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All you wanted to know about the law on benami property in India…..

In the last few months we have seen a major crackdown on Benami properties and their owners by the Government. Specialised Anti-Benami units have been set up by the Income Tax department across the country and in almost every state and thousands of properties already stand attached under the Prohibition of Benami Property Transactions Act, 1988 [as amended in 2016] (hereinafter “Benami Act”). This article endeavors to give you a bird’s eye view of what exactly does this law entail, what kind of transactions are outlawed, the civil and criminal implications/sanctions imposed by the Benami Act on persons entering into such transactions, and finally, how the anti-benami law operates and the defences/exceptions/remedies available against action taken under the Benami Law.  To begin at the beginnings, let us examine what a ‘Benami Transaction’ is:

1.      What is ‘benami’ and when can a transaction be termed a ‘Benami Transaction’?

Webster’s dictionary defines the term, “Benami” to mean : made, held, done, or transacted in the name of (another person).1 Thus, a Benami Transaction, in common parlance, refers to a transaction in which a property is transferred in the name of a person, whereas the consideration for the same is paid by some other person. To illustrate, where X purchases a property, let’s call it ‘Black Acre’; however, the property is not purchased in his own name, but in the name of ‘Y’, though the consideration has flown-in from X only. This would be a classic Benami Transaction. The subject matter of such a transaction (‘Black Acre’ in this case) is called a “benami property”. Usually, any Benami Transaction would have two primary actors: a beneficial owner (Mr.X, in our example) and a Benamidar (Y). Benamidar is a real or a fictitious person in whose name the Benami Property is transferred or held. A beneficial owner, on the other hand, refers to the  person, whether his identity is known or not, for whose benefit the Benami Property is actually held by a Benamidar. Simply put, a Benamidar is a mere name lender; a mask or a facade, whereas, it is the beneficial owner who is the real McCoy.

The law governing Benami transactions in India is the Prohibition of Benami Property Transactions Act, 1988, which was comprehensively amended and streamlined in 2016 by way of extensive and rather far reaching amendments.

2. What is a ‘Benami Property’ ?

A common illustration of a Benami transaction is one in which an individual purchases a house in the name of his daughter-in-law. Thus the property is sold to a lady, however, the consideration for the same is provided by her father-in-law. If we deconstruct this, the house is the subject matter of the benami transaction and is called ‘Benami Property’.2

It must be noted that, contrary to popular misconception, the application of benami law is not confined to immoveable properties alone.  The term ‘property’, for the purposes of Benami, is quite wide and includes within its wide ambit : assets of ‘any kind’; whether movable or immovable, tangible or intangible, corporeal or incorporeal; and not only that, it also includes any right or interest or legal documents or instruments evidencing title to, or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form is included as well. In fact, the proceeds from the property are also included within the definition of ‘property’.

Though mostly houses, cars and jewelry have traditionally been considered to be property for the purposes of Benami Law; however, under the new definition, even securities, shares and intellectual property can be considered ‘Benami Property’ and may attract the rigors of the Benami Act. This expansion of the definition by the 2016 amendment reflects the legislative intent of intensifying the crackdown on such practices.

3. What is a ‘Benami transaction’?

With a broad understanding of the concept of Benami, let us get down to some specific conditions which are required to be satisfied for a transaction to qualify as a Benami Transaction:

(A) a transaction or an arrangement where a property is transferred to, or is held by, a person, and the consideration for such property has been provided, or paid by, another person; and the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration. (Emphasis on continued ‘beneficial ownership’ of the real owner)

(B) a transaction or an arrangement in respect of a property carried out or made in a fictitious name; (In other words, where benamidar is a non-existent person or entity)

(C) a transaction or an arrangement in respect of a property where the owner of the property is not aware of, or, denies knowledge of, such ownership; (A recent example of this is how Jan Dhan bank accounts were inundated with funds during demonetization and Jan Dhan account holders were made unwitting benamidars of the huge funds (Though in many cases it was also done in collusion with the account holders!).

(D) a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious;

All these transactions would fall within the ambit of ‘Benami Transactions’ within the Benami Act.

4. The Acid test of what is a Benami Property ?

The Supreme Court has observed that the enquiry as to whether a particular transaction is Benami or not, is largely one of fact, and for determining this question, no absolute formulae or straitjacket can be laid down which is uniformly applicable in all situations.

However, there are some factors which weigh a great deal with the Courts in such an enquiry:

  1. the source from which the purchase money came;
  2. the nature and possession of the property, after the purchase;
  3. motive, if any, for giving the transaction a benami colour;
  4. the position of the parties and the relationship, if any between the claimant and the alleged benamidar;
  5. the custody of the title-deeds after the sale; and
  6. the conduct of the parties concerned in dealing with the property after the sale.3

5. Why are Benami Transactions considered unlawful/illegal?

Benami transactions have been a part of Indian society for a while. One of the earliest instances of recognition of this practice can be traced to a Calcutta case wherein – a person purchased property in the name of his wife, and the same was held to be fictitious and therefore invalid.4 However, in the next few decades, the judicial stance towards Benami became a little less certain and there was considerable ambivalence with respect to the legality of the concept. The Privy Council in fact observed that the idea was quite unobjectionable.5  In fact, in some decisions, the Courts went on to observe that certain benami transactions were  customs of the country and must be recognized as such, thereby giving it a veneer of legality, since custom was one of the important sources of law back then.

However, gradually it was realised that Benami Transactions were also being employed for various dishonorable motives, including but not limited to, money laundering and evasion of  taxes. It was also realized that these transactions could be mere facades and misused for diverting one’s assets in another’s name and thereby defeating the lawful claims of creditors and defrauding them. Slowly and gradually it dawned that, on a cost-benefit analysis, the losses and mischief arising from allowing benami transactions to continue unabated far outweighed their perceived advantages, leading to such transactions being forbidden by law.

6. What are the implications of entering into a Benami Transaction ?

  1. Attachment and Confiscation of Benami Property:

As we’ve seen above, there is a complete embargo on entering into Benami Transactions. Therefore, if X purchases a property in the name of ‘Y’, it quite clearly a Benami Transaction and X cannot file a suit seeking the recovery of the property back from Y. Any such suit would be barred by law and capable of being rejected at the very threshold. However, does this mean that Y, who was a willing partner to this illegality, continues to enjoy the property.  The Answer is No. Under the 1988 Benami Law regime there were no specific provisions for attachment and confiscation of such properties. However, the 2016 Amendments provide for an elaborate process for attachment and confiscation of such properties. Therefore, now, apart from the disability attached to recovery of such a property at the behest of someone claiming to be the real owner, Benami Property is also liable to attachment and confiscation under the Benami Act.

This is how the process plays out:

  1. Proceedings before the Initiating Officer:

An Initiating Officer under the Benami Act initiates the process. Assistant Commissioners or a Deputy Commissioners as defined in the Income-tax Act, 1961, have been empowered to act as the Initiating Officer under the Act as well.6

The process begins when some material, for instance, documents or other evidence, come into the possession of the Initiating Officer giving her a reason to believe (sufficient cause, as opposed to a mere guess or conjecture) that any person is a Benamidar in respect of a property. In such a situation, the Initiating Officer may after recording her reasons in writing, issue a notice to the person to show cause within a stipulated time as to why the property should not be treated as benami property.7 A copy of the notice must also be issued to the beneficial owner if her identity is known.8

However, issuance of prior notice is not a condition precedent to attachment always. Like other similar legislations such as Prevention of Money Laundering Act (“PMLA”) and Income Tax Act (“ITA”), Benami Act, in order to prevent wrongful alienation/dissipation of property, and since time is of the essence in some of these cases, also provides for a ‘provisional attachment’ of property suspected to be Benami, provided the initiating officer has a reason to believe that the person holding such Benami property may alienate the property, and render the proceedings infructuous. In such cases, the property can be provisionally attached for a period not more than 90 days, purely as a protective/interim measure.

Since a provisional attachment is carried out on the basis of a ‘reason to believe’ (which is a much lower threshold than positive proof), and it makes serious in-roads into a person’s right to property, as a check and balance, the approval of a higher official (“Approving Authority”) is made a condition precedent for a provisional attachment. Needless to state, the Initiating Officer as well as Approving Authority have to form an opinion that provisional attachment is absolutely imperative, on the basis of tangible and cogent material and not on the basis of conjecture.

If the Initiating Officer is of the opinion that such property ought to be provisionally attached, she may order provisional attachment of the property, initially for a period of 90 days from the day of issuance of notice. This attachment cannot be for a period of more than ninety days from the date of issuance of notice described above. Within that period, the Initiating Officer, after giving a reasonable opportunity to the Benamidar as well as the beneficial owner to put forth their side of the case, may either confirm or vacate the provisional attachment.

In case of confirmation of attachment, the matter is then referred to the Adjudicating Authority (“AA”) under the Act for its decision (on merits) and the attachment continues till a final disposal of the case.

If it is a case of mere issuance of notice (without a provisional attachment), the Initiating Officer may, after a hearing, go on to attach the property till a decision of the Adjudicating Authority. In cases where the attachment is made/continued, the Initiating Officer is required to draw up a statement of the case and refer the same to the Adjudicating Authority under the Act. This statement of case brings the matter to the seisin of the Adjudicating Authority, who conducts an enquiry in the following terms:

  1. Confirmation/Reference Proceedings before the Adjudicating Authority

Upon receipt of Reference, as outlined above, the Adjudicating Authority is required to  issue notice, within a period of thirty days from the date on which a reference has been received, to the following persons9:

  1. the person specified as a benamidar;
  2. any person referred to as the beneficial owner therein or identified as such;
  3. any interested party, including a banking company;
  4. any person who has made a claim in respect of the property:

The notice  is given to the concerned parties in order to give them an opportunity to demonstrate as to how the property in question is not a Benami Property and, therefore, not liable to confiscation.

The notice will provide a period of a minimum thirty days to the person to whom the notice is issued to furnish the information sought and make out a case of release of property.

In a situation where the property is held jointly by more than one person, the Adjudicating Authority will endeavour to serve notice to all persons holding the property.

  • Hearing by the Adjudicating Authority

Representation of Parties by Other Individuals

The Benamidar or any other person who claims to be the owner of the property may either appear in person, or take the assistance of an authorised representative of his choice to present his case. The next question that arises is

  • Who can be an authorised person?10

Authorised representative means a person authorised in writing, being—

  1. a person related to the benamidar or such other person in any manner, or a person regularly employed by the benamidar or such other person as the case may be; or
  2. any officer of a scheduled bank with which the benamidar or such other person maintains an account or has other regular dealings; or
  3. any legal practitioner who is entitled to practice in any civil court in India; or
  4. any person who has passed any accountancy examination recognised in this behalf by the Board; or
  5. any person who has acquired such educational qualifications as the Board may prescribe for this purpose.
  • Reply Filed by Parties

A reply can be filed to the notice issued by the Adjudicating Authority so as to apprise the Authority as to the correct facts and one’s answer/defence on the merits of the case.

  • Hearing

The Adjudicating Authority is required to consider the reply (if any), and conduct any such further inquiries, and/or call for such other reports or evidence as it deems fit and take into account all relevant materials, in the decision making process.

The person specified as a Benamidar, the Initiating Officer, and any other person who claims to be the owner of the property is also required to be heard by the Adjudicating Authority before taking a decision.

  • Other properties surfacing during the proceedings, suspected to be ‘Benami’.11

Where in the course of proceedings before it, the Adjudicating Authority has reason to believe that a property, other than a property referred to it by the Initiating Officer is Benami Property, it may extend the scope of the reference and provisionally attach that property as well.

  • Decision of the Adjudicating Authority12

Lastly, the Adjudicating Authority, upon due consideration, may pass any of the following two orders:

(i) holding the property not to be a Benami Property and revoking the attachment order and setting the property and property owners free; or

(ii) holding the property to be a benami property and confirming the attachment order, in all other cases.

  • Time-limit for passing the Order13

There is an outer limit of one year for the conclusion of these proceedings.

  • Situation where a part of the property is found to be Benami

This is a peculiar situation where the Adjudicating Authority is satisfied that some part of the properties in respect of which reference has been made to him is Benami Property, but it is not able to specifically identify such part; in such a case, the Adjudicating Authority will record a finding to the best of his judgment as to which part of the properties is held Benami.

In cases of an adverse decision by the Adjudicating Authority, the property is liable to be confiscated, and this is how the process of confiscation is carried out:

6.1.3. Confiscation of the Property14

Where an order is passed by the Adjudicating Authority in respect of any property holding such property to be a Benami Property, the Adjudicating Authority will, after giving an opportunity of being heard to the person concerned, make an order confiscating the property held to be a benami property.

Having said that, in case an appeal against the decision of Adjudicating Authority is filed, confiscation will be subject to the result of appeal proceedings.

  • Fraudulent Transfers during the process 15

In case, after the issuance of the initial notice by the Initiating Officer, the property in question is transferred to a third party clandestinely, in that case, the said transaction would be null and void and confiscation would take effect, notwithstanding such a transfer.

However, in case the property is held or acquired by a person from the Benamidar for:

  • adequate consideration;
  • prior to the issuance of show-cause notice by the Initiating Officer; and
  • without his having knowledge of the benami transaction; in such a case the transfer may be valid.
  • Effect of confiscation: 

Where an order of confiscation has been made, all the rights and title in such property will vest absolutely in the Central Government, free of all encumbrances and no compensation will be payable in respect of such confiscation.

7.  Role of the Administrator post confiscation.16

Once an order of confiscation is passed, the power to receive and manage the property, rests with an Administrator, notified by the Central Government for that purpose.

After the order for confiscation has been made, the Administrator will proceed to take the possession of the property. She will, by notice in writing, order within seven days of the date of the service of notice to any person, who may be in possession of the benami property, to surrender or deliver possession thereof to the Administrator or any other person duly authorised in writing by him in this behalf.  In the event of non-compliance of the order or in a situation where taking over of immediate possession is warranted, for the purpose of forcibly taking over possession, the Administrator can take police assistance and it shall be the duty of the officer to comply with the requisition.

8. What are the remedies against wrongful attachment if one is aggrieved by such an order?

8.1. Appeal before the Appellate Tribunal17

Any person, including the Initiating Officer, aggrieved by an order of the Adjudicating Authority may prefer an appeal to the Appellate Tribunal against the order passed by the Adjudicating Authority holding the property to be Benami or not, within a period of forty-five days from the date of the order. (The Appellate Tribunal may, however, entertain any appeal after the said period of forty-five days, if it is satisfied that the appellant was prevented, by sufficient cause, from filing the appeal in time.)

The Appellate Tribunal, as far as possible, may hear and finally decide the appeal within a period of one year from the last date of the month in which the appeal is filed.

Any party aggrieved by any decision or order of the Appellate Tribunal can file an appeal to the High Court18within a period of sixty days from the date of communication of the decision or order of the Appellate Tribunal to him on any question of law arising out of such order. (The High Court may entertain any appeal after the said period of sixty days, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the period specified)

8.2 Writ Proceedings in the High Court

In certain exceptional cases, a writ petition may be filed against the orders of the Initiating Officer or the Adjudicating Authority, before the High Court directly. This option can be explored in cases where the orders of the Initiating Officer/Adjudicating Authority are patently arbitrary or perverse or when there is a clear violation of principles of natural justice and/or fundamental rights. Jurisdiction of the High Court can also be sought in cases of a clear violation of the procedure established under the Act by the Initiating Officer/Adjudicating Authority, or where the Act’s validity itself is suspect, or where there is no adequate remedy provided by/is capable of being availed under the Act.

