Case BriefsSupreme Court

Supreme Court: Explaining the law on vicarious liability under the Negotiable Instruments Act, 1881, the bench of Ajay Rastogi and Sanjiv Khanna*, JJ has held that while Section 141 of the NI Act extends vicarious criminal liability to officers associated with the company or firm when one of the twin requirements of Section 141 has been satisfied, which person(s) then, by deeming fiction, is made vicariously liable and punished, such vicarious liability arises only when the company or firm commits the offence as the primary offender.

The Court explained that the provisions of Section 141 NI Act impose vicarious liability by deeming fiction which presupposes and requires the commission of the offence by the company or firm. Therefore, unless the company or firm has committed the offence as a principal accused, the persons mentioned in sub-section (1) or (2) would not be liable and convicted as vicariously liable.

Sub-section (2) to Section 141 of the NI Act does not state that the persons enumerated, which can include an officer of the company, can be prosecuted and punished merely because of their status or position as a director, manager, secretary or any other officer, unless the offence in question was committed with their consent or connivance or is attributable to any neglect on their part. The onus under sub-section (2) to Section 141 of the NI Act is on the prosecution and not on the person being prosecuted.

It was further observed that the Partnership Act, 1932 creates civil liability. Further, the guarantor’s liability under the Contract Act, 1872 is a civil liability. The Partner may have civil liability and may also be liable under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. However, vicarious liability in the criminal law in terms of Section 141 of the NI Act cannot be fastened because of the civil liability.

“Vicarious liability under sub-section (1) to Section 141 of the NI Act can be pinned when the person is in overall control of the day-to-day business of the company or firm. Vicarious liability under sub-section (2) to Section 141 of the NI Act can arise because of the director, manager, secretary, or other officer’s personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day-to-day business of the company when the offence was committed. Vicarious liability under sub-section (2) is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company.”

In the case at hand, even the Bank of Baroda had admitted that the appellant had not issued any of the three cheques, which had been dishonoured, in his personal capacity or otherwise as a partner. Hence, in the absence of any evidence led by the prosecution to show and establish that the appellant was in charge of and responsible for the conduct of the affairs of the firm, the conviction of the appellant had to be set aside.

“The appellant cannot be convicted merely because he was a partner of the firm which had taken the loan or that he stood as a guarantor for such a loan.”

[Dilip Hariramani v. Bank of Baroda, 2022 SCC OnLine SC 579, decided on 09.05.2022]


*Judgment by: Justice Sanjiv Khanna

Legal RoundUpWeekly Rewind

 


Top Story


 Thane Court

Man allegedly cheats a woman by suppressing material fact of him being homosexual: Will Thane Court grant him bail? Read

Noting the fact that a man suppressed the material fact of his private life before marriage i.e., about him being a homosexual, Rajesh S. Gupta, J., found that, the whole life of a young girl had been spoiled due to the material suppression, if the same would have been shared prior to the marriage then the consequence would be different.

Bench expressed that,

No doubt, every individual has its dignity to live in the society. No other person can interfere into lifestyle but that does not mean that a person gets liberty to spoil the life of either of spouse.

https://www.scconline.com/blog/post/2022/04/12/man-cheats-woman-not-disclosing-homosexuality/


Supreme Court | Updates


Husband suspects paternity of child; Supreme Court allows DNA test while granting conditional compensation of 30 lakhs to wife if suspicion proves to be wrong

In a very interesting case where the husband had disputed paternity of child on suspicion, though the Supreme Court has allowed the DNA test, it has also granted a conditional compensation of thirty lakhs to the wife if the suspicion proves to be wrong and husband turns out to be the father of the child.

The couple got married on 05-02-2014 and the marriage was consummated on 09-02-2014. The child was born after 261 days, i.e., about 17 days earlier which was almost after 9 months, therefore, the wife had contended that there was no reason to presume that the petitioner was pregnant when she married the respondent.

Before the Supreme Court, the Bombay High Court had also directed the DNA test.

https://www.scconline.com/blog/post/2022/04/12/paternity-dna-test-compnesation-husband-wife-family-supreme-court/

2006 Meerut Fire Tragedy| Organizers held guilty! 60:40 liability to compensate victims fixed on Organizers & State

In the 2006 Meerut fire case, the Supreme Court has held the Organizers responsible for the incident and not the Contractor as the Contractor was only responsible for executing work as assigned to him by the Organizers.

