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P.N.P. Thulkarunai and Co. Vs. Director, Enforcement Directorate, Finance Ministry - Court Judgment

LegalCrystal Citation
SubjectFERA
CourtChennai High Court
Decided On
Case NumberWrit Petition No. 695 of 1965
Judge
Reported in(1968)2MLJ539
ActsForeign Exchange Regulation Act, 1947 - Sections 23C
AppellantP.N.P. Thulkarunai and Co.
RespondentDirector, Enforcement Directorate, Finance Ministry
Appellant AdvocateM.R.M. Abdul Karim, ;P.M. Jumma Khan and ;P.L. Meyyappan, Advs.
Respondent AdvocateHabibulla Badsha, Adv.
Cases ReferredMousell Bros. v. L.N.W. Ry. Co.
Excerpt:
.....section 23 (1) (a) for contravening section 5 (1) - no provision in act that legal representatives who contravened section 5 (1) liable for penalty - however in view of precedent legal representatives of assessee liable to pay tax due by assessee - held, department not right in imposing penalty of rs. 10000 on legal representatives of 'x' originally run by father as sole proprietorship. - - not being satisfied with the explanation offered, the department proceeded to take proceedings under section 23d. it makes a person guilty of an offence actually committed by another when he may have no knowledge that it was being committed or may have done his best to prevent it. but each gesture on the part of the judiciary and of the legislature which refuses to extend this obnoxious..........on april 14, 1959. before that date, the petitioner-company, known as thulkarunai & co., was the sole proprietorship concern of the father of the present partners including the petitioner representing the firm in this writ petition. the proprietorship concern was in existence from august 16, 1940, to april 11, 1959, when the father died. soon after the death of their father, the sons formed the partnership firm and carried over all the assets and liabilities of the sole proprietorship concern of their father and continued the business. in the course of their business, they found that their father had continuous dealings with one k.s.m. ismail, madurai, from 1952. during the course of the hearing of the writ petition, i directed the petitioner to file a statement of accounts and the.....
Judgment:

Venkatadri, J.

1. The petitioner is a partnership firm consisting of brothers. It was formed in the; year 1959. The firm has filed this writ petition to quash the order dated January 6, 1965, passed by the Director, Enforcement Directorate, Ministry of Finance, New Delhi, levying a penalty of Rs. 10,000 under Section 23(1)(a) of the Foreign Exchange Regulation Act, 1947, for contravention of the provisions of Section 5(1) of the Act.

2. As a result of the search of the petitioner's premises under the provisions of Section 19(3) of the Act, certain incriminating documents were seized and a close scrutiny of the documents revealed, according to the department, a number of contraventions of the provisions of the Act. The petitioner was called upon to give full details about the petitioner's connection with one K.S. Mohamcd Ismail of Ponang. Not being satisfied with the explanation offered, the department proceeded to take proceedings under Section 23D. Finally, the department found the petitioner-firm guilty of contravening the provisions of Section 5(1) of the Act, relating to restrictions on payments and imposed the penalty aforementioned.

3. According to the petitioner, the partnership firm was formed on April 14, 1959. Before that date, the petitioner-company, known as Thulkarunai & Co., was the sole proprietorship concern of the father of the present partners including the petitioner representing the firm in this writ petition. The proprietorship concern was in existence from August 16, 1940, to April 11, 1959, when the father died. Soon after the death of their father, the sons formed the partnership firm and carried over all the assets and liabilities of the sole proprietorship concern of their father and continued the business. In the course of their business, they found that their father had continuous dealings with one K.S.M. Ismail, Madurai, from 1952. During the course of the hearing of the writ petition, I directed the petitioner to file a statement of accounts and the company has accordingly filed a statement of account of K.S.M. Ismail, Madurai, as found in the ledger of P.N.P. Thulkarunai & Company, between 1953 and 1963. One sees in the account that largo amounts had been taken as loan by the petitioners' father from K.S.M. ismail, Madurai, and all those amounts had been adjusted from time to time by payments to third parties under instructions and these amounts had been debited in his account. According to the petitioner, this K.S.M. Ismail and his brothers had ancestral business in Penang under the name and stylo of K. Sultan Alaudeen Sons. They had a branch at Madurai. On January 1, 1953, the partnership firm was dissolved and K.S.M. Ismail continued to have his branch at Madurai. This petitioner Arm has nothing to do with the business activities of the Penang firm. The father of the petitioners had transactions ever since 1952 with the said Madurai urm and in the account books of the sole proprietorship concern of the father, there was a folio in the name of K.S.M. Ismail & Bros., Madurai, until January 1, 1953, and subsequently in the name of K.S.M. Ismail, Madurai. The accounts were not closed at the time of the death of their father and the petitioners' firm had perforce to continue the accounts.

4. The learned counsel for the petitioners contends that the entire transactions were with the Madurai Branch which is an independent entity, that borrowing loans and crediting the same to the lender's account does not amount to placing any sum to the credit of any person resident in India within the meaning of Section 5(1)(d) of the Act, that the petitioners are not liable for any act done by their father and that the sole proprietorship concern was not a family concern as mentioned by the department.