9. Is entering into a Benami Transaction a crime as well?

When a benami transaction is entered into : in order to defeat the provisions of any law, to avoid payment of statutory dues or to avoid payment to creditors, it attracts penal provisions of the Benami Act19 and prosecution can be initiated under the Act after receiving the sanction of the Central Board of Direct Taxes constituted under the Central Board of Revenue Act, 1963.20

Special Courts for trial of offences under the Act will be set up by the Central Government, as per the mandate under the Act.21

The Special Court, whenever it is setup, will take cognizance of any offence punishable under the Act, upon a complaint in writing made by—

  1. the Initiating Officer; or
  2. the Approving Authority; or
  3. the Administrator; or
  4. the Adjudicating Authority; or
  5. any officer of the Central Government or State Government authorised in writing by that Government

10. Some substantive defences to the charge of Benami.22

Though the nature of the law of Benami is pretty catch-all and extremely wide, there are certain defences/exceptions which can be pressed into action in civil and criminal proceedings under the Benami Act. If sufficiently proved, the following transactions may be protected from the rigors of the Benami Act:

10.1.  Property held by Karta/Member of a Hindu Undivided Family-

(i) A transaction wherein the property is held by a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;

10.2.  Property held by a person standing in a fiduciary capacity-

(ii) A transaction wherein the property is held by a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;

When this defence is claimed, the first step is an inquiry into whether or not the property is being held by a person in his fiduciary capacity. While the expression “fiduciary capacity” may not be capable of a precise definition, it implies a relationship that is analogous to the relationship between a trustee and the beneficiaries of the trust. The expression is in fact wider in its import for it extends to all such situations as place the parties in positions that are founded on confidence and trust on the one part and good faith on the other. In determining whether a relationship is based on trust or confidence, relevant to determining whether they stand in a fiduciary capacity, the Court shall have to take into consideration the factual context in which the question arises for it is only in the factual backdrop that the existence or otherwise of a fiduciary relationship can be deduced in a given case.23 For instance, a property was sold by a municipal corporation in favour of a person, X, who was a tenant in the property. The other siblings had not relinquished their rights in the property but had consented to the sale as the corporation required the property to be transferred in the name of one person. Further, admittedly, the sale consideration was provided by other siblings also. In this backdrop, it was held that ‘X’ was holding the property in his fiduciary capacity for his other siblings and hence, the sale of the property in favour of X was not a benami transaction. In another instance, it was observed that a property was purchased by the agent and power of attorney holder. Hence, the transaction in question was not held to be a Benami Transaction.24

10.3.  Property held in the name of spouse, children, etc.

A transaction wherein the property is held by any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;

10.4. Property held in the name of brother, sister, lineal ascendant, etc.

A transaction wherein the property is held by any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual;

10.5.  Possession allowed to be taken or retained in part performance of a contract-

A transaction which involves allowing the possession of any property to be taken or retained in part performance of a contract, if, under any law for the time being in force,— (i) consideration for such property has been provided by the person to whom possession of property has been allowed but the person who has granted possession thereof continues to hold ownership of such property; (ii) stamp duty on such transaction or arrangement has been paid; and (iii) the contract has been registered.

10.6. Property purchased under a bona fide loan/financial arrangement.

Let us imagine a situation where X purchases a property called ‘White Acre’ with the help of a loan from Y, however, X, instead taking money from Y and paying it to Mr.Z , the owner of White Acre, instructs Y to pay the money directly Mr.Z, which Y does. Whether in that case, the transaction can be called Benami, or not? A literal/formalistic/positivist application of the Benami Law would seem to suggest that it may be a Benami Transaction, since consideration has admittedly flown-in from a third person (Y) and property is held in the name of another (X). However, in such a situation, the most crucial consideration would be : whether the property is held for the immediate or future benefit of ‘Y’, or is it a case of pure financial assistance, and Y has no stake in the property.   In a situation such as this, it would have to be seen as to what the real intent of the transaction was, and whether it was, or was not executed for an illegal purpose, such as defrauding the exchequer or creditors. The mischief of Benami Law would be attracted only when a property is held in the name of one, but the enjoyment of the property and real ownership is with another person who had contributed funds for purchase of the property. As opposed to this, the transferee in a property purchased through money taken as loan, would be in the safe harbour if it is shown that both real title and beneficial interests are with the transferee and the consideration had flown from a third party merely as a matter of convenience and on the basis of an underlying financial arrangement, bona fide in nature. In any other view would result in all transactions of purchase of property through assistance from financial institutions treatable as Benami Transactions.25 An interpretation that leads to such absurdity ought to be avoided.

11. Purchase of Shares-

There might be situations where the name of a person is entered in the register of members of a company as the holder of shares but the person whose name has been so entered does not hold the beneficial interest in such shares. In such a situation, the person whose name has been entered has to make a declaration within such time and in such form as may be prescribed, to the company, specifying the name and other particulars of the person who holds the beneficial interest in such shares. In the absence of such a declaration, the holder of such beneficial interest cannot enforce any rights emanating from those shares w.r.t which no declaration has been made. The registered owner is treated as the real owner for all intents and purposes. This is the disability attached to non-filing of declaration under the Companies Act by beneficial owners26 However, in some cases, the authorities have also gone on to initiate action under the Benami law w.r.t such shareholding and initiated attachment and confiscation proceedings qua such shareholding.

12.   Is the new Benami Law applicable to older transactions or only those entered-into after 25.10.2016 (i.e the date of commencement)?

  • Application w.r.t penal provisions.

The Act divides benami transactions, for purposes of punishment, into two buckets:

(i) Transactions entered into before the commencement of the 2016 Amendment i.e. 25.10.2016

(ii) those entered into after the commencement of the 2016 Amendment i.e. 25.10.2016

As per Section 3(2) of the Act, whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both. However, as per Section 3(3) of the Act : whoever enters into any benami transaction on and after the date of commencement of the 2016 Amendment, shall, notwithstanding anything contained in sub-section (2), be punishable in accordance with the provisions contained in Section 53 of the Act.

With respect to transactions entered into after 25.10.2016, a combined reading of Section 3(3) and Section 53 of the Act suggests that, where any person enters into a benami transaction in order to defeat the provisions of any law or to avoid payment of statutory dues or to avoid payment to creditors, the beneficial owner, benamidar and any other person who abets or induces any person to enter into the benami transaction, shall be guilty of the offence of benami transaction. Whoever is found guilty of the offence of benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and shall also be liable to fine which may extend to twenty-five per cent of the fair market value of the property.

Therefore, transactions entered-into post 2016 are visited with much greater penal consequences, than earlier transactions.  However, the more harsher remedy cannot apply retrospectively for transactions entered into prior to the 2016 law. This aligns with the constitutional protection against ex-post facto/retrospective criminal legislations.27

Though the position in regard to retrospectivity of penal provisions is fairly clear, unfortunately, the legal position is nowhere as simple insofar as applicability of attachment and confiscation proceedings (as detailed above) quatransactions entered into prior to 2016 amendments is concerned. To recapitulate, the provisions relating to attachment and confiscation have been inserted in the Act only after the 2016 amendment. There is no juristic consensus on the question as to whether attachment/confiscation proceedings, in the context of Benami Law, are civil or criminal in nature.  There is one view which suggests that attachment and confiscation proceedings can be initiated even w.r.t transactions carried out prior to the commencement of the 2016 Act, being civil in nature and consequences, and also since these transactions were forbidden even under the 1988 law; whereas, the contra view is that these proceedings have trappings of criminal law and penal consequences and therefore, cannot have a retrospective application. Further, it has also been argued that since the 2016 amendment widens the scope of the Act by enlarging the definition of ‘property’, any transaction relating to ‘property’, not covered by the 1988 Act, but covered post the 2016 amendments, should not be brought within the purview of the Act, lest it violates the constitutional protection against retrospective penal legislations.  In the absence of clarity on these aspects, there is a need for a definitive ruling on this point and also the rather vexed and nuanced issue of difference between retroactivity and retrospectivity, which has long evaded a conclusive determination by our Courts.

13. Offences by Companies and Body Corporates

The Benami Act has a classic vicarious liability provision and provides for attribution of  liability on the alter egos/nerve centres of the Company for an offence committed by the Company.

Section 62 of the Benami Act provides that, in case it is found that a company is responsible for contravention of any of the provisions of the Act or of any rule, direction or order made – 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 alongwith the Company itself; shall be deemed to be guilty of the offence.

Further, any director, partner in the firm, any member controlling the affairs of any association of persons or a body of individuals, manager, secretary or other officer of the company, on account of whose consent or neglect the contravention has taken place, would also be deemed guilty of the contravention.

Needless to state, classic defences to vicarious liability such as lack of knowledge, individual not being in charge of, or aware as to the affairs of the company, et al. may be invoked as defences to oppose fastening of vicarious liability under the Benami Law, as well.

14. Income Tax Act, 1961 and the Benami Law.

Benami law has an interesting inter-section with the Income Tax. Under the IT Act, if a person is found to be the owner of any money, bullion, jewellery or other valuable article and the same is not recorded in any books of account of the person and the source of acquisition/procurement is not explained satisfactorily, in that case, the money and value of bullion, jewellery or other valuable article is liable to be taxed as ‘income’ for such financial year at a flat rate of 77.25%, without allowing any deduction or threshold exemption. This applies only if the amount of such income is disclosed voluntarily and the applicable tax to the tune of 77.25% being paid on or before 31st of March of the relevant financial year. The penalty rate is even higher in case of non-disclosure.

However, what is pertinent to be noted is that the above would apply only in those cases where the person ownsthe money/asset in question, which is not the case in a Benami transaction. In a Benami transaction, the person in whose accounts such assets are held is not the real owner but only a benamidar. In such a case, the above provision may not be attracted, however, the individual assessee and the beneficial owner (or true owner!) would be liable to be proceeded-against civilly as well as criminally under the Benami Act.

15. Application to properties located outside-

Though the definition of property in the Act is extremely wide and there is nothing in the Act that excludes the applicability of Benami Act to Benami properties located outside India; however, in a reply to a debate on the Amendment Bill in the Rajya Sabha on 02.08.2016, the Finance Minister went on to say “What happens if the asset is outside the country? If an asset is outside the Country, it would not be covered under this Act. It would be covered under the Black Money Law, because you are owning a property or an asset outside the country…”. The reference appears to be to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 which aims to curb black money and undisclosed foreign assets and income by imposing tax and penalties on such income. A judicial decision on this point clearing the airs is much awaited.

16. Conclusion-

The experience of demonetisation has revealed that, in addition to hoarding black money in the form of cash, tax evaders also heavily invest their accumulated illegal money and park it in Benami properties, whether in the form of land, property or gold. This facilitates circumvention/evasion of taxes, allows defeating the legitimate claims of creditors and facilitates money laundering. Therefore, the Act, along with its amendment, seeks to achieve a laudable motive and should be allowed its fullest play. Having said that, there is a lot of uncertainty that remains with respect to crucial issues like: application of the Act to properties located outside India, retrospective application to transactions entered-into prior to 2016, and the inter-play with Income Disclosure/Income Tax/Black Money and Company laws, amongst others. We hope that at least some of these issues would find their way into courts and get resolved judicially, or the legislators may take note, and introduce the necessary amendments clearing the airs.

Footnotes

1 This article has been authored by Bharat Chugh, Managing Associate/Counsel & Kushank Sindhu, Associate at Luthra and Luthra Law Offices, New Delhi. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of the Firm.

2 https://www.merriam-webster.com/dictionary/benami

3 This observation is subject to the special circumstances existing and laws applying thereunder.

4 Jaydayal Poddar (Deceased) through L.Rs. and Anr. vs. Mst. Bibi Hazra and Ors. (1974)1SCC3. Also see : In Bhim Singh v. Kan Singh, AIR 1980 SC 727, the principles governing the determination as to: whether a transfer is a benami transaction or not, was summed by the Supreme Court in the following words:

  1. The burden of showing that a transfer is a benami transaction lies on the person who asserts that it is such a transaction;
  2. if it is proved that the purchase money came from a person other than the person in whose favour the property is transferred, the purchase is prima facie assumed to be for the benefit of the person who supplied the purchase money, unless there is evidence to the contrary;
  3. the true character of the transaction is governed by the intention of the person who has contributed the purchase money; and
  4. the question as to what his intention was has to be decided on the basis of the surrounding circumstances, the relationship of the parties, the motives governing their action in bringing about the transaction and their subsequent conduct etc.

5 Sheikh Bahadur Ali v. Sheikh Dhomu, 1 Calcutta Sud. R. Diw. Rep. 250, 251, cited in Tyabji, Muslim Law (1968), page 396, foot note 1- page 3, Law Commission of India, Fifty-seventh Report, Benami Transactions, August, 1973, Available at: http://lawcommissionofindia.nic.in/51-100/Report57.pdf

6 Bilas Kunwar v. Desraj Ranjit Singh and Ors. (13.07.1915 – PRIVY COUNCIL) : MANU/PR/0010/1915

7 Section 2(19) of the Act

8 Section 24(1) of the Act

9 Section 24(2) of the Act

10 Section 26 of the Act.

11 Section 26(8) of the Act read with the Explanation thereto.

12 Section 26(5) of the Act.

13 Section 26(3) of the Act.

14 Section 26(7) of the Act.

15 Section 27 of the Act.

16 Section 27 of the Act.

17 Section 28 of the Act.

18 Section 27 of the Act.

19 Section 28 of the Act.

20 Section 46 of the Act.

21 Section 49 of the Act.

22 Section 53 of the Act

23 Section 55 of the Act.

24 Section 50 of the Act

25 Section 2(9) of the Act

26 Sri Marcel Martins vs. M. Printer and Ors. (27.04.2012 – SC) : MANU/SC/0333/2012

27 P.V. Sankara Kurup vs. Leelavathy Nambiar (16.08.1994 – SC) : MANU/SC/0533/1994 (1994)6SCC68

28 Hemangini Finance and Leasing Private Ltd. and Others v. Tamilnad Mercantile Bank Ltd. and Others (1996) 86 Comp Cas 875 (CLB). Also see : Pawan Kumar Gupta Vs. Rochiram Nagdeo [(1999) 4 SCC 243], wherein the Supreme Court interpreted the phrase ‘consideration paid or provided by another person” used u/s 2(a) of the Benami Act and held as follows: “29. Section 2(a) of the Benami Act defines benami transaction as “any transaction in which property is transferred to one person for a consideration paid or provided by another person.” The word “provided” in the said clause cannot be construed in relation tothe source or sources from which the real transferee made up funds for buying the sale consideration. The words “paid or provided” are disjunctively employed in the clause and each has to be tagged with the word “consideration”. The correct interpretation would be to read it as “consideration paid or consideration provided”.

29 If consideration was paid to the transferor then the word provided has no application as for the said sale. Only if the consideration was not paid in regard to a sale transaction the question of providing the consideration would arise. In some cases of sale transaction ready payment of consideration might not have been effected and then provision would be made for such consideration. The word “provided” in Section 2(a) of Benami Act cannot be understood in a different sense. Any other interpretation is likely to harm the interest of persons involved in genuine transactions, e.g., a purchaser of land might have availed himself of loan facilities from banks to make up purchase money. Could it be said that since the money was provided by the bank it was a benami transaction?.

30. We are, therefore, not inclined to accept the narrow construction of the word “provided” in Section 2(a) of the Benami Act. So even if appellant had availed himself of the help rendered by his father Pyarelal for making up the sale consideration that would not make the sale deed a benami transaction so as to push it into the forbidden area envisaged in Section 3(1) of the Benami Act.”

31 Sections 89 and 90 of the Companies Act, 2013

32 Article 20(1) of the Constitution of India.

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

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Civil Law · contract law · Mercantile Law

To sever or not to sever! Understanding the ‘Blue-Pencil Rule’ of Severability under Contract Law.

Many a times, parties to a contract find, much to their dismay, that some parts of their contracts are not legal and valid and, therefore, unenforceable. In such a situation, the question that arises is : whether the taint attaches to the entire contract (and the entire contract falls); or the ‘bad’ (illegal) can be severed from the good (legal) and tossed away, while retaining the remaining contract and giving effect to the intention of the parties. When is the Court to pick up a scalpel (blue-pencil) and amputate the diseased limb (illegal part of the contract), to heroically save the patient (the contract itself).

This short write up is an attempt is to throw some light on the legal principles governing severability of contracts; an editorial exercise or a surgical operation, depending on which analogy intrigues you more!

Cutting straight to the chase : the act of severance, in contractual law parlance, is known as ‘blue penciling’ or the application of the ‘blue pencil rule’. The phrase owes its origin to an editor’s act of cutting out/editing portions of a text while proof-reading, by a blue pencil. According to Black’s Law Dictionary the Doctrine of Blue Pencil is a judicial standard for deciding whether to invalidate the whole contract or only the offending words. 