The victims can finally see some ray of hope after 16 years of the unfortunate incident that claimed 65 lives and left 161 or more with burn injuries as the Supreme Court has now directed the Chief Justice of the Allahabad High Court to entrust the work of determination of compensation to a Judicial Officer in the rank of District Judge/Additional District Judge at Meerut within two weeks of the present order to work exclusively on the question of determination of the compensation on day-to-day basis.

https://www.scconline.com/blog/post/2022/04/13/meerut-fire-tragedy-compensation-organizers-supreme-court-judgments-legal-research-updates-news/


High Court | Updates


Bombay High Court

Whether absence of President of State Commission or District Forum for reasons beyond control is sufficient for striking down S. 29A as unconstitutional? Bom HC decides

Stating that, the Courts cannot examine the constitutional validity if a situation created by impugned legislation is irremediable, the Division Bench of Bombay HC, addressed a matter wherein the constitutional validity of Section 29A of the Consumer Protection Act, 1986 was challenged.

High Court observed that, the language of Section 29A of the Consumer protection Act is intended to provide for a situation where a President of State Commission or District Forum is non-functional, either having not been appointed in time or is on leave due to reasons beyond his control.

The scheme of appointment and adjudication of consumer disputes is laid down under the Act to make the District Forum or State Commission continuously functional, allowing the Members in the absence of the President to function in a situation beyond the control of the Members of the Forum.

https://www.scconline.com/blog/post/2022/04/12/constitutional-validity-of-section-29a-of-consumer-protection-act-district-forum-state-commision-president/

Lawyer-client relationship is a fiduciary one; any act which is detrimental to legal rights of clients’ needs to be punished 

Stating that it is the duty of every Advocate to uphold professional integrity so that citizens can legally secure justicethe Division Bench of V.M. Deshpande and Amit B. Borkar, JJ., expressed that, professional misconduct refers to its disgraceful conduct not befitting the profession concerning the legal profession, which is not a business or trade and therefore, it must remain decontaminated

In this case, the Court was perturbed by the act of the Advocate to keep valuable security owned by the Client with him.”

Bench also observed that, The Advocates owe a social obligation to the Society while discharging professional services to the litigant. The Advocate should not commit any act by which a litigant could be deprived of his statutory and constitutional rights on account of the sublime position conferred upon him under the judicial system in the country.

https://www.scconline.com/blog/post/2022/04/12/lawyer-client-relationship-is-a-fiduciary-one/

Every partner is liable, jointly with all other partners and also severally for all acts of firm done while he is a partner: Is it true? Bom HC answers

Expressing that, a firm is not a legal entity, the Bombay High court, held that a partnership firm is only a collective or compendious name for all the partners. A partnership firm does not have any existence apart from its partners. Therefore, a decree in favour of or against the firm in the name of the firm has the same effect like a decree in favour of or against the partners.

Hence, when a firm incurs a liability, it can be assumed that all the partners have incurred that liability and so the partners remain liable jointly and severally for all the acts of the firm.

https://www.scconliane.com/blog/post/2022/04/15/every-partner-is-liable-jointly-with-all-other-partners-and-also-severally-for-all-acts-of-firm-done-while-he-is-a-partner/


 Punjab & Haryana High Court

Wife makes unfounded, indecent and defamatory allegations against husband to his senior officers, destroying his career & reputation: Mental Cruelty or not? P&H HC elaborates

Expressing that, Matrimonial cases are matters of delicate human and emotional relationshipthe Division Bench of P&H HC., expressed that, the Court no doubt should seriously make an endeavour to reconcile the parties, yet, if it is found that the breakdown is irreparable, then divorce should not be withheld.

The Court remarked that, The consequences of preservation in law of the unworkable marriage which has long ceased to be effective are bound to be a source of greater misery for the parties

https://www.scconline.com/blog/post/2022/04/11/wife-destroying-career-and-reputation-of-the-husband-irretrievable-breakdown-of-marriage-mental-cruelty/


Rajasthan High Court

Raj HC reiterated “Right to Procreation survives during incarceration” and “is traceable and squarely falls within the ambit of Article 21 of our Constitution; Parole granted

Rajasthan High Court granted parole to a convict whose wife sought 15 days of emergent parole for want of progeny.