5. I see much force in the contentions of learned counsel for the petitioner. It is true that under Section 23C of the Act, if the person committing a contravention is a company, every person who, at the time the contravention was committed, was in charge of and was responsible to the company for the conduct of the business of the company, shall be deemed to be guilty of the contravention. But the acts in the case are alleged to have taken place in the sole proprietorship concern of their father. The petitioners, that is the sons, have had no interest in the concern of their father. They have not taken part in the management or control of the business during the life-time of their father. The sons were not in charge of or responsible to the company for the conduct of the business of the sole proprietorship concern of their father at the relevant time. There is no provision in the Foreign Exchange Regulation Act that, if there is any contravention of the provisions of the Act by the father, his legal representatives would be vicariously liable and responsible for the same. The action taken by the department against the legal representatives of Thulkarunni (father) is in the nature of enforcement of the doctrine of vicarious liability.

6. The application of the doctrine of vicarious liability in criminal law may be described as actuated by necessity rather than desirability. Criminal responsibility is generally regarded as being essentially personal in character and it is with considerable diffidence that the principle is accepted whereby a man may be found guilty and punished for an offence which is actually committed by another. In Salmond's Jurisprudence, it is stated at page 366 :

'... there are two conditions to be fulfilled before penal responsibility can rightly be imposed. The one is the doing of some act by the person to be held liable. A man is to bo accounted responsible only for what he himself does, not for what other persons do, or for events independent of human activity altogether. The other is the mens rea or guilty mind with which the act is done. '

7. One member of a family is not vicariously liable for acts of another member, merely because of the family relationship. Thus, one spouse is not liable for the torts of the other; nor the parent for the torts of the child if nothing more than relationship appears in the case. In the case of partnership, it may be vicariously liable for the tortious acts of its agents and employees, just as any other business unit may. This doctrine can also be extended to joint enterprise. This doctrine of vicarious liability has been severely criticised in modern times by judges in clear and unmistakable terms. Lord Goddard, delivering judgment in Gardner v. Akeroyd, [1952] 2 All E.R. 306 ; (1952) 2 Q B. 751 observed:

' That it is a necessary doctrine for the proper enforcement of much modern legislation none would deny, but it is not one to be extended. Just as in former days the term 'odious ' was applied to some forms of estoppel, so might it be to vicarious liability. It makes a person guilty of an offence actually committed by another when he may have no knowledge that it was being committed or may have done his best to prevent it.'

8. Thus the doctrine of vicarious liability is not of general application in the field of statutory crimes. It is a matter of construction in each case. It is worth while to quote the words of Atkin J. in Mousell Bros. v. L.N.W. Ry. Co. [1917] 2 K.B. 836:

'... regard must be had to the object of the statute, the words used, the nature of the duty laid down, the person upon whom it is imposed, the person by whom it would in ordinary circumstances be performed, and the person upon whom the penalty is imposed. '

9. If we apply the above principles to the facts of the instant case, it is clear that the sons of Thulkarunai would not be liable to pay the penalty of Rs. 10,000 imposed on them for the alleged acts of contravention by their father. The department cannot fasten the liability on the sons on the ground that they have succeeded to their father's business. They are no doubt the heirs of their father. But when they succeeded to the estate of their father, they formed themselves into a partnership business. They never partook of any interest in the sole proprietary concern of their father. It is not the case of the department that the petitioners had any knowledge of the transactions mentioned in the statement of account. By merely stating that Thulkarunai & Company is a family concern, the department cannot equate the business of the father with the business of the partnership of the sons as a company contemplated in Section 23C of the Act. In Mens rea in Statutory Offences by Edwards, it is observed at page 243:

' So long as modern legislation continues to intrude itself into every sphere of trading, business, health and social welfare activities, laying down elaborate codes of conduct to be observed by responsible officials, so, too, the doctrine of vicarious liability will continue to be an evil necessity. But each gesture on the part of the judiciary and of the legislature which refuses to extend this obnoxious principle is to be applauded. '

10. I entirely agree with the statement made by the learned author, and I refuse to extend the obnoxious doctrine of vicarious liability to the case of the sons of Thulkarunai who are not responsible for the acts, if any, of contravention by their father while he was running the sole proprietorship concern. Further, it is clear that there is no provision in the Act itself that the legal representatives of a person who had contravened the provisions of the Foreign Exchange Regulation Act would also be liable for the penalty provided in the Act, Originally, even in the Income-tax Act, there was no such provision. It was only after the decision in Commissioner of Income-tax v. Ellis C. Reid that the Income-tax Act was amended, so as to make the legal representatives of an assessce liable to pay the tax due by the assessec. I do not think, therefore, that the department is right in imposing a penalty of Rs. 10,000 on the legal representatives of Thulkarunai & Co., which was originally run by the father as a sole proprietorship concern.

11. The writ petition is allowed; the impugned order is quashed. No. Costs.


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