Blue-Pencil Rule allows the legally-valid, enforceable provisions of the contract to stand despite the nullification of the legally-void, unenforceable provisions. However, the caveat is that the revised version must represent the original meaning; the rule may not be invoked, for example, to delete the word “not” and thereby change a negative to a positive.

Looked at from the perspective of the Indian Contract Law regime : A part of the consideration/object of a contract being illegal and unlawful, renders the entire agreement void.  This is the clear mandate of Section 24 of the Indian Contract Act, 1872 (“ICA”).

24. Agreements void, if considerations and objects unlawful in part.—If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void.”

Illustration : A promises to superintend, on behalf of B, a legal manufacturer of indigo, and an illegal traffic in other articles. B promises to pay to A a salary of 10,000 rupees a year. The agreement is void, the object of A’s promise, and the consideration for B’s promise, being in part unlawful. 

However, is not an absolute proposition and without exceptions. In the above illustration, the good (legal) cannot be separated from the bad (illegal) since they are so inextricably intermixed.

A class of cases which can be considered as truly severable and, therefore, capable of being blue-pencilled would be cases covered u/s 57 of the ICA. The illustration attached to the section, is instructive in this regard:

Illustration to Section 57 : A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as a gambling house, he shall pay A 50,000 rupees for it. The first set of reciprocal promises, namely, to sell the house and to pay 10,000 rupees for it, is a contract.  The second set is for an unlawful object, namely, that B may use the house as a gambling house, and is a void agreement.

Section 57 reads as under :

57. Reciprocal promise to do things legal, and also other things illegal.—Where persons reciprocally promise, firstly to do certain things which are legal, and secondly, under specified circumstances, to do certain other things which are illegal, the first set of promises is a contract, but the second is a void agreement.

Another illustration, and an example of the inclusion of the ‘blue pencil rule’ within the statute can be found in Section 58 of the ICA, which reads:

Section : 58. Alterative promise, one branch being illegal : In the case of an alternative promise, one branch of which is legal and the other illegal, the legal branch alone can be enforced.

Illustration : A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards deliver to A either rice or smuggled opium. This is a valid contract to deliver rice, and a void agreement as to the opium.

Clear cases of sever ability, aren’t they?

Apart from the above, blue-pencil rule is most frequently invoked in cases of ‘agreements dealing with restraints on trade, business and profession’; or in modern parlance ‘non-compete agreements’, where a restraint which is clearly illegal is suitably excised and remaining contract given effect to. In fact, the rule of blue pencil owes its very genesis to cases where employers tried to impose unreasonable restraints on employees/ex-employees/good-will sellers etc, and the Courts did a balancing act, and separated and salvaged the good from the ugly…..

These are classic Section 27 ICA cases.

Arguably, the first reported case on blue-pencil is the oft quoted landmark case- Nordenfelt v Maxim, Nordenfelt Guns and Ammunition Co (House of Lords). 

The facts of the case are pretty straightforward : Nordenfelt, a manufacturer specialising in armaments, sold his business to Hiram Stevens Maxim. They had agreed that Nordenfelt ‘would not make guns or ammunition anywhere in the world, and would not compete with Maxim in any way for a period of 25 years’. 

The House of Lords, having regard to the fact Nordenfelt had received a handsome amount for the sale, did not find the whole restriction bad. Having said that, the Court found the latter part of the restriction unreasonable and severed it to read : “for the next 25 years, would not make guns or ammunition anywhere in the world , and would not compete with Maxim in any way” . The latter part was considered too broad-brush/all-encompassing and, therefore, an unreasonable restriction.

This is where the roots of this principle lie.

In another popular decision (Rose & Frank Co v JR Crompton & Bros Ltd), the Blue Pencil Rule was invoked to strike out an unacceptable clause in an MoU which operated to to exclude the jurisdiction of the courts, which of course, is something that the parties cannot do, legally.

The Indian SC in the case of Shin Satellite Public Co. Ltd. v. Jain Studios Limited, (2006 SC) elaborated a bit on the principle. In this case, the parties had entered into a contract, which had an arbitration clause. So far so good; however, one of the clauses in the contract presented some difficulty; it provided that the arbitral award (delivered by the arbitrator) would be final and could not be challenged by either party, in any court or forum. This particular part of the contract was potentially illegal, being in restraint of legal proceedings, and having the practical effect of giving the arbitrator a complete carte blanche (license) to pass any decision, without any redress against it. Such an agreement, as students of contract law would reckon, would not pass judicial muster, being illegal and also against public policy. (Parties cannot opt out of/derogate from basic legal principles and remedies of Indian Law). The Court was faced with a predicament and called upon to decide whether this particular restraint would infect and render the whole contract bad; or could easily be amputated, like a diseased limb, to save the patient. The Court went on with the latter view, saved the contract as well as the arbitration clause by running a blue pencil over the portion which excluded judicial remedies and jurisdiction of the Court. The Court must have felt that throwing away the whole contract for this rather trivial (and at any rate, something that goes to the root of the matter) would be tantamount to ‘throwing the baby away with the bathwater‘.

While doing this, the Court did recognise the limitations of this rule : A contract has to be severed by caution (lest the courts be accused of re-writing bargains). Only if ‘severability’ is substantively possible and contract capable of surviving post the surgical operation, that this exercise of running a blue pencil down should be embarked upon.

The court held : “the proper test for deciding validity or otherwise of an agreement or order is ‘substantial severability’ and not mere ‘textual divisibility’. It is the duty of the court to severe and separate trivial or technical part by retaining the main or substantial part and by giving effect to the latter if it is legal, lawful and otherwise enforceable.  

When asked to pick up the scalpel or the blue pencil to excise/cut-off a part of the Contract,  the court may be guided by the following considerations, which are well-established now :

a) The unenforceable provision can be severed without the necessity of adding or modifying the wording of what remains. (The idea being to cut-off and not re-write or modify).

(b) The remaining terms continue to be supported by adequate consideration. (example : X contracts to sell a Tesla (auto-driven) car and five tyres to Y for 10K USD. For some reason, the sale of Tesla is outlawed, however five tesla tyres can still be sold and purchased; X seeks specific performance of the contract, asking the part insofar as it concerns sale of Tesla Car to be excised and thrown-away, and part where sale of tyres is envisaged enforced. This would be absurd, isn’t it. Once the tesla is taken off, there is little consideration left for Y and no court would enforce something like this. Blue pencil off, please!!!)

(c) The severance of the unenforceable provisions does not distort the parties’ bargain so much that it materially differs from the contract the parties entered into (“does not so change the character of the contract that it becomes not the sort of contract that the parties entered into at all”). (tesla example, again!)

(d) The Court cannot take away the very heart and soul of the contract under the guise of blue pencil rule. Only a limb can be amputated, not the heart and brain!

(e) The Contract, post surgical operation, should be one that parties, operating as people of ordinary prudence, would have entered-into (even with the offending part struck out).

 

 

Property Law

Delhi High Court on the law of irrevocable power of attorney(s) and ‘agency coupled with interest’ in the context of GPA/Agreement to Sell transactions.

Case Note on : Vimla Devi v. Pushpa Devi and Anr- 2017 SCC OnLine Del 8694

In this case, Hon’ble High Court of Delhi had the occasion of examining the above question.

The facts of the case lie in a very narrow conspectus:

Plaintiff’s case

            Conventional (purported) sale documents

  • The Plaintiff/Appellant claimed that she was the owner of 200 sq. yards of the property situated in Shahdara, Delhi. Out of the area of 200 sq. yards, the appellant/plaintiff sold 70 sq. yards to the respondent no. 1/defendant no. 1 on 11.2.1998 for a sale consideration of Rs. 1,75,000/-.
  • On 11.2.1998, appellant/plaintiff executed a conventional set of documentation being the agreement to sell, general power of attorney, Will, receipt, etc. in favour of the respondent no. 1/defendant no. 1. (These documents used to be executed in order to avoid stamp duty/registration charges, and when Sub Registrars would not recognise Sale Deed(s) in an unauthorised colony/area. For a more detailed discussion of validity of such documents, see Suraj Lamps and Industries Pvt. Ltd.State of Haryana, 183 (2011) DLT 1 (SC).

Cancellation of those documents

  • The area of 70 sq. yards consists of two rooms, a latrine and a bath room, and possession of which was taken by the respondents/defendants on 11.2.1998. It was further pleaded in the plaint that since there was non-payment of the entire consideration, hence the appellant/plaintiff cancelled the documentation dated 11.2.1998 by the cancellation document dated 6.4.1998, and appellant/plaintiff also sent a legal notice of the same date to the respondents/defendants.
  • It was further pleaded that inspite of cancellation of the documents on 6.4.1998 the respondents/defendants did not vacate the suit property, and hence the subject suit was filed.

Defendant’s stance

  • The suit was contested by the respondents/defendants. It was pleaded by the respondents/defendants that complete consideration of Rs. 1,75,000/- was paid when the documents dated 11.2.1998 were executed in favour of the respondent no. 1/defendant no. 1.
  • It was also pleaded that the appellant/plaintiff with dishonest intentions cancelled the documents on 6.4.1998. It was pleaded by the respondents/defendants that appellant/plaintiff had no authority to cancel the documents and hence the cancellation has no significance to the purchase of the suit property by the respondent no. 1/defendant no. 1. The respondents/defendants pleaded that the adjoining 130 sq. yards to the plot of 70 sq. yards was already owned and was in possession of the respondents/defendants, and hence the respondents/defendants are in possession of the whole 200 sq. yards. The suit was accordingly prayed to be dismissed.

Main Issue Before the Court

  • The main issue which arose was whether GPA/and other documents in this case constituted ‘agency coupled with interest’ and therefore irrevocable? If yes, what is the effect of the registered cancellation deed?

 

Decision

  • The Court held that the cancellation of the documents dated 11.2.1998 by the appellant/plaintiff by the documentation dated 6.4.1998 is of no legal effect.
  • The Court noted that transfer of rights in an immovable property is by a contract i.e the same is a bilateral act, and such bilateral contract cannot be cancelled unilaterally i.e by unilateral cancellation of documents by which rights in immovable property are transferred by the transferor to the transferee.
  • On the question of ‘irrevocable agency’ the court extracted the legal position from previous cases:

“20. In the matter of Hardik Kaur v. Kailash (S.B.) 193 (2012) DLT 168 it was stated “the words” and interest in property which forms the subject matter of the agency” in Section 202 of the Contract Act, 1872 are of wider amplitude than the words “an interest in or charge on such property” in Section 54 of the Transfer of Property Act, 1882. Where the seller has received the sale consideration in pursuance of the agreement to sell and has delivered the possession to the purchaser, the purchaser would have interest in the property within the meaning of Section 202 of the Contract Act” 

Thus the GPA dated 11.02.1998 is irrevocable in view of Section 202 of the Contract Act, 1872. The plaintiff, therefore, had no right to terminate the said GPA. The revocation of the GPA by plaintiff is, therefore, of no consequence.

Moreover the plaintiff has shown only the photocopies of the cancellation deeds Ex.PW 1/7 and Ex PW 1/8 dated 06.04.1998. The cancellation deeds are thus not proved on record. The documents can be looked at, at the instance of the opposite party. The cancellation deed neither mentions that consideration was not received nor has any other cause of cancellation been specified. The non-disclosure of any reason in the cancellation deed clearly suggests that there was in fact no dispute about consideration, as being claimed by the plaintiff in his suit. In addition, the legal notice sent makes no mention of the fact that the consideration amount had not been received. Moreover, the legal notice also does not state as to whether upon cancellation the consideration amount paid was being returned to the defendant by the plaintiff.

 Even if it is assumed for the sake of argument that the cancellation deeds are genuine, the agreement tot sell of which the plaintiff has placed on record a certified copy Ex.PW 1/2 was never cancelled by the plaintiff. As per the agreement to sell, it is on record that the possession was handed over by the plaintiff to defendant no. 1 while executing the documents. It is also clearly stated in the agreement to sell which is a document admitted by both parties that the consideration of Rs. 1,75,000/- has been paid by the defendants to the plaintiff. The plaintiff has also executed a receipt of the same amount. Hence the plaintiff has no right to cancel or revoke documents dated 11.02.1998 which were executed by the plaintiff in favour of defendant no. 1 for sale of 70 sq. yards of the suit property.

Placing reliance on judgments of the Hon’ble High Court of Delhi inRamesh Chandv. Suresh Chand, 188 (2012) DLT 538 and Hardip Kaur v. Kailash Supra, it is held that Defendant no. 1 in the matter at hand thus may not be a classical owner as would be in case of a registered sale deed, however, they would have certain rights and entitlement over the property. Furthermore this coupled with the fact that the defendants also have actual physical possession, builds a strong case in their favour. Thus, the interest created by the agreement entered into between the parties still lies with the defendant.

On basis of the discussion above, it is held that plaintiff is not entitled to the relief of possession or injunction in regard 70 sq. yards of the suit property as claimed for. Furthermore the plaintiff has asked for the relief of permanent injunction in relation to the whole 200 sq. yards. When the relief of 70 sq. yards out of 200 sq. yards cannot be granted, there is no question of granting a relief in relation to whole 200 sq. yards.”

  • The Court upheld the decision of courts below placing reliance upon Section 202 of the Indian Contract Act as also the judgment delivered by this Court in the case of Shri Ramesh ChandSuresh Chand, 188 (2012) DLT 538  which holds that documents which are in accordance with the amended Section 53A of the Transfer of Property Act, 1882 and executed prior to 24.9.2001 when by Act 48 of 2001 Section 53A of the Transfer of Property Act was amended to require compulsory stamping and registration of an agreement to sell, then such documents prior to 24.9.2001 are valid documents because the amendment to Section 53A of the Transfer of Property Act is prospective in nature.
  • The Court also held that –  this aspect is clearly stated by the Supreme Court in the judgment in the case of Suraj Lamps and Industries Pvt. Ltd.State of Haryana, 183 (2011) DLT 1 (SC) wherein the Supreme Court has held that those agreements to sell, power of attorneys and Wills, which are in accordance with Section 53A of the Transfer of Property Act, Section 202 of the Indian Contract Act and the relevant provisions of the Indian Succession Act, the same will continue to be valid i.e documents executed prior to 24.9.2001 being in accordance with the then existing Section 53A of the Transfer of Property Act which did not require stamping and registration of the agreement to sell would be valid documents.
  • The Court concluded by holding : “The courts below, in my opinion, have also rightly held that the fact that possession was given to the respondent no. 1/defendant no. 1 by the appellant/plaintiff in terms of the documents dated 11.2.1998 shows that the appellant/plaintiff had received the entire sale consideration. I also adopt the other reasoning as given by the courts below showing that complete sale consideration has been duly received by the appellant/plaintiff”
Uncategorized

Some thoughts on preparation for judicial services examinations

This was first published at Rahulsiasblog.com and is being republished.

  • This is a guest post by our alumnus Mr. Bharat Chugh. Bharat was with Rahul’s IAS and did coaching in the final year of college. Thereafter, he practiced law for sometime, before going-on to secure first rank in the prestigious Delhi Judicial Service Examination in 2013, at the young age of 23. He recently decided to resign and return to his first love i.e ‘the practice of law’. He is currently working on two books and has various publications to his credit. He is also extremely enthusiastic about mentoring future ‘judges’. In this guest post, he shares his thoughts on preparations for the judicial service examinations. Here’s over to Bharat ! 

How to be a judge ?  

How much to study ? Where to start ? What does it take to be a judge ? Can it be managed alongside the practice of law, or preparation is a full time thing ? How does one remember so many provisions ? What’s the best way to read a law ? How to approach answer writing ? How did ‘you’ do it ?

These are some of the questions that have been put to me by countless bright young law students/lawyers, aspiring to be judges. I am hardly qualified to answer these questions; my only claim to writing this post is my own humble success at the exam. It goes without saying that, I cannot, of-course, say anything more than what Rahul Sir has painstakingly told you a zillion times already, and it can’t ever be bettered.

Having said that, I’d still take the liberty to connect the dots backwards to the days of my preparations and pen-down a few thoughts. I must, however, begin with the caveat that whatever I say must be taken with a ‘pinch of salt’; you see, one has to carve out one’s own method and there is no one formula that fits all. But there are some ‘footprints in the sands of time’ which are not washed-off, that my younger (study-weary!) brothers and sisters can see and take heart in.

