over charge of the branch to another officer. He returned on 27.12.2001and on 29.12.2001 it was revealed that the banker’s cheque for an amount of Rs. 2.5 lakh was encashed at the State Bank of India. The cheque was drawn from the petitioner’s branch since he had not observed the rules for safe maintenance and upkeep of valuable documents including banker’s cheque, such withdrawal had been made. 

The petitioner’s case was that the transaction has been done during the petitioner’s period of leave and he had handed over the keys of almirah in the branch wherein all the documents including the banker’s cheque book was kept to the Incharge. 

Mr. Prashant Vedasen, appearing on behalf of the Bank, submitted that substantially the charge was for non-observance of adequate precaution in the matter of maintenance of safety and upkeep of the valuable documents in the bank. From a bare perusal of the statement of imputation, enclosed along with the charge memo, it would be evident that the petitioner did not ensure that there was a system of duel charge/custody of the valuable documents including banker’s cheque book in his branch. There was no system of accounting at the end of every day as to how many leaf from the banker’s cheque was used or remained unused. Even after his joining on 27.12.2001, the petitioner did not verify whether the banker’s cheque, which was encashed on 18.12.2001, was issued from the cheque book or not. The fraudulent withdrawal came to light on 29.12.2001. Even passbooks were not being updated on a daily basis and the banking transactions were being entered in a pseudo passbook. These allegations/ imputations were not denied by the petitioner.

The Court held that handing over his responsibilities to the branch in-charge in his absence would not absolve the petitioner of the observance of norms and requisite caution by at least updating of the banker’s cheque book account every day. Whether the petitioner could be attributed to the issuance of the cheque was an issue that had not been conclusively established by the authorities as the Forensic Science Laboratory had submitted a report that the petitioner’s signature on the cheque book was forged. Therefore, at best the petitioner’s lack of adequate care in the matter of maintenance and safety of the documents was an issue in the instant proceeding.

In view of the above-noted facts, the writ application was disposed of with the directions that the petitioner was permitted one opportunity to raise the issue of quantum of punishment before the Appellate Authority i.e. Board of Directors of Dakshin Bihar Gramin Bank. Since the petitioner had not raised this issue, liberty was granted, but with a stipulation that if the authorities were of the view that more lenient view could have been taken in the matter, the effect of the same would be prospective and will not give rise to claim for any arrears by the petitioner, since he had not raised this issue earlier. [Vinay Kumar v. Madhya Bihar Gramin Bank, 2019 SCC OnLine Pat 1708, decided on 20-09-2019]

Case BriefsHigh Courts

Delhi High Court: Mukta Gupta, J. allowed a petition filed against the order of the trial Judge whereby the petitioner’s complaint filed for the commission of offence under Section 138 (dishonour of cheque) of the Negotiable Instruments Act, 1881, was dismissed for non-prosecution.

The petitioner had advanced a loan to the respondent who defaulted in repaying the same. The cheque given by the respondent for the discharge of the said liability was also dishonoured. After fulfilling the codal formalities, the petitioner filed a complaint under Section 138.

The petitioner along with his counsel was present when the Metropolitan Magistrate issued summons against the respondent. Thereafter, on the next date, counsel for the petitioner was present but Metropolitan Magistrate was not available on account of training, Thereafter, counsel for the petitioner was present and bailable warrants were issued against the respondent. When notice was required to be framed, the case was transferred to another Metropolitan Magistrate. On the subsequent date, none appeared before the Metropolitan Magistrate as the advocates were on strike. On the date of the impugned order, the complaint was dismissed on account of non-appearance on behalf of the petitioner.

The High Court was of the view that the petition ought to be allowed. It was considered that neither the complainant nor his counsel could appear due to strike as mentioned above and that the clerk of the counsel wrongly noted the next date, and therefore the complainant or his counsel could not again appear on the date of the impugned order. In such circumstances of the case, the Court thought it fit to restore petitioner’s complaint on the file of the Metropolitan Magistrate. The petition was accordingly allowed. [Rajeev Kumar v. Gagan Makhija, 2019 SCC OnLine Del 9708, decided on 07-08-2019]