High Court observed that, having progeny for the purpose of preservation of lineage has been recognized through religious philosophies, the Indian culture and various judicial pronouncements. the right of progeny can be performed by conjugal association; the same has an effect of normalizing the convict and also helps to alter the behavior of the convict prisoner.

https://www.scconline.com/blog/post/2022/04/11/raj-hc-reiterated-right-to-procreation-survives-during-incarceration/


Legislation Updates 


Income-tax (8th Amendment) Rules, 2022 

Ministry of Finance notified Income Tax (8th Amendment) Rule, 2022 in order to amend the guidelines of Infrastructure Debt Fund in the parent rules of Income Tax Rules, 1961. The 8th amendment will be in force with immediate effect. The amendment set up the Infrastructure Debt Fund as a Non-Banking Financial Company (NBFC) according to the conditions set by the Reserve Bank of India in the Infrastructure-Debt Fund–Non-Banking Financial Companies (Reserve Bank) Directions, 2011.

https://www.scconline.com/blog/post/2022/04/09/infrastructure-debt-fund-guidelines-modified-vide-income-tax-8th-amendment-rules-2022/

SEBI (Listing Obligations and Disclosure Requirements) (3rd Amendment) Regulations, 2022 

On 11th April, 2022, Securities and Exchange Board of India issues Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (3rd Amendment) Regulations, 2022. This regulation comes into effect with immediate effect and aims to replace “asset cover” with “security cover” for the listed debt with Securities and Exchange Board of India (SEBI). Asset cover certificate is used to monitor the adequacy of assets charged against the debt obligations of the person issuing it. It is submitted to the Debenture Trustee.

https://www.scconline.com/blog/post/2022/04/12/asset-cover-sebi-security-cover-legal-research/

Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022 

On April 12, 2022, the Department of Economic Affairs (DEA) has issued the Foreign Exchange Management (Non-debt Instruments) (Amendment) Rules, 2022 to further amend the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. The amendment modifies the period of “Convertible note”from 5 years to 10 years.

https://www.scconline.com/blog/post/2022/04/15/foreign-exchange-management-non-debt-instruments-amendment-rules-2022/

National Insurance Company Limited (Merger) Amendment Scheme, 2022 

The Central Government notifies National Insurance Company Limited (Merger) Amendment Scheme, 2022 to amend the National Insurance Company Limited (Merger) Scheme, 1973.

In the National Insurance Company Limited (Merger) Scheme, 1973, the authorised share capital of three public sector general insurance companies has been enhanced from ‘seven thousand five hundred crore divided into seven hundred fifty crore’ to ‘fifteen thousand crore divided into fifteen hundred crore’.

https://www.scconline.com/blog/post/2022/04/15/authorised-share-capital-of-three-public-sector-general-insurance-companies-enhanced-vide-national-insurance-company-limited-merger-amendment-scheme-2022/

Kerala High Court
Case BriefsHigh Courts

Kerala High Court: N.Nagaresh, J., pronounced a landmark judgment regarding right to practice of Chartered Accountants. The Bench held,

“The decision of ICAI not to recognize and record the retirement of the petitioner from ‘M/s. R. Kumar and Associates’ will therefore cause unnecessary and unwarranted hindrance to the professional advancement of the petitioner. It will offend the fundamental right of the petitioner to practice a profession freely, guaranteed to him under Article 19(1)(g) of the Constitution of India.”

The petitioner, a registered Chartered Accountant was aggrieved by the refusal of the Institute of Chartered Accountants of India (ICAI) to register his sole proprietorship on its website. The grievance of the petitioner was that he was the only working partner of ‘R Menon & Associates’ which was a partnership at will, though the petitioner had sent an application to ICAI to record the dissolution of the firm and to delete his name from the records pertaining to the said firm in all capacities, it had not been recorded due to want of confirmation from other Partners, namely respondent 2 and respondent 3.

Additionally, the petitioner had proposed to register “Joshi John & Co.” as a sole proprietorship. Though with the interference of the Court, the petitioner was allowed to submit Form-18 for the registration of new firm, since the name of the dissolved Firm still exists in the records of ICAI, he was denied the right to apply for Multi Purpose Empanelment to obtain audit assignments of Banks and Public Sector Undertakings.