I shall not be the ‘judge’ today but judgment-debtor or a decree holder, depending on how you judge this post. With this, and without further ado, let us begin at the beginnings :

  • Starting early – If you are serious about ‘judgeship’ as a career, it really helps deciding early and then giving it your all.
  • Excellence at Law – Aim at excellence at law, everything else will follow. Once you are world-class expert at your subject – you’ll also go on to make excellent judges, bureaucrats, lawyers, law officers, academicians etc, and there are no two views about that ! There are countless examples of bright young aspirants who for some reason couldn’t clear the exam, but went on to become leading counsels. It’s quality that matters. There is a vaccum everywhere if you look around, and it needs to be filled. Just be great at your law and opportunities will strike at your door !
  • Understanding of first principles of law – Having a sound conceptual understanding of substantive and procedural law is an absolute-must; Remembering the key wording of the provisions is important, but at the end of the day, it’s how you interpret law, present the answer in a lucid and pithy manner that makes the difference.

Managing Coaching classes with College and Time Table. 

I coached with Rahul Sir during the final year of my college in the evening batch. I used to attend classes after college hours. I would make it a point to attend classes each evening and revise the concepts learnt atleast once at night before sleeping, or in any event in the day time, between/after the lectures – so as to internalise them. That constant engagement with the concepts learnt is extremely important. I used to think about the legal concepts a lot and did a lot of mental recalling of concepts. The result is that most concepts and cases are still etched in my memory.

By the time I graduated I was also done with the coaching classes, however, I kept on participating in the test-series conducted by Sir. I would do them religiously as it is the nearest that one can get to the ‘exam hall’ experience. It helps time-management and tests your performance outside the comfort zone of your study room.

As regards the number of hours that I put into studies each day : after graduation – I put in atleast 8-9 hours every day  in studies; The hours were spread across – reading, re-reading notes, books, recapitulation, mental recalling of concepts during my long walks. I did intersperse these studies with newspapers (I read the ‘Hindu’) current affairs (‘Frontline’, ‘EPW’), non-legal readings to make things vibrant for me. I also tried going-in for a run almost everyday in the evening to freshen my mind up.

Later when I started practising actively I used to get relatively less time at my study table, but I kept up with the engagement with law – through legal opinions to clients, legal writings (drafting and for publications), court arguments, discussions with colleagues etc.  However, ‘practice of law’ is by no means essential for clearing the exams. Most entrants into the service are fresh out of law school.

  • Importance of language – There is saying that “It is as much in the saying as it is in the ‘said” ! ‘Words’ are the first and foremost stock-in trade of a great lawyer/judge. Infact, this is all she/he has. Try and work on your language. Every piece of legal writing need not be flowery or a ‘judgment by thesaurus’, but in order to steal a march (remember : this is a competitive exam), your writing should still reflect a command over language; an understanding of the nuances and subtleties of different legal words (for instance, the words ‘accepts’ and ‘obtains’ have a world of difference between them and cannot be used interchangeably). Same goes for use of punctuation – the same sentence like ‘Roko mat, jaane do’ can also be re-written as ‘Roko, mat jaane do!’. One comma can totally change the meaning of a sentence and has to be used cautiously and with discernment. As a judiciary aspirant, you cannot be callous or reckless with your use of words. Each word carries a precise meaning and usually no other word can replace it and do the trick. Trying remembering at-least 10 new words everyday, this will enrich your vocabulary. A word, at the end of the day, is an idea. Having an expansive vocabulary means having a wider grasp of ideas and having more ideas. It need not be gainsaid that, in a knowledge driven economy, a man who has ideas is the winner. So knowing words is extremely important. I’ve been asked many a times whether 20s is too late to lay a good foundation language-wise ? of course not. It’s never too late. Very few of us have had the good fortune of studying in excellent schools and colleges. I personally am essentially a drop-out, having been constrained to leave school after 8th standard (due to father’s illness and financial difficulties) and completed the remaining part of my schooling through the ‘National Open School’. I kept working alongisde to contribute financially to home. To cut the long story short, I personally faced a series of setbacks as far as a conventional education was concerned, but I did acquire the habit of reading in my college days. I had realized by then language was not only a source of pleasure and learning, but the only salvation. Language (and knowledge came with it) was power. It had dawned on me that the most successful people in the world thrived on information asymmetries. I started on a reading frenzy and devoured whatever I could lay my hands on. A book to me, was the opportunity to get into somebody else’s skin, walk the town in it, and not just the skin of any person, but the best thinkers that the world has ever produced. This happened during college, so my friends, it’s never too late to begin. ‘India after Gandhi’ is a good book to begin with. Obviously, studying non legal stuff during preparations is difficult, but half an hour of reading everyday is something anyone can manage. Moreover, it will also add a little vibrancy to your routine.
  • Converting a ‘setback’ into Success. – It is a fact little known that before DJS, I appeared in Haryana Judicial Service Examination. Though I made it to the ‘Mains’, I could not proceed further. I’ll be lying if I say this was not a setback. Though initially I was a little dejected, but I tried introspecting. Sir was a constant source of strength. He expressed faith in me and encouraged me to push on. The reasons that I could figure were responsible for me not clearing the exam were : not being able to complete the paper within the requisite time, and writing rather long-ish answers. I worked harder on my time management strategy for DJS. I also used this time to make my answers more concise and sharp with focus on the key issues. In the exam hall, I divided my time according to the marks assigned to each question and stuck to the time limit.  This helped me a lot in the DJS Exam, and I could fare well.

  • Tell a tale – Always Remember : When a writer writes, he creates an experience. In a novel, the author creates a world and ‘invites’ the reader to inhabit it (who, of course, has the option of putting down the book and not inhabiting the writer’s world, so to speak). As opposed to this, author of a ‘judgment’ creates a world and ‘requires’ the plaintiff or the defendant to inhabit it. You see, there is no escape for the litigant or for the others, who HAVE TO read (and inhabit) the judgment, since ignorance of a judgment(or law) is not an excuse. Therefore, making your answers/orders/judgments interesting to read is important and makes the entire exercise more fun. Legal writing need not be tedious, boring or heavy. It is all about telling a tale ! Try to read judgments by masters such as Lord Denning, Justice Chandrachud, Justice Chinnappa Reddy for inspiration. Stand on the shoulders of these giants and try and emulate their writing. Lord Denning, for example, would at many times, use the parties names instead of standard ‘nomenclature – plaintiff/defendant’ etc. His judgments are eminently readable and interesting.
  • ‘Less is more’ – Nietzsche said “My ambition is to write in ten lines, what people write in a book”. The ability to summarize the most abstruse and knottiest of legal issues in a form understandable to the common man requires great mental clarity and linguistic competence. (As Rudyard Kipling writes in his poem ‘if’ : you should be able to talk to kings and queens, yet not lose the common touch). Try and master the art of ‘precis’. Never use a word that is not needed. Superfluity in language is a major put-off.
  • “The shortest distance between two points is a straight line”– Think straight, Think clear. Acquire an analytical bent of mind, try to approach the problem in a logical sequence (in chronology), sift the material facts from the less important, arrive at the key legal issues, sift the admitted from the disputed in the question (as far as facts are concerned) and then narrow down the point of controversy. This should make questions easier to answer; Questions these days are lengthy, winded and factually complicated. The ability to arrive at the core of the issue and framing it beautifully in a pithy issue/question form is skill that is worth its weight in gold, during the preparations and in judgeship. Don’t get caught in the thicket of facts and miss the woods for the trees.
  • Emphasis on the ‘Essence of Law’- Try to understand the essence of each law that you read. Remember, a particular section/law is only a ‘means to an end’, the end being ‘the object sought to be achieved by the law’. No law exists in a vacuum and every law has a social context. Understanding the social context of a law and adjudicating the case keeping that in mind helps bridge the gap between ‘judging’ and ‘justicing’. There is a huge thrust on socially responsive judging. The recent judgment interpreting ‘wife’ to include a ‘second wife, who has been deceived into believing that she is the first wife’ may go against a literal reading of Section 125 CrPC, but it serves the true spirit of the law and advances the cause of gender justice. Reading such judgments and trying to acquire this method is extremely important. Always remember statutes are dead letters in which judges breathe life by their interpretation. Try and master concepts of statutory interpretation such as the purposive rule, mischief rule, golden rule, et cetera. Once mastered, you’ll acquire the method of reading law, and it will equip you with the right skill-set to interpret any law or provision from any statute of the world.
  • Nothing worth having ever comes easy – Be prepared for a hermit’s life and slogging it out with your books. Having a passion for law will make it easier. Cellphones/Social Networking websites ought to be used constructively. Always master the core-areas offline, and if needed, top it up with a few latest case laws, contemporary policy decisions, historical perspective and social relevance/context/impact of your decisions, to acquire that cutting edge. Be hard on yourself, Steve Jobs said the most successful people in the world are paranoid almost all the time, this nervousness/anxiety keeps them up and doing the right thing over and over again. Every minute is precious, to quote Kipling’s expression – ‘fill each unforgiving minute with sixty seconds worth of distance run’ and you’ll go a long way
  • Inter-statute/Broad based approach : To master one thing, you have to master the things next to it, as well. While reading one law, try and read all the related/associated laws, in order to attain a comprehensive understanding on that issue. The interconnection of one provision with the other (within and outside the statute!) is extremely important. For instance, one case relating to a real estate dispute may involve issues relating to : Temporary injunctions, Hindu Succession Act, Partition Act and Transfer of Property Act, amongst others. Having a broad based, over-arching, inter-statute approach ensures that there is a comprehensive decision and reflects intellectual maturity and vast knowledge of the student. This also demonstrates the problem-solving approach of the student as opposed to a pedantic narrow legalistic approach. Elevating any question to the constitutional level also is extremely rewarding. For instance, all criminal procedure issues will have a ‘constitutional rights perspective’; for eg : law of bail requires the dovetailing of two conflicting demands : on one side – ‘public order/crime control’ in denial of bail versus liberty perspective/due process/presumption of innocence; if an answer on bail adequately demonstrates this balancing-act, this elevates the decision qualitatively and also convinces the examiner that the student’s compass is constitutionally aligned and compatible. The feel of the constitution should inform and run-through each answer.

Last but not the least, have a ‘love for law’. I am reminded of Justice Joseph Stories’ legendary lines : “that law is a jealous mistress, and requires a long and constant courtship. It is not to be won by trifling favours, but by a lavish homage”. Once you acquire the love for law and give it your all, there is no looking back. It shall reward you all of your life, whether as an excellent Judge, Attorney, bureaucrat, law officer or academician !

Wish you all the best,

Regards,

Bharat Chugh

 

*Bharat Chugh now practices law at the Supreme Court of India and is a Counsel with Luthra and Luthra Law Offices. He can be reached at bharat.law06@gmail.com (https://in.linkedin.com/in/bharat-chugh-07b15ba

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On the admissibility of insufficiently/unstamped documents and procedure of impounding by the Court.

Stamping of agreements/deeds is governed by the Stamp Act. If the document is not sufficiently stamped, then by virtue of Section 35 of the Stamp Act there is a bar on ‘admitting’ such a document in evidence or acting upon it.

Section 36 tells us that if this objection is not taken at the first instance, it stands waived and inadmissibility of the document cannot be argued later.

Further, Section 33 empowers the court, acting as the protector of state revenue, to examine and impound an unstamped/insufficiently stamped document.  The section stipulates that, if an instrument chargeable with stamp duty produced before a court and is not duly stamped, court shall impound the same. Therefore, there is a mandate on the court to impound the document when this issue is brought to its attention. 

With the basics being thus, a couple of questions with respect to this issue :

  1. Who can impound? 

* Any person authorized to receive evidence either by law or parties consent;

* Any person in charge of public office.

* Includes a ‘Court’

2. When can a document be impounded?

  • When document produced or comes before the court in performance of its functions.
  • Production connotes voluntary production or in pursuance of a court order (eg : Warrants cannot be issued against a person to compel him to produce a document for the purposes of impounding of the same).

 

3. What kind of document?

* Only the original. Courts under statutory obligation to impound even suo motu.

3A. At what stage is this objection required to be decided ? 

What is important to note is that whenever such an objection is raised that objection has to be decided first, before anything else. This is different from other objections which are merely recorded at trial and final decision deferred till appreciation of evidence.  

(Javer Chand And Others vs Pukhraj Surana 1961 AIR 1655)

Also supported by Bipin Shantilal Panchal v. State of Gujarat (3 judges bench) 2001 (3) SCC 1, where it was noted :

“14.When so recast, the practice which can be a better substitute is this: Whenever an objection is raised during evidence taking stage regarding the admissibility of any material or item of oral evidence the trial court can make a note of such objection and mark the objected document tentatively as an exhibit in the case (or record the objected part of the oral evidence) subject to such objections to be decided at the last stage in the final judgment. If the court finds at the final stage that the objection so raised is sustainable the judge or magistrate can keep such evidence excluded from consideration. In our view there is no illegality in adopting such a course. (However, we make it clear that if the objection relates to deficiency of stamp duty of a document the court has to decide the objection before proceeding further. For all other objections the procedure suggested above can be followed.)”

 

Step by Step procedure of impounding : (as gleaned from Chilakuri Gangulappa v. RDO, Madanpalle and Ors) 2001 (4) SCC 197 and provisions of Section 33 of the Stamp Act) :

  1. Non stamped or Insufficiently Stamped Instrument comes before the Court
  2. On its own finding or in case of objection and dispute as to whether the document is insufficiently stamped – Court decides the objection then and there, and doesn’t postpone the decision or tentatively admit the document.
  3. In case it is found to be so insufficiently stamped. Court IMPOUNDS the same. This is a mandate upon the court in order to guard public revenue.
  4. The court has to give the party producing the document an option to validate it and render it admissible by paying penalty within the terms of S.35.
  5. If penalty is so paid – S.38 mandates you to send to the collector/SDM, an authenticated copy of the instrument together with a certificate in writing, stating the amount of duty and penalty paid and send such amount to collector.
  6. Collector may exercise power to refund part of penalty so paid (S.39)
  7. If penalty is not so paid, Court has to send it to the Collector. On receipt of the document through either of the said avenues the Collector has to adjudicate on the question of the deficiency of the stamp duty. If the Collector is of the opinion that such instrument is chargeable with duty and is not duly stamped he shall require the payment of the proper duty or the amount required to make up the same together with a penalty of an amount not exceeding ten times the amount of the proper duty or of the deficient portion thereof.
  8. Collector shall then give certificate which shall be conclusive evidence of the fact that it has been stamped and document is sent back to the court for reception in evidence.
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Demystifying law of liquidated damages.

Law of Liquidated Damages and Penalty (S.74)

 When the contract mentions a ‘specific amount’  to be paid as compensation in case of breach : 

  1. Whether that amount is ‘conclusive’ and bars any enquiry by the court into actual loss/damages suffered; 
  2. Whether the claiming party is obviated from proving the ‘actual loss’; 
  3. Whether the claiming party is also obviated from proving ‘any loss’ as a consequence of breach of the contract;

These are the questions that this post seeks to answer. 

Since our Contract Law is derived from English Cases, let us first begin at the beginnings and briefly examine the English Law in this regard :-  

English Law

The parties to a contract may determine beforehand the amount of compensation payable in the event of breach. According to English law, a sum so fixed may fall in any of the following categories :

  • Liquidated damages, or
  • Penalty

If the sum fixed represents a genuine pre-estimate of probable damage that it likely to result from the breach, it is liquidated damages. A sum less than the amount of probable damage is also regarded as liquidated damages. The whole of such sum is recoverable.  

In the latter cases, the money stipulated is in terrorem, i.e an extravagant and unconscionable amount, totally out of sync with the actually loss that could be conceived in the case, quoted as a deterrent with a view to discourage breach of contract.

In such a case the court can reject the named amount, and damages will be calculated in accordance with ordinary principles.  The fixed figure does constitute the maximum ceiling, and can never be exceeded though. 


Indian Law

Indian Law strikes a slightly different note. Section 74 reads as under :-

  1. Compensation for breach of contract where penalty stipulated for.— When a contract has been broken, if a sum is named in the contract as the amount to be paid in case of such breach, or if the contract contains any other stipulation by way of penalty, the party complaining of the breach is entitled, whether or not actual damage or loss is proved to have been caused thereby, to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or, as the case may be, the penalty stipulated for.

Explanation.—A stipulation for increased interest from the date of default may be a stipulation by way of penalty.]

 

On a bare reading it appears that the Indian Law has steered clear of the distinction between Penalty and Liquidated Damages, and makes two things clear :-

  1. The amount mentioned by the parties constitutes the upper limit;
  2. Within that ceiling, a reasonable compensation is to be awarded.

 

Some other important points : 

  • Prior to invoking right to damages, the injured party will have to prove breach of contract on the part of the other party.
  • The Court has to make its own assessment of the amount of loss causes by the breach. It cannot blindly follow the contract clause in awarding damages without any adjudication (Uma Minerals v. Malabar Cements Ltd, AIR 2003 Ker 146);
  • Contrary to misconception – Distinction between liquidated damages and penalty is not altogether irrelevant to the section.
    • Its relevance, in the first place, arises from the fact that the amount contemplated by the parties will be reduced only if it appears by way of penalty. Otherwise the whole of it is recoverable as liquidated damages.
    • Secondly, this is also implicit from the use of word ‘penalty’ in first explanation of the section, which allows exorbitant rate of interest to be construed as penalty and consequently diluted.

Some case studies.  

Fateh Chand v. Balkishan Dass, AIR 1963 SC 1405 (Constitution Bench)                      Out of Earnest Money-  only ‘Reasonable Amount’ liable to be forfeited.

Facts : Agreement for sale of certain land/house for Rs. 1,12,500. Rs. 1000 was payable as earnest money and Rs. 24,000 on delivery of possession. These payments were made and buyer was put in possession. Agreement further provided that if buyer failed to pay the balance price and get sale deed registered, sum of Rs. 25,000/- would stand forfeited. Buyer defaulted.

Held : The court allowed forfeiture of Rs. 1000 in the facts of the case, as the same was found to be reasonable, but conclusively held that only such amount is liable to be forfeited as is found to be reasonable.

Chunilal V. Mehta & Sons Ltd. V. Century Spg and Mfg. Co. Ltd. (1962 Supp (3) SCR 549)

‘By providing for compensation in express terms (S.74) the right to claim damages under the general law (S.73) is necessarily excluded.’

Facts :

  • Agreement for appointment of managing agents.
  • Remuneration Rs. 6000 per month or 10 % of gross profits of a year, whichever was more.
  • In the event of premature termination, their compensation not less than Rs. 6000 per month for the whole of the unexpired period. 
  • They were removed before the expiry of term and compensation @ 10 % of gross profits for unexpired term was sought.

SC held : the agents were entitled to Rs. 6000 per month as per the contract and not 10 % gross profits. By naming damages, the general application of principles of damages stood excluded.


         WHETHER ACTUAL LOSS NECESSARY ? 

  • Chunilal (supra) first held that  ‘proof of actual loss or damage’ is not necessary, however there should be legal injury as a result of the breach. Proof of some loss is, therefore, necessary.
  • This was reaffirmed by the SC in Maula Bux v. Union of India (1969) 2 SCC 554.

Case Study – Maula Bux v. Union of India (1969) 2 SCC 554.

Facts : A supplied to the government deposited a certain amount of money as security for performance of the contract. Contract breached. Government rescinded the contract and sought to forfeit the entire Security Deposit. The government argued that it is not incumbent on them to prove ‘actual loss or damage’.

Held : The words ‘whether or not actual damage or loss is proved to have been caused thereby’ apply only in those cases where it is not possible to prove monetary value of the loss, and, therefore, value fixed by parties may be taken as a reasonable measure of compensation.

In the present case, loss could be determined. The government having led no evidence to prove : Whether prices paid to alternate source of supply were less or more than the contract price, therefore, the Government was not entitled to any compensation for the breach.

Applying Maula Bux (supra) damages have been declined in a catena of cases where no loss was proved, or infact a profit was made subsequent to the breach of the contract. (See : Ennore Port Ltd v. Hindustan Construction Co Ltd. (2005) 4 Mad LJ 86; State of Orissa v. Calcutta Co Ltd. AIR 1981 Ori 206).

 

Other Points relating to S.74.  

  • Principle of S.74 applicable to amount quoted in consent decrees (Parvati Bai v. Ayodhia Pd. Jain, 1985 MPLJ 703) In this case it was held that a consent decree is a contract and any penalty clause therein can be read down. It went on to the extent of saying that “the executing court shall always have the power to apply equitable principles embodies in Section 74 and relieve a party to a contract against any term in the decree which operates as penalty”

(Ed. Comment : Students of Civil Procedure may want to examine whether such an approach on part of the executing court amounts to going behind the decree, on which there is a specific mandate. Students may also examine as to the role of court passing the consent decree, whether that court should ensure that no penalty/excessive damage clause creeps in the agreement. What would be the brief of the court passing such decree would also be interesting to examine)


 

Whose Burden is it to prove loss, or absence of loss, as the case may be. 

It appears from the decision in Chunilal (supra) that it is for the party claiming damages to prove the quantum of damages.

However, a somewhat discordant note was struck by the SC in ONGC Ltd. V. Saw Pipes Ltd. (2003) 5 SCC 705 wherein the court held that “Burden of Proving that no losses were actually caused to the other party was on the party committing breach. The Court said that it was not necessary for the party to lead evidence to show the amount of loss suffered by it unless the breaching party came to the court and proved that no loss was in-fact caused.

The case involved public utility services and has been a precedent in such cases ever since.

 

Section 74 and Public Contracts – Latest Trends. 

It was also held in ONGC (supra) that in cases relating to public utility, that by itself, could be a ground for compensation, even without proof of actual loss, as in such cases, the damage to the public at large is difficult, if not impossible to quantify and is assumed; it falls now on the party breaching the contract to prove that the clause is in the nature of a ‘penalty’ and no, or less damage actually occasioned.

 In Saw Pipes (supra) the SC has, therefore, contemplated the onus shifting to the defendant to establish the absence of loss/damage and not other way round. It is rightly observed in the said judgment that where the contract in question is one relating to a public utility and for instance the loss/damage to the public on account of delay in due execution, the loss on account of the breach is not amenable to precise quantification and assessment.

The principle laid down in ONGC v. Saw Pipes Ltd. (2003) 5 SCC 705 has been reaffirmed recently by the SC in M/S Construction and Design Services v. DDA (2015) 14 SCC 263 in a case involving public utility/town planning/civic/public amenities contract and lapse in its performance, where amount named in contract was held to be conclusive and binding. This case related to a public utility and had contained an express finding to the effect that the contractor had failed to execute the work (construction of sewerage pumping station) (para 14). It is in this context that the Supreme Court held that if the entire amount stipulated is a genuine pre-estimate of damages, actual loss need not be proved (para 16). The Court further premised this conclusion on a finding that the evidence of precise amount of loss may not be possible.

[Ed. Comment : Upon fair reading of the relevant paragraphs of the judgment passed by the Supreme Court in the case of Construction and Design Services (supra), it is clear that the Supreme Court has retained the power of the court to examine as to what extent the party complaining the breach is entitled to compensation in the event of breach in the contract involving public utility service containing pre-estimated damages and the same is rightly so in view of the provision of Section 74 of the Act]

 However, in cases not involving public amenities, courts have fallen back on the traditional principles of Fateh Chand (supra) and Maula Bux (supra). A recent example is Kailash Nath Associates v. DDA & Anr. (2015) 4 SCC 136 where earnest money paid was held not liable to be forfeited and ordered to be returned with interest, as DDA subsequently auctioned the land to other party at almost 5 times the price, and also because breach on the part of the appellant was not proved. Besides, the court also held that this was a case where bid did not fructify into an actual agreement, and Section 74 of the Contract did not apply at pre-contract stage, therefore, restitution ought to be made and not grant of damages. In this case notably, it was not the case of DDA that it had suffered any damages on account of alleged breach of conditions/non payment by the appellant, infact it had made a killing out of the subsequent auction.

Latest in the Delhi High Court on this :-

A Recent Delhi High Court decision where liquidated damages have been denied on account ‘no loss’ is : Punj Lloyd v. Gail India Ltd. 2016 SCC OnLine Del 2542

A latest judgment by the Delhi High Court on payment of reasonable damages, within the maximum ceiling, on non-proof of fact that contract related to public serves is : ATC Telecom Tower Corporation Pvt Ltd. V. Videocon Communications Ltd. 2016 SCC OnLine Del 5237.

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Law relating to validity of foreign divorce decrees, child-custody orders and principles relating to grant of anti-suit injunctions.  

Introduction

“H (an NRI) is divorced in Texas, and to marry – he is free; 

No, he has a wife in India, Indian Law says, doesn’t he ?,

H is, therefore married and not so, all at the same time; 

perfectly legal at one place; in the second, his act – a crime.”  

This limerick reflects a classic case of conflict of laws. Picture this : H is an NRI & W an Indian woman who get married in Delhi. Soon thereafter, they move to Texas in the United States, where the husband resides and works. They live in Texas for about three years. Unfortunately, relations between the spouses turn sour, constraining H to file a divorce case in Texas Court seeking dissolution of marriage on the grounds of cruelty and irretrievable breakdown of the relationship. W receives the summons from the court, however, instead of participating in the court proceedings, she takes the next flight back-home, to her parental house in Delhi. The court in Texas grants H a decree of divorce on the ground of irretrievable breakdown of marriage, having regard to the fact that the allegations levelled by the husband in his divorce petition had gone un-rebutted.

The question that now arises is : whether the foreign divorce decree holds good in India ? If not, who ought to challenge it, and how ? Will it make a difference if the decree is granted also on the grounds of cruelty ? To complicate matters further, what if H marries another lady (let’s call her W-2) in Texas, six months thereafter. Would he liable for bigamy in India ?

Another situation that may also be visualised is : where H & W have a child out of the wedlock – ‘C’. However, subsequently there is bad blood between the parties and W insists that they part ways. When this proposal is resisted by H, W insists that she would leave for India along with the child, nonetheless. Apprehending that the child may be taken away. H approaches the court in Texas, which passes an order restraining W from taking the child out of the jurisdiction of the court. W, nevertheless, and in defiance of the restraining order, succeeds in going to India along with the child. Now, what remedy does H have ? Would the act of W qualify as ‘child abduction’, thereby entitling the husband to a writ of habeas corpus. Can he seek compliance of the child custody order of Texas Court in India, on the ground of principle of comity of courts ? Or, can the Indian Court embark on a full fledged scrutiny of the matter in order to independently decide the question of ‘welfare of the child’ ?

Let us further assume, for the sake of argument that – H had filed the divorce petition after W had left for India and not before. Whether W on her arrival in India, could have sought an anti-suit injunction in an Indian Court, seeking to restrain H from proceeding with the divorce case in Texas on the ground of lack of jurisdiction with the Texas Court, and her inability in participating in the proceedings? Can an Indian Court restrict a person from prosecuting a lis before a foreign court, if yes, what would be the considerations that will govern the exercise of such a power ?

These are some of the vexed legal questions being posed to Indian courts today, which have assumed significant importance in view of the fact that, in an increasingly globalising world, the Indian diaspora has now spread itself across continents. What compounds the problem is that this geographical migration does not mark a complete cutting of umbilical cord of customs, traditions and practices of their communities and Parties retain their cultural identities and affinities, wherever they go. They also prefer entering into alliances in their own country for a gamut of reasons. The laws prevailing in the countries (to which they subsequently move to) concerning : marriage, divorce, child custody – may or not be in consonance with the Indian Law. This leads to a situation of a proverbial ‘conflict of laws’; the onerous duty of resolving which falls on the Indian Judiciary. Faced with such cases, which are needless to state, extremely commonplace these days, the court has to walk the tightrope between two competing considerations : one one hand –  the principle of due deference to a foreign court order (called the principle of ‘comity of courts’), and on the other hand – court’s allegiance to the domestic law in India and protection of the rights of its people.

This article is an endeavour to use the above illustrations as springboards to initiate an analysis of the knottiest problems of NRI Marriage and Divorce. We’ll try briefly revisiting the first principles of law relating to NRI Marriages, Solemnisation, validity and dissolution, and also the  question of conclusiveness of foreign judgments in India. We shall also touch upon the possible grounds of challenge to foreign judgments, and Procedure thereof. In the last bit we talk about Child Custody issues with a conflict-of-laws element, and finally, the much debated issue of ‘anti-suit injunctions’.

**

Section 1 – NRI MARRIAGES

Provisions relating to solemnisation, registration and validity of marriage, law governing marriage, divorce and ancillary matters. 

What is an NRI Marriage ? 

The word ‘NRI Marriage’, though quite commonplace, is not defined anywhere and is not a legal term. It is commonly used as an broad phrase to connote a marriage between : an Indian, residing in India with another Indian, residing in a country other than India. The Indian residing in another country, may continue to hold Indian Citizenship (in which case, he/she will be an NRI, that is, a Non Resident Indian) or he/she may have acquired citizenship of that country (in which case, he will technically be a PIO, that is – a Person of Indian Origin) or other Indian Expatriates. However, marriages in both these cases are usually bracketed together under the phrase ‘NRI Marriages’.  An overwhelming number of these marriages are arranged marriages; the considerations for entering into such a union may be diverse. Upward social mobility, cultural bond, material aspirations are some of the considerations.

Despite a huge public outcry for a special law governing NRI Marriages, there is no specific legislation in that regard. An NRI Marriage, therefore, may solemnized under either : The Hindu Marriage Act, 1955, The Special Marriage Act, 1954 or The Foreign Marriage Act, 1969 or any other personal law governing the parties.

A personal Law such as the Hindu Marriage Act, 1955, applies not just to Hindus, but also to Buddhist, Jains and Sikhs, residing in India, irrespective of the question whether they are domiciled in India or not. Hindu Marriage Act, 1955 also does not apply to Schedule Tribes and Marriage and Divorce in that regard is governed by their own Customary Laws. However, they can get married and get their marriage registered under the Special Marriage Act, in which case they are governed by the Special Civil Code.

With respect to residence of the parties, the Kerala High Court has ruled that Hindu Marriage Act, 1955 applies to all Hindus even if they reside in different parts outside India. However, both parties must be Hindu by religion in any of its forms and they satisfy the conditions and have performed the ceremonies provided in the Hindu Marriage Act, 1955. There can be no denial by local authorities to register marriages under Hindu Marriage Act, 1955 between Hindus having foreign domicile who have solemnised marriages under Hindu Marriage Act, 1955. Therefore, an NRI can get married to an spouse domiciled in India, or two NRIs can also get married in India as per the Hindu Marriage Act.

The Hindu Marriage Act, 1955 permits solemnisation of marriage of two Hindus, who are citizens of India. Here, the marriage is solemnised as per traditional Hindu Rites and Ceremonies and performance of those ceremonies gives the marriage what can be termed ‘Legal Sanctity’. As opposed to this, Special Marriage Act, 1954 is a completely secular law, permitting a civil marriage. A marriage is totally devoid of religious trappings and is akin to a civil contract. No religious ceremony is prescribed. The marriage is performed in the office of the Registrar of Marriages. The designated officer administers the marriage vows to the couple. After this, the couple along with the three witnesses, has to sign-in the register of marriages maintained by the Registrar. The relevant page in the register will also be counter signed by the officiating authority and will bear the seal of the sub-registrar of marriage of that district. The extract from this register is usually issued to the parties and is titled as a ‘Marriage Certificate’ which bears the seal of the officiating authority. Under this Act, “any two persons “ may marry, irrespective of caste, religion or even nationality. Even two foreigners may marry under this Act.   Historically, the Special Marriage Act, 1954 was enacted as a prelude to a future common civil code. The parties by their consent could opt for the application of the Special Marriage Act and be governed by the secular law. It was aimed that such a law will encourage inter-caste/inter-religious unions, and thereby strengthen the bond of fraternity.

The Special Marriage Act also allows registration under the Act, of any marriage performed under any other form, law upon fulfilment of certain conditions. After the registration, all the provisions of the act will become applicable to such parties and they will no longer be governed by their special laws.

However, the Act provides for a mandatory waiting period of one month. This makes the process tedious for couples looking to marry in a hurry. This eventually constrains the parties to marry under the Hindu Marriage Act (usually a no frills wedding at an Arya Samaj Temple) and registering their marriages immediately as the Hindu Marriage Act does not envisage any notice period requirement.