Stand Taken by ICAI

ICAI asserted that that when an activity of dissolution of a Partnership Firm is pending, another activity of registration of a Proprietary Firm cannot be initiated. ICAI further submitted that in view of Section 27(1) of the Chartered Accountants Act, 1949, where a Chartered Accountant in practice or a Firm, has more than one office in India, each one of such offices shall be in the separate charge of a member of the Institute of Section 27(1) of the Act and of the Regulation 187(1), the petitioner cannot register his sole proprietorship in the self-service portal at a different address unless he is relieved as in-charge of the Head Office of the Firm.

To reject the petitioner’s request for dissolution of firm ICAI relied on 165th meeting of the Institute held during 24th – 26th November, 1993, wherein it had been laid down that:

“In case of intimation of existence of dispute between/among partners received from the firm/other partners a suitable note would be kept in the records of the Institute and retirement will not be noted; and

The fact that there was dispute among the partners of a firm would also be intimated to the C.&A.G./RBI while furnishing the particulars of the firm for empanelment of bank/C.&A.G. audit.”

Findings of the Court

The issue before the Court was when a partnership firm of Chartered Accountants is dissolved or when one of the partners retires, can the Council refuse to recognize the dissolution or retirement, in the absence of unanimous approval thereof by all existing partners? The Bench stated that the actions of ICAI were such that the petitioner would either have to wait till the other partners agree either to the dissolution of the Firm or to the retirement of the petitioner from the Firm, in order to come out of the earlier partnership.

Whether consent of other partners required for dissolution of a Partnership at will?

The Bench observed that the Scheme and provisions of the CA Act, 1949 is not intended to register the partnerships of CAs or regulate inter se relations or disputes between partners. The Regulation 190 of CAs Regulations, 1993 is intended only to regulate the Trade name or Firm name of Chartered Accountants. Hence, registration and regulation of a partnership Firm of CAs would be governed by the Indian Partnership Act, 1932. It was not disputed that ‘M/s. R. Menon and Associates’ was a partnership at will. The Court expressed,

Section 43 of the Partnership Act, 1932 provides that when a partnership is ‘at will’, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm. The Firm is dissolved as from the date mentioned in the notice and if no date is so mentioned, as from the date of communication of the notice.”

According to the dissolution notice sent by the petitioner the date of dissolution mentioned therein was 20.12.2019. Therefore, as per Section 43 of the Partnership Act, the Firm ‘M/s. R. Menon and Associates’ should ordinarily be treated as dissolved from that date. Similarly, section 32(1)(c) of the Partnership Act, 1932 provides that a partner may retire, where the partnership is at will, by giving notice in writing to all other partners of his intention to retire. The petitioner had given notice of his retirement to respondents 2 and 3, thus, the petitioner stands retired from the partnership namely ‘R. Menon and Associates’.

Hence, ICAI could not deny to recognize such retirement. The forcible continuance of the petitioner, as a partner of a Firm which was loaded with partnership disputes, has civil consequences also on the petitioner. As per the general decisions taken by the Council, the Council had to communicate the existence of disputes among partners to C & A.G. and RBI, while furnishing the particulars of a Firm for empanelment of Bank/C&AG audits. Such recording and communication will affect the chances of the petitioner to get audit assignments. Therefore, the decision of ICAI not to recognize and record the retirement of the petitioner from ‘M/s. R. Kumar and Associates’ will cause unnecessary and unwarranted hindrance to the professional advancement of the petitioner and will offend the fundamental right of the petitioner to practice a profession freely, guaranteed to him under Article 19(1)(g) of the Constitution. The petitioner was therefore held entitled to reliefs; ICAI was directed to recognize the retirement of the petitioner from the Firm ‘M/s. R. Kumar and Associates’.

[Joshi John v. Institute of Chartered Accountants, 2021 SCC OnLine Ker 1876 , decided on 26-04-2021]


Kamini Sharma, Editorial Assistant has put this report together 

Appearance before the Court by:

Counsel for the Petitioner: V.M.Krishnakumar

Counsel for the Respondents: M.Gopikrishnan Nambiar, K.John Mathai, Joson Manavalan, Kuryan Thomas, Paulose C. Abraham, Ann Maria Francis, B.S.Suraj Krishna and Febin Raj T.S.