With respect to non Indians, The Foreign Marriage Act, 1969 is a specific legislation which is applicable to a Marriage of an Indian Citizen to a Non Indian solemnised abroad. This act stipulates that marriages, where one of the parties is an Indian Citizen and the other is a non Indian, would be governed by the provisions of the Special Marriage Act, 1954. In a nutshell, The Foreign Marriage Act, 1969 provides that a Marriage performed outside India will be regarded as correct and valid provided it is performed in accordance with the law of the country where the marriage was performed. The test of formal validity of the marriage in such cases is, therefore lex loci celebrationis.  That is to say, ‘Law of the land where the marriage was celebrated’

Registration of marriage 

Once the marriage is solemnised, the next question that crops up relates to ‘Registration’. A marriage between two Hindus, may be registered under Hindu Marriage Act, or the Special Marriage Act. In the latter, there is a notice process, whereby objections are invited to the marriage from people at large, before the Certificate of marriage is granted, while in the former, this period is not insisted upon.  However, if one of the spouses is a foreigner and not a Hindu by religion at the time of marriage ceremony, they will have to get their marriage compulsorily registered under Special Marriage Act, 1954.

Broadly under the Muslim, Christian and Parsi religions, the provisions of registration are more entrenched. The essential prerequisites for marriage and registration are laid down clearly. Under laws governing Christians and Parsis, as well as Special Marriage Act, formalities for the solemnisation of a marriage are strictly laid down and the priest is to provide a certificate of registration or alternatively, the marriage has to be registered with the Registrar of Births, Deaths and Marriages.

In contrast to this, Hindu Marriages, are based on different practices which are not uniform and thus not entrenched with clarity.

In India there is no umbrella legislation making registration of marriages an essential condition. The Supreme Court in Seema v. Ashwani Kumar has held : that all marriages shall be compulsorily registered and that the State Governments shall initiate action for rule-making in this regard. However, on the ground level there is a huge diversity of legislations and localised practices. The Law Commission of India in its 211th Report has recommended enactment of a “Marriage and Divorce Registration Act” to be made applicable in the whole of India and to all citizens irrespective of their religion and personal law and without any exceptions or exemptions, however there is great legislative apathy in this regard and the law has not been enacted. It goes without saying that a compulsory marriage registration legislation will rule out dishonest denials of marriage and will go a long way to protect the rights of spouses.

Hindu law

S. 8 of the Hindu Marriage Act merely provides for registration of an already solemnised marriage. Therefore, the act of registration is not entrenched within the solemnisation. Unlike, the Special Marriage Act, it does not provide for marriage through a civil authority. Registration comes after the marriage has been solemnised and is complete. The parties may appear before the Registrar within one month of marriage, or even thereafter, with an application for condonation of delay.  Parties appear before the Registrar along with parents/guardians or other winesses.

For registration of the marriage, the marriage ought to be valid marriage as per the conditions laid down in Section 7 of the Hindu Marriage Act. Section 7 states that a Hindu Marriage may be solemnised in accordance with the Customary Rites and Ceremonies of either party thereto.  A hindu marriage in order to be valid does not mandatorily require witnesses. The essence of validity of the marriage is the rites and ceremonies. This usually connotes ‘Saptapadi’. The word, Saptapadi means “Seven steps”. After tying the Mangalsutra, the newly wed couple take seven steps around the holy fire, that is called Saptapadi. This is usually held to be the core ceremonies, unless parties peculiar customs provide otherwise. In a number of cases it has been held that a mere exchange of garlands or putting vermillion on the head of the bride, is not sufficient to constitute a valid marriage.

As per the clear provisions of Section 8(5) The non registration of marriage does not detract from the validity of the marriage in any way, although may have implications in terms of fine etc.

If the marriage is solemnised in India under any of these laws, the question of Validity of the marriage, Divorce, Maintenance, Child Custody, Spousal Property matters are regulated by that law only, under which the marriage took place, regardless of the fact, that the parties may choose settle abroad in any part of the world, thereafter. Therefore, an Indian takes the Personal Law with him/her, wherever she chooses to go and settle.

Foreign Courts may also exercise jurisdiction over these subjects. However, their laws may be not be in consonance with the Indian Laws. This results in a situation of conflict of different legal regimes. Questions as to recognition and validity of foreign court decisions arise; These questions are resolved through what are known as ‘rules of private international law’. There is no comprehensive codified body of Private International Rules in India and the applicable rules are spread over various acts such as Hindu Marriage Act, Special Marriage, Code of Civil Procedure, Indian Succession Act.   These questions arise mostly in cases of foreign judgments of divorce.

The law relating to foreign judgments. 

Section 13 of the Code of Civil Procedure provides that a judgment of a foreign court is also conclusive in India under  normal circumstances, in a lis between the same parties. This is based on the reasonable jurisprudential principle of res judicata, which places an ‘flogging of a dead horse’ and repeated litigation on the same points. This seeks to prevent wastage of precious judicial time & expense and also to ensure finality and certainty in human relations and commercial transactions.

Foreign Judgments are, therefore, conclusive in Indian Courts regarding any matter directly adjudicated between the same parties. It must be also be flagged that a decree of divorce obtained by a foreign court is not required to be sanctified or legitimised by an Indian Court.

This pays due homage to the principles of comity of courts and the upshot of this is that the courts shed their parochialism and be more internationalist, or atleast, tolerant in their outlook.

Similarly, Section 41 of the Indian Evidence Act, which provides that a final judgment of a competent court in the exercise of matrimonial jurisdiction is conclusive proof that the legal character which it confers or takes away accused or ceased at the time declared in the judgment for that purpose.

There are, however, certain exceptions to this general principle, where  a foreign judgment is not taken to be conclusive and may not be recognised by the Indian Law. Such exceptions are laid down in the six clauses (a) to (f) of Section 13 :

In a nutshell, In the following six cases, a foreign judgment will not be considered conclusive:

(1) Foreign judgment not by a competent court;

(2) Foreign judgment not on merits;

(3) Foreign judgment against International or Indian Law;

(4) Foreign judgment opposed to natural justice;

(5) Foreign judgment obtained by fraud; and

(6) Foreign judgment founded on a breach of Indian Law.

Let us touch upon them briefly :-

(1) Foreign judgment not by a competent court

It is a fundamental principle of law that the judgment or order passed by the court which has no jurisdiction is null and void. Thus, a judgment of a foreign court, in order to be conclusive between the parties, must be  a judgment pronounced by a court of competent jurisdiction. Such judgment must be by a court competent both by the law of the State which has constituted it and in an international sense and it must have directly adjudicated upon the “matter” which is pleaded as res judicata.

As to which courts can entertain a petition relating to matrimonial cases, is governed by personal law applicable according to the religion between the parties. For e.g. : A hindu couple, whose marriage is solemnised as per Hindu Rites and Ceremonies, would be governed by the Hindu Marriage Act, 1955 [for short ‘HMA’].  Section 18 of HMA provides that three courts shall have jurisdiction to deal with a matrimonial matter :- the courts of the place where the couple got married, last resided together as husband and wife and where the woman resides.  However, there are certain exceptions to this, but more on that afterwards.

The leading authority on this point is Y. Narmismha Rao v. Venkat Lakshmi, whereA’ a husband obtained a decree of divorce against B (wife) from an American court on the ground that he was a resident of America. Thereafter, he remarried with a woman ‘C’. B filed a criminal complaint against A and C for bigamy back home in India. A and C filed an application for discharge. Dismissing the application, the Supreme Court held that the decree of dissolution of marriage was passed by a court without jurisdiction inasmuch as, neither the marriage was solemnised nor the parties last resided together in America, therefore the american court had no jurisdiction to grant the divorce as per Indian Law. The Foreign Divorce Decree was not  held invalid in Indian Law on ground of lack of jurisdiction.

The court in this case went on to hold that the jurisdiction assumed by the foreign court as well as the grounds on which the relief is granted must be in accordance with the matrimonial law under the parties are married. The court also recognised certain exceptions to this principle :-

  1. where the matrimonial action is filed in the forum where the respondent is domiciled or habitually or permanently resides and the relief is granted on a ground available in the matrimonial law under which the parties are married;
  2. where the respondent voluntarily and effectively submits to the jurisdiction of the forum and contests the claim which is based on a ground available under the matrimonial law under which the parties are married;
  3. Where the respondent consents to the grant of the relief although the jurisdiction of the forum is not in accordance with the provisions of the matrimonial law of the parties.

Therefore, there are situations where a court may be vested with jurisdiction if the parties submits to the jurisdiction of the court. Such conduct is taken as ‘acquiescence’ and springs out of the principle that a person subjecting himself to the jurisdiction of a court willingly, cannot turn back and challenge the decision on jurisdictional grounds, if the decision happens to go against him or her.

(2) Foreign judgment not on merits

In order to operate as res judicata, a foreign judgment must have been given on merits of the case.  Merit is the inherent goodness of truthfulness of a case. A judgment is said to have been given on merits when the same has been passed, after enquiring into the truth or falsity of the plaintiff’s case, the judge decides the case one way or the other. Thus, when the suit is dismissed for default of appearance of the plaintiff; or for non-production of the document by the plaintiff even before the written statement was filed by the defendant, or where the decree was passed in consequence of default of defendant in furnishing security, or after refusing leave to defend, such judgments are not on merits. It need not be gainsaid, that a petitioner ought not to become entitled to something, which he otherwise would not, merely because there is no opposition. For a decision to be on merits, the court is duty bound to examine the petitioner’s case within itself. However, at the time time, the mere fact of a decree being ex parte will not necessarily justify a finding that it was not on merits.

The acid test for deciding whether the judgment has been given on merits or not is to see whether it was merely formally passed as a matter of course, or by way of penalty for any conduct of the defendants, or is based upon a consideration of the truth or falsity of the plaintiff’s claim, notwithstanding the fact that the evidence was led by him in the absence of the defendant. In the latter case, the judgment can be said to be on merits and conclusive on the fact being agitated.

Most matrimonial cases, where the conflict of law situation arises is where one of the spouses leaves jurisdiction of the foreign court on receipt of summons/motion for appearance. Whether in such cases, the judgment is on merits or not, would depend essentially on the question as to whether the foreign court in its order considered the veracity of the petitioner’s case or not.

(3) Foreign judgment delivered in contravention of principles of International or Indian law

A judgment based upon an incorrect view of international law or a refusal to recognise the law of India where such law is applicable  is not conclusive. But the mistake must be apparent on the face of the proceedings.  Most judgments in matrimonial cases are hit by the mischief of this clause. Most indian laws permit the party to seek divorce on the ground of cruelty, adultery, desertion etc. However, irretrievable breakdown is not recognised as a ground for divorce by itself. Since many countries such as US, Europe, Australia recognise irretrievable breakdown as ground for divorce. Divorce under this ground, also known as ‘no fault divorce’ is the most commonly invoked ground for divorce, in view of the difficulty in proving a divorce based on fault. This is a situation where the conflict of law takes place.

The case of Anoop Beniwal v. Jagbir Singh Beniwal65 is illustrative in this regard, it relates to a matrimonial dispute between the parties leading to a divorce case being filed by the husband in England on the basis of the English Act, that is the Matrimonial Causes Act, 1973. The particular ground under which the suit was filed was “that the respondent has behaved in such a way that the petitioner cannot reasonably be expected to live with the respondent.” This ground is covered by S. 1(1)(2)(b) of the Matrimonial Causes Act, 1973 (i.e the english law). The decree was obtained in England and came to India for enforcement thereafter. The respondent/wife claimed that since the decree was based on the English Act, there was refusal by the English Court to recognise the Indian Law. However, the court negatived her contentions and held that under the Indian Hindu Marriage Act under S. 13(1)(ia), there is a similar ground which is “cruelty” on which the divorce may be granted. Therefore the English Act, only used a milder expression for the same ground and therefore there was no refusal to recognise the law of India. Thus the decree was enforceable in India.

(4) Foreign judgment in violation of principles of Natural Justice. 

It is the essence of a judgment of a court that it must be obtained after due observance of the judicial process, i.e., the court rendering the judgment must observe the minimum requirements of natural justice- it must be composed of impartial persons, act fairly, without bias, and in good faith; it must give reasonable notice to the parties to the dispute and afford each party adequate opportunity of presenting his case.

Thus, a judgment given without notice of the suit to the defendant or without affording a reasonable opportunity of representing his case is opposed to natural justice. Similarly, a judgment against a party not properly represented in the proceedings or where the judge was biased is contrary to natural justice and, therefore, does not operate as res judicata.

But the expression”natural justice” in clause (d) of Section 13 relates to the irregularities in procedure rather than to the merits of the case. A foreign judgment of a competent court, therefore, is conclusive even it is proceeds on an erroneous view of the evidence or the law, if the minimum requirements of the judicial process are assured; correctness of the judgment in law or on evidence is not predicated as condition for recognition of its conclusiveness by the municipal court. Thus, a foreign judgment is not open to attack on the ground that the law of domicile had not been properly applied in deciding the validity of adoption or that the court disagrees with the conclusion of the  foreign court, if otherwise the principles of natural justice have been complied with.

In the context of matrimonial cases, it is not sufficient to merely aver that the defendant was served, it must also be demonstrated that the respondent/defendant was in a position to appear and participate effectively in the proceedings and put up a contest, and if the respondent is not in a position to do so, for financial reasons, arrangements must be made to enable her to do so, so as to ensure an adequate opportunity.

(5) Foreign judgment obtained by fraud

It has been said, “Fraud and justice never dwell together” (Fraus et jus nunquam cohabitant);  or “Fraud and deceit ought to benefit none” (fraus et dolus nemini patrocinari debent).

Lord Denning observed, “No judgment of a court, no order of a Minister, can be allowed to stand, it it has been obtained by fraud.” Cheshire rightly states, “It is firmly established that a foreign judgment is impeachable for fraud in the sense that upon proof of fraud it cannot be enforced by action in England.” All judgment whether pronounced by domestic or foreign courts are void of obtained by fraud, for fraud vitiates the most solemn proceeding of a court of justice.

Explaining the nature of fraud, de Grey, C.J. stated that though a judgment would be res judicata and not impeachable from within, it  might be impeachable from without. In other words, though it is not permissible to show that the court was “mistaken”, it might be shown that it was “misled”. There is an essential distinction between mistake and trickery. The clear implication of the distinction is that an action to set aside a judgment can not be brought on the ground that is has been decided wrongly, namely, that on the merits, the decision was one which should not have been rendered, but it can be set aside if the court was imposed upon or tricked into giving the judgment.

In A.V. Papayya Sastry v. Govt. of A.P., the Supreme Court observed: Fraud may be defined as an act of deliberate deception with the design of securing some unfair or undeserved benefit by taking undue advantage of another. In fraud one gains at the cost of another. Even most solemn proceedings stand vitiated if they are actuated by fraud. Fraud is thus an extrinsic collateral act which vitiates all judicial acts, whether in rem or in personam. The principle of ‘finality of litigation’ cannot be stretched to the extend of an absurdity that it can be utilised as an engine of oppression by dishonest and fraudulent litigants.”

In the leading case of Satya v. Teja Singh, a husband obtained a decree of divorce against his wife from an American court averring that he was domiciled in America. Observing that the husband was not a bona fide resident   or domicile of America, and he had played fraud on a foreign court falsely representing to it incorrect jurisdictional fact, the Supreme Court held that the decree was without jurisdiction and a nullity.

The fraud may be either fraud on the part of the party invalidating a foreign judgment in whose favour the judgment is given or fraud on the court pronouncing the judgment. Such fraud, however, should not be merely constructive, but must be actual fraud consisting of representations designed and intended to mislead; a mere concealment of fact is not sufficient to avoid a foreign judgment.

(6) Foreign judgment founded on breach of Indian law

Where a foreign judgment is founded on a breach of any law in force in India, it would not be enforced in India. The rules of Private International Law cannot be adopted mechanically and blindly. Every case which comes before an Indian court must be decided in accordance with Indian law. It is implicit that the foreign law must not offend our public policy.

Thus, a foreign judgment for a gaming debt or on a claim which is barred under the Law of Limitation in India is not conclusive. Similarly, a decree for divorce passed by a foreign court cannot be confirmed by an Indian court if under the Indian law the marriage is indissoluble.

It is implicit that the foreign law and foreign judgment would not be offend against our public policy.

In the case of Neeraja Saraph v. Jayant Saraph (1994) 6 SCC 461. R.M.Sahai, K. of the SC, in action brought before the court by a deserted wife of a NRI husband for maintenance, made a three-fold recommendation addressed to the legislature for its thoughtful consideration which partake the character of ratio. They are :-

  1. No marriage between an NRI and an Indian woman which has taken place in India may be annulled by a foreign court [emphasis added];
  2. provision may be made for adequate alimony to the wife in the property of the husband both in India and abroad; and
  3. the decree granted by Indian Courts may be made executable in foreign courts, both on principle of comity and by entering into reciprocal agreements like Section 44-A of the CPC which makes a foreign decree executable, as it would have been a decree passed by that court.

PRESUMPTION AS TO FOREIGN JUDGMENT : SECTION 14

Section 14 of the Code declares that the court shall presume, upon the production of any document purporting to be a certified copy of a foreign judgment, that such judgment was pronounced by a court of foreign judgment, that such judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on the record, or is proved. However, if for admissibility of such copy any further condition is required to be fulfilled, it can be admitted in evidence only if that condition is satisfied.

Thus, in Narasimha Rao v. Venkata Lakshmi (1991) 3 SCC 451 at pp.463-64), The Supreme Court held that mere production of a photostat copy of a decree of a foreign court is not sufficient. It is required to be certified by a representative of the Central Government in America as per Section 86 of the Evidence Act.

SUBMISSION TO JURISDICTION OF FOREIGN COURT

It is well-established that one of the principles on which foreign courts are recognised to be internationally competent is voluntary submission of the party to the jurisdiction of such foreign court. The reason behind this principle is that having taken a chance of judgment in his favour by submitting to the jurisdiction of the court, it is not open to the party to turn round when the judgment is against him and to contend that the court had no jurisdiction.

Submission to jurisdiction of a foreign court may be express or implied. Whether the defendant has or has not submitted to the jurisdiction of a foreign court is a question of fact which must be decided in the light of the facts and circumstances of each case.

ENFORCEMENT OF FOREIGN JUDGMENT

A foreign judgment which is conclusive under Section 13 of the Code can be enforced in India in the following ways:

(1) By instituting a suit on such foreign judgment, or

(2) By instituting execution proceedings.

(1) Suit on foreign judgment

A foreign judgment may be enforced by instituting a suit on such foreign judgment. The general principle of law is that any decision by a foreign court, tribunal or quasi-judicial is not enforceable in a country unless such decision is embodied in a decree of a court of that country. In such suit , the court cannot go into the merits of the original claim and it shall be conclusive as to any matter thereby directly adjudicated upon between the same parties. Such a suit must be filed within a period of three years from the date of judgment.

(2) Execution proceeding

A foreign judgment may also be enforced by proceedings in execution in certain specified cases mentioned in Section 44-A of the Code. The said section provides that where a certified copy of a decree of any of the superior courts of any reciprocating territory has been filed in a a District Court, the decree may be executed in India as if it had been passed by the District Court. When a foreign judgment is sought to be executed under Section 44-A, it will be open to the judgment-debtor to take all objections which would have been open to him under Section 13 if a suit had been filed on such judgment. The fact that out of six exceptions there has been due compliance with some of the conditions and there has been no violation of some of the exceptions is of no avail. The decree can be executed under Section 44-A only if all the conditions of Section 13(a) to (f) are satisfied.

CHILD CUSTODY AND FOREIGN JUDGMENTS

In Ruchi Majoo v. Sanjeev Majoo – The court held that repatriation of child on the principle of comity of courts is not always desirable; It was reiterated that the primary consideration is the welfare of minor – Father not seriously grudging mother getting custody of minor but wanting them to return to USA, and father having contracted a second marriage – On father’s allegation, Court in USA framing charges of abduction against mother – District Court, Delhi granting custody of minor to mother – Child being happy with his studies and surroundings in Delhi where he had been living for three years – Child being unhappy with his father’s attitude – Mother not wanting to go back to USA because of alleged past traumatic experience –

Held, repatriation of minor to USA, on principle of “comity of courts” does not appear to be an acceptable option worthy of being exercised at this stage – Interest and welfare of the minor being paramount, a competent court in India is entitled and indeed duty-bound to examine the matter independently, taking the foreign judgment, if any, only as an input for its final adjudication – Respondent’s case that the minor was removed from jurisdiction of American courts in contravention of orders passed by them, is not factually correct – Order by American Court was passed after father had sent his child to Delhi.  (Courtesy SCC)

Hence in this case the court did not accept the foreign court’s order concerning child custody as conclusive and binding.

However, in another case, the balance tilted the other side and the court considered the custody order conclusive –

In Surya Vadanan versus State of T.N & Order (2015), A Supreme Court Bench comprising of Justice M.B. Lokur and Justice U.U. Lalit has held that in a case where there is a pre-existing order of a foreign court of competent jurisdiction to decide whether a child should be repatriated to the foreign country and the domestic court decides to conduct an elaborate inquiry (as against a summary inquiry), it must have special reasons to do so.  The husband in this case was a citizen and resident of U.K. while the wife is a resident and citizen of India. Four years after the marriage, the wife acquired British citizenship and a British passport. They bore 2 daughters out of the wedlock. After experiencing matrimonial problems, the wife returned to India with the daughters and filed a petition under Section 13(1) (i-a) of the Hindu Marriage Act, seeking divorce. An application for custody was also filed by the wife. Subsequently, the husband decided to initiate legal action and petitioned the High Court of Justice in U.K. for making the children as wards of the court. It seems that along with this petition, he also annexed documents to indicate (i) that he had paid the fees of the children for a private school in U.K. with the intention that the children would continue their studies in U.K. (ii) that the children had left the school without information that perhaps they would not be returning to continue their studies. On 13th November, 2012 the High Court of Justice passed an order making the children wards of the court “during their minority or until such time as this provision of this order is varied or alternatively discharged by the further order of the court” and requiring the wife to return the children to the jurisdiction of the foreign court. Another order was passed by the foreign Court, renewing its request to the administrative authorities of the British Government in India and the judicial and administrative authorities in India for assistance for repatriation of the wards of the court to England and Wales, the country of their habitual residence. A Writ of habeas corpus was rejected by the Madras High Court. The Madras High Court, in its decision, took the view that the welfare of the children (and not the legal right of either of the parties) was of paramount importance. On facts, the High Court was of opinion that since the children were in the custody of the mother and she was their legal guardian, it could not be said that the custody was illegal in any manner.

The Court was concerned with two principles in the present matter. They are (i) The principle of comity of courts and (ii) The principle of the best interests and the welfare of the child. These principles have been referred to “contrasting principles of law” but the Court noted that they are not ‘contrasting’ in the sense of one being the opposite of the other but they are contrasting in the sense of being different principles that need to be applied in the facts of a given case.

The Court then went on to observe that the “most intimate contact” doctrine and the “closest concern” doctrine of Surinder Kaur Sandhu v. Harbax Singh Sandhu, (1984) 3 SCC 698 are very much alive and cannot be ignored only because their application might be uncomfortable in certain situations. According to the Court, it is not appropriate that a domestic court having much less intimate contact with a child and having much less close concern with a child and his or her parents (as against a foreign court in a given case) should take upon itself the onerous task of determining the best interests and welfare of the child. A foreign court having the most intimate contact and the closest concern with the child would be better equipped and perhaps best suited to appreciate the social and cultural milieu in which the child has been brought up rather than a domestic court. This is a factor that must be kept in mind. It also stated that there is no reason why the principle of “comity of Courts” should be jettisoned, except for special and compelling reasons. The Court hence observed, “No doubt we expect foreign courts to respect the orders passed by courts in India and so there is no justifiable reason why domestic courts should not reciprocate and respect orders passed by foreign courts.” “If the reluctance to grant respect to an interim or an interlocutory order is extrapolated into the domestic sphere, there may well be situations where a Family Court in one State declines to respect an interim or an interlocutory order of a Family Court in another State on the ground of best interests and welfare of the child,” it added. The Court also stated that there may be situations where an interim or an interlocutory order of a foreign court may be ignored. What needs to be considered is to determine, prima facie, that the foreign court has jurisdiction over the child whose custody is in dispute, based on the fact of the child being ordinarily resident in the territory over which the foreign court exercises jurisdiction. The Court further added a word of caution, stating that since there is no finality to an interlocutory order, it would merely have a persuasive value for a penalizing result. The Court hence directed that the mother should take the children to UK in their summer vacations and comply with the order of the foreign Court. The cost of litigation would be borne by the husband. In case the mother does not comply with the Court’s orders, the father was directed to take the children to U.K. for further proceedings in the High Court of Justice.

Comment : It is therefore clear that the diverging viewpoints, and the law in this regard is still evolving. 

ANTI SUIT INJUNCTIONS IN MATRIMONIAL CASES

Simply put, an anti-suit injunction is a judicial order restraining one party from prosecuting a case in another court outside it’s jurisdiction. Such orders are not passed at the drop of a hat, because they involve a court impinging on the jurisdiction of another court, which is not entertained very easily. The Supreme Court of India in Modi Entertainment Network v WSG Cricket Pte Ltd, held that in exercising discretion to grant an anti-suit injunction, the Court must be satisfied of the following aspects, (a) the defendant, against whom injunction is sought, is amenable to the personal jurisdiction of the Court; (b) if the injunction is declined, the ends of justice will be defeated and injustice will be perpetuated; and (c) the principle of comity- respect for the Court in which commencement or continuance of action or proceeding is sought to be restrained- must be borne in mind.

In Padmini Hindupur vs. Abhijit S. Bellur, The Hon’ble Delhi High Court, granted an anti-suit injunction in favour of the wife against the husband, restraining the husband from prosecuting divorce petition in the foreign court.

On the issue of wife whether to be held entitled to the relief prayed for by her i.e. the grant of an anti suit interim injunction, it was noted that Section 13 of the CPC deals with the recognition of a foreign judgment. It deals with the various alternatives under which a foreign decree may not be recognized by an Indian Court; until and unless, the foreign decree is in conformity with the public policy which is equity and good conscience, such a decree may not been recognized. The provision clearly says that a foreign judgment not been given on merits of the case will not be recognized by the Courts in India. Unless the party after service voluntarily and unconditionally submits himself/herself to the jurisdiction of the Court and contests the claim, or agrees to the passing of the decree with or without submitting to the jurisdiction of the Court it should not be considered to be a decision which was rendered on the merits of the case. The wife as per communication to Court in the USA was always aggrieved by the jurisdiction of the US Court and she had even lodged her protest at the very first opportunity.

However, Court while considering a prayer for grant of an anti-suit injunction has to consider that if the injunction is declined, the ends of justice would be defeated and injustice would be perpetuated. Then, the Court should consider the issue of forum conveniens – in case there is more than one forum available, the Court in the exercise of its discretion while granting an anti-suit injunction will examine as to which is the most appropriate forum (forum conveniens) having regard to the convenience of the parties. The Court may grant anti-suit injunction in regard to proceedings which are oppressive or vexatious or in a forum non-conveniens.

It was further held that the principles governing the grant of anti-suit injunction being essentially an equitable relief, the Courts in India has the powers to issue anti-suit injunction to a party over whom it has personal jurisdiction in an appropriate case because the Courts of equity exercise jurisdiction in personam.

It was accordingly held that the present would be a forum of inconvenience for the wife to submit herself to the US Court. She having lodged her protest in regard to jurisdiction of US Court, there was no suppression or concealment of facts and thus she was entitled to the equitable relief as prayed for. 

**

In another case of Nidhi Prakash versus Rajneesh Verma (2013) Delhi High Court again granted an ex-parte interim anti suit injunction restraining the husband from proceeding with the divorce petition at Texas.

Therefore, it is apparent that though courts are generally loath to grant anti-suit injunctions in purely commercial matters, such injunctions are generally granted in family law cases. However, such an injunction can be resisted on the grounds : of submission to jurisdiction, inequitable conduct, suppression of material facts etc.

It is apparent from this discussion that the law in this field is in a constant state of flux and evolving (or one may say, meandering) each day.

The Author Bharat Chugh is a Delhi based Supreme Court Advocate (working at Luthra and Luthra Law Offices as a Counsel) and has advised litigants and courts the world over in matters involving recognition of foreign decrees in India.  This article is distillate of his lectures given at various points of time at different fora.  Bharat can be reached at bharat.law06@gmail.com

 

Civil Law

Electronic evidence issues including certificate 65B, proof of email, sms, facebook, whatsapp, call details, bank statements in Court.

  • Issues
  • How to prove an email in a court case ?;
  • What is the manner in which a voice/video recording is to be led before the court and proved in evidence ?;
  • How to prove electronically maintained Bank Statements ?;
  • How to prove a Facebook, Twitter post, a WhatsApp message or an SMS ?;
  • The proof of Call Detail Records in a court case ?

These are some questions that the courts are faced today, almost on an everyday basis. The use of computers is all-pervasive now. Almost all data is digital these days and most communication is exchanged electronically through SMS,Email, Whatsapp, Facebook, Twitter etc.   In Civil as well as Criminal Cases, the courts are frequently called upon to rule on whether ‘electronic evidence is admissible or not’. Practice has shown that this is by no means an easy question to answer.

This write-up is an attempt to simplify the complex law relating to admissibility of electronic evidence and to touch briefly upon some of the most pressing issues, as discussed above.

  1. The First principles of law

First, a few words about how the law embraced the IT revolution. The IT Act, 2000 has given sanctity to electronic records and the definition of ‘evidence’ in the Evidence Act, has been expanded to include electronic records. Data in electronic form has to be stored and preserved. An electronic record, simply put, is information/data recorded in an electronic form. Therefore, data recorded on a hard drive, pen drive, CD, DVD, or even the Internet qualifies as ‘electronic record’.  An image file on your pen drive, or a photo clicked on your phone or a WhatsApp message on your phone memory or service provider’s server are all ‘electronic records’.

The original device in such a case which produced the electronic record is ‘primary evidence’. For eg : The sound recorder/CCTV Camera and attached hard disk used to record a video/audio clip are primary evidence of its contents. Another example may be huge servers where data is created and stored. Such servers are what qualifies as ‘primary evidence’. The general rule of law of evidence is that when primary evidence is available, secondary evidence is not admissible. However, the same principle cannot be strictly applied in cases of electronic records. Large Servers/Original devices cannot be expected to be brought before the court in each case. Therefore, secondary evidence in the form of a output such as Printout or soft copy in the form of CD/DVD etc is admissible in a court of law, provided certain conditions are met.

These conditions are laid down with a view to ensure that the secondary evidence is true and accurate representation of the original electronic record and has not been tampered with, in any manner.

  1. What is Section 65B of the Evidence Act ?

Section 65-B of Indian Evidence Act, simply put, lays down the conditions and procedure of proof of an electronic record in a court of law. Section 65B is important insofar as it recognises that the original primary evidence of electronic record cannot be expected to be brought before the court and even if it is, the same being in binary form (Binary is the language that the computer/machine understands – where everything is stored in a string of zeros and ones!) the same cannot be understood by the court.  The net effect of Section 65B is that the output in the form of a printout or data copied on CD/DVD etc produced by the computer is rendered admissible in the court, provided certain conditions are met. This is the import of Section 65B(1).

 

Section 65B(2)  lays down certain conditions relating to integrity of the data. These conditions are there to ensure that :

a) there has been no unauthorised access to the data in question;

b) the computer was functioning properly and therefore the reproduction of data is accurate and genuine.

3. Certificate u/s 65B of the Evidence Act : Who is to issue, and what is that it is supposed to contain ?

The output of a electronic record, in order to be admissible in a court of law, has to be filed along with a certificate u/s 65B(4) of the Evidence Act. Such a certificate has to be issued by a person occupying responsible position with respect to the computer from which the data is produced. The certificate has to certify the conditions laid down in S. 65B(2) relating to integrity of data and computer system; the manner of production of the output of electronic record, identity and particulars of device used (including the original device).  The entire idea behind the certificate is to ensure, once again, integrity of source, authenticity of data, so that the court can place reliance on it. This is important since electronic data is more prone to tampering and alteration.

Questions such as : How the certificate is to be prepared, who is to issue the certificate, and the exact contents of the certificate, will depend on the specific nature of electronic record that is sought to be proved. For instance : A image taken with the mobile phone camera, will be first copied onto the laptop and thereafter printed out. In such a case, the certificate will have to mention the process of transfer and printing so as to prove ‘integrity in the chain of movement’ and will have to be prepared and given by the operator of the mobile phone and the laptop. It has to compulsorily conform to the conditions in S.65B(2) & (4). It has to identify the original mobile phone and the other devices used in preparing the output. In such cases, preserving the original is also extremely necessary. Computer Forensic Experts advise the retention/preservation of the original in a dust/transmission resistant environment, making a clone copy of the contents therein (after using devices such as write-blocker to ensure no data is written onto the device during access and process of copying), and access to the document through the clone/mirror copy only.  Accessing the data on the device itself may make the authenticity/integrity of the document suspect and may make it open to challenge. Taking the ‘Hash Value’ of the device at the time of seizure (Simply put, a Hash Value is a specific string of numbers that each file produces; any change in the file, even a space or a comma, leads to a total change of hash value; this algorithm is used to preserve the document in original shape and ensure no tampering takes place). Taking the hash value at the time of seizure of electronic evidence and thereafter, at the time of evidence before the court convinces the court as to non-tampering with the device. (The different forensic practices used to guarantee evidentiary value, in greater details, will be discussed in a different post of ours).

Things get slightly more complicated when information over the internet is sought to be proved. One view is that the person taking the printout from a website/email – is to give the certificate; the other view is that the person incharge and responsible for the server where the information resides is to give the certificate. The latter option spells great trouble and will render most electronic information extremely difficult to be proved as most servers are located in distant locations, spread over a large geographical area ,under managerial control of different personnel, and most importantly outside the jurisdiction of our courts.

The question on as to who is to issue the certificate is also important, and assumes even greater importance in case of proof of Call Detail Records etc.

By virtue of decision of Delhi High Court in Kundan Singh Vs. The State [MANU/DE/3674/2015], the doctrine of hearsay, in its application to proof of electronic evidence, has been limited a great deal. The court has recognised the fact that in cases of huge information contained across various servers, which is sought to be proved years later, it may not be possible to procure the  evidence/certificate issued by persons incharge of the computer system at that time. In such cases, people who have subsequently taken over charge of such computers can issue certificate u/s 65B Indian Evidence Act.  Evidence in such cases cannot be eschewed merely on the ground of hearsay.  Therefore, what follows is that a person holding a responsible official position in relation to the operation of the relevant device/activities can give a certificate u/s 65B in relation to CCTV Records/CDR Etc.  This flows from the fact that the fact that system was working properly at a relevant time is something that can be gauged from system logs, and is not something that is strictly within personal knowledge of one individual.

Another peculiar situation that may be visualised is when the output of an electronic record is seized from the Accused; for eg, at the time of arrest, the accused is made to take a printout from his email  account; whether in such a case it is the accused who can be made to issue the certificate; and if yes, whether the same amounts to ‘self incrimination’ and resultantly, runs foul of Article 20(3) of the Constitution. Conversely, can one also say that this printout is a ‘fact discovered’ for the purpose of Section 27 of the Evidence Act, and therefore, admissible in evidence even de hors Section 65B of the Evidence Act. The jury is out on this one, and a authoritative decision of the court is awaited. Till then, there are arguments for and against each position.

  1. Is the certificate u/s 65B(4) of Evidence Act mandatory for reception of electronic evidence ? 

In this regard, the earlier view_ was that compliance with S.65B of the Evidence Act is not an absolute requirement of law and Secondary evidence, in terms of Section 65 IEA can still be led in proof of a electronic record. However, the Supreme Court in ANVAR P.V. VS. P.K. BASHEER AND OTHERS [MANU/SC/0834/2014] has ruled that a certificate u/s 65B is compulsory for admission of electronic evidence and over ruled Navjot Sandhu(supra) to that extent. The Court observed that Section 65B of the Evidence Act begins with a ‘non-obstante clause’ and would override the general law on secondary evidence, as laid down under Section 63 and 65 of the Evidence Act. Section 65B is a special provision concerning proof of electronic records. The very caption of S.65A read with S. 59 and 65B is sufficient to hold that the special provisions on evidence relating to electronic record shall be governed by the procedure prescribed u/s 65B of the IEA, 1872. This is a complete code in itself and being a special law, the general law under sections 63 and 65 has to yield. (Generalia specialibus non derogant :  special law will always prevail over the general law.) Therefore, Section 63 and Section 65 of the Evidence Act have no application to the secondary evidence of the electronic evidence and same shall be wholly governed by the Section 65A and 65B of the Evidence Act. No expert evidence/oral evidence can be led in absence of the certificate.  The case concerned proof of video footage relating to an election malpractice matter. The court held that the output in the form of CD/DVD/Pen drive was inadmissible in absence of the certificate; however, if the original recorder/hard drive attached to CCTV is led in evidence, the same can be received even without the certificate as it will be primary evidence itself.   Also see : Kishan Tripathi Vs. The State (MANU/DE/0434/2016), where it was held that Original Hard Disk containing CCTV Footage is a primary evidence u/s 62 EA.

This position has been reaffirmed by the Hon’ble Supreme Court recently in Harpal Singh @ Chhota Vs. State Of Punjab (CRIMINAL APPEAL NO. 2539 OF 2014) Date of Decision : 21.11.2016.

In cases relating to voice/video recording : the absence of tampering, identity of voice (confirmed through ‘voice samples’ taken before the magistrate and subsequent examination through Forensic Labs) is extremely crucial.

Another contentious question in this regard that came up in a series of cases was : whether a witness who is seeking to prove an electronic record can be allowed to depose in the court in his examination in chief as to the conditions of S.65B as sufficient compliance. The answer to this question has to be ‘No’. When the statute demands something to be done in a specific manner, it has to be done in that manner alone and the procedure cannot be circumvented.  Therefore, the requirement of certificate u/s 65B cannot be satisfied by a witness deposing as to these conditions, in the examination in chief. This is the import in the decision of Jagdeo Singh and Ors. Vs. The State (MANU/DE/0376/2015)

 

  1. Proof of SMS 

 In case of proof of SMS, the original handset can be led in evidence as primary evidence. In case of extracted copy of SMS, certificate u/s 65B of the IEA becomes essential. In both these cases, it is of extreme significance to first of all – clone the mobile phone device, take a backup and operate on the backup copy only. Any alteration of data on the mobile phone will seriously undermine the evidentiary value of the SMS.

 

  1. Proof of Email

If the email rests on a web based email facility like gmail/yahoo etc – A printout of the email (alongwith meta data/header information (required u/s 7 of the IT Act) has to be accompanied with a certificate u/s 65B of the Evidence Act, given by the person operating the account and taking the printout.  Section 88A of the Evidence Act also provides for certain presumptions with respect to receipt of emails, which may be useful in proof of email correspondences.

In case of server based emails, the certificate ought to come from the incharge of the computer servers.

In all these cases, the preservation of what is called ‘meta-data’ is extremely crucial. Simply put, meta data is data about data and contains information relating to date/time/origin/authenticity/access date of the data, which goes on to strengthen, or destroy its evidentiary or believability quotient. (More on this on our piece of digital forensics!)

There might be one more provision that may become important insofar as emails are concerned :-

Section 88A – Presumption as to Electronic Messages. It reads :

The Court may presume that an electronic message, forwarded by the originator through an electronic mail server to the addressee to whom the message purports to be addressed corresponds with the message as fed into his computer for transmission; but the Court shall not make any presumption as to the person by whom such message was sent.” .

Simply put, the presumption in this section is to the effect that data sent by email from X computer corresponds to data received at Y computer. The court may not draw the presumption, or the same may be rebutted, being a rebuttable presumption of fact. Besides this, there is no presumption as to the identity of the sender as the section makes clear.

In addition to this, under section 65B it has to be proved that the computer during the relevant period was in the lawful control of the person proving the email [Babu Ram Aggarwal & Anr. Vs. Krishan Kumar Bhatnagar & Ors. 2013 IIAD (Delhi) 441].

In Abdul Rahaman Kunji Vs. The State of West Bengal [MANU/WB/0828/2014] the Hon’ble High Court of Calcutta while deciding the admissibility of email held that an email downloaded and printed from the email account of the person can be proved by virtue of Section 65B r/w Section 88A of Evidence Act. The testimony of the witness to carry out such procedure to download and print the same is sufficient to prove the electronic communication.

  1. Proof of Bank Statements, whether compliance of S.65B essential ?
  • This is governed by a special law. As per the Bankers Book Evidence Act, (Sec 2A of BBEA), the following three certificates are required to prove a bank statement :-
    • A certificate regarding authenticity of entry/printout by the principal accountant or branch manager.
    • Authenticity certificate from person in-charge of computer system regarding:-
  • Details of Computer System
  • Process of Data Storage
  • Safeguard to protect Computer System and Data
  • the fact that such computer system operated properly at the material time, he was provided with all the relevant data and the printout in question.

 

  1. Whether a certificate u/s 65B conclusively proves the facts contained in the electronic record and amounts to truth ? 

The answer has to be a resounding ‘No’. S.65B deals with conditions precedent for admission of the electronic evidence. Compliance of S.65B Evidence Act allows the court to read the document. The court still has to examine relevancy, genuineness, veracity and reliability of the document. The probative worth, that is to say, whether the document has an actual bearing on the case or not or how much weight is to be attached to it, is also to be examined independently.

  1. Whether a Certificate u/s 65B of the Evidence Act has to be mandatorily filed along with the printout/CD, or can the same be filed subsequently as well? 

The earlier view was that the certificate had to be filed alongside the print of electronic record, and not thereafter. However, after the Delhi High Court Judgment in Kundan Singh Vs. The State [MANU/DE/3674/2015], the position in law has been clarified : A certificate u/s 65B can be filed even thereafter, and need not be filed alongside. The witness who had tendered the electronic record in evidence can be recalled u/s 311 of the CrPC for the purpose of producing the certificate. The underlying basis of this view is that initial lapse on the part of the party should not detain the court from having the required evidence before it, which will assist the court in discovery of the truth. The court shall seek all evidence before it which is essential for a just decision of the case. All endeavour is to be made to decide the case on merits, rather than exclude what may be important evidence on technical considerations.

What follows is that the certificate can be filed even after filing of chargesheet, and can form part of a supplementary chargesheet u/s 173(8) of the CrPC.

Even the Rajasthan High Court in Paras Jain and Ors. Vs. State of Rajasthan, [MANU/RH/1150/2015] has held that : non filing of certificate u/s 65B Evidence Act is not an incurable  irregularity and can be rectified later on.

  1. Whether an objection as to non compliance of S.65B of the Evidence Act can be waived or conceded ?
  • Though there is no direct decision on this point, but if the opposite party admits a printout/CD/DVD etc and does not dispute it, in such a situation, admission acts as waiver of proof and compliance of S.65B IEA to prove the same is not required. An objection as to mode of proof can be waived if not taken at the appropriate stage. Shamsher Singh Verma Vs. State of Haryana [MANU/SC/1345/2015]
  • Conclusion

Law relating to proof of electronic evidence is in a state of huge flux in view of rapid technological advancements. The law is struggling to keep pace with them. Some questions relating to time of filing of certificate have been answered, while some relating to the authorship of the certificate are still to be worked on and authoritative precedent on these points is required.

*The Author is a Delhi based lawyer and has advised and fought many electronic evidence/cyber crime issues, across India and can be reached at bharat.law06@gmail.com 

Civil Law · Criminal Justice System · Uncategorized

Issues relating to Electronic Evidence – Admissibility, Section 65B certificate and other frequently asked questions.

Issues relating to Electronic Evidence

  1. What is an Electronic Record ?
  2. Types of Electronic Records.
  3. Is an Electronic Record a ‘document’ ?
  4. Is a ’Hard Drive’ a document ?
    • Admissibility of Hard Disk
  5. Proof of Electronic Record.
  6. Section 65B of the Evidence Act
  7. Effect of use of Non Obstante Clause in S.65B(1);
  8. Conditions : Section 65B(2) (a) & (c) related to computer’s integrity;
  9. What if Computer Malfunctions ?
  10. Conditions in Section 65B(2) (b) & (d) relating to the informational ‘chain of integrity’;
  11. Section 65B(4) Certificate
  12. Whether Mandatory ?
  13. Oral Testimony as to S.65B – whether sufficient compliance of Section 65B(4) ?
  14. Who is to file the certificate ?
  15. Stage of filing – Can the certificate u/s 65B(4) be received at a later stage, that is to say, after filing of the electronic evidence on record in the form of an output ?
  16. Whether judicial admission by the opposite party as to the electronic record dispenses with formal proof and compliance of Section 65B of the IEA ?
  17. E-Contract – territorial jurisdiction;
  18. Challenging issues in interface with Criminal Law.

 

  1. What is an Electronic Record ?

2(t) of the IT Act “Electronic Record” means Data, Record or Data Generated, Image or Sound Stored, Received or Sent in an Electronic Form or Micro Film or Computer Generated Micro fiche;

 

  1. Types of Electronic Record.

Pen Drive, CD, DVD, Whatsapp message, email, SMS, Video, image file etc.

 

  1. Electronic Records as ‘documents’ for the purpose of Evidence Act.

Section 3 of Indian Evidence Act.

“Evidence” – ‘Evidence’ means and includes—

(1) all statements which the Court permits or requires to be made before it by witnesses, in relation to matters of fact under inquiry;

Such statements are called oral evidence

(2) all documents including electronic records produced for the inspection of the Court;

such documents are called documentary evidence.

 

  1. Whether a ‘Hard Disk’ is a document ?

Answer is Yes.

Dharmabir Vs. CBI  (2008) DHC  –

  • New Hard Disk (blank slate) is merely a storage device.
  • Hard Disk once data/information is written on it, becomes a electronic record. (S.2(t) of the IT Act)
  • From Electronic Record to document (S.3 IEA)
  • Two Levels of Electronic Record : Active memory & Subcutaneous memory;
  • Accused entitled to both.
  • Right of the accused under sections 207 (v) and 173(5)(a) of the Cr.P.C.

 

  1. Proof of Electronic Record : Primary – Secondary
  2. Primary Evidence – (eg : Original Device/Electronic Record)  directly admissible u/s 62 of the IEA. (Kishan Tripathi Vs. The State, Delhi High Court 2016 held : Original Hard Disk containing CCTV Footage = primary evidence u/s 62 IEA
  3. Secondary Evidence (Output) Admissible u/s 65B of the IEA.

 

  1. CONDITIONS AS TO ADMISSIBILITY OF ELECTRONIC EVIDENCE IN COURT

 

Section 65B(1)

Notwithstanding anything contained in this Act, any information contained in an electronic record

  • which is printed on a paper;
  • stored, recorded or copied in optical or magnetic media produced by a computer
  • shall be deemed to be also a document, if the conditions mentioned in this section are satisfied.
    • in relation to the information and
    • computer in question and
  • shall be admissible in any proceedings, without further proof or production of the original, as evidence of any contents of the original or of any fact stated therein of which direct evidence would be admissible.

 

  1. Use of Non Obstante clause in S.65B(1)

Notwithstanding anything contained in this Act”  ~ See class notes for detailed discussion.

 

  1. 65B(2): Conditions (a) & (c)

a) The computer from which the record is generated was regularly used to store or process information in respect of activity regularly carried on by a person having lawful control over the period, and relates to the period over which the computer was regularly used;

c) The computer was operating properly, and if not, was not such as to affect the electronic record or its accuracy;

Broadly related to Computer’s integrity and Lawful Control

 

  1. What if computer is malfunctioning ?

Bank ATM – withdrawal case !

Sri. P. Padmanabh Vs. Syndicate Bank Limited, 2008 Karnataka High Court.

If Computer is malfunctioning output may become inadmissible.

ATM link lost > Person took out more money than he was entitled > Bank alleged defendant took advantage of computer malfunction > sued for recovery of that amount > in evidence, relied on electronic evidence of withdrawal of money > held : when the ATM/Computer itself was admittedly malfunctioning, output not admissible in evidence.

Therefore, the proper functioning of the computer > accuracy of data > chain of integrity is extremely important.

 

  1. 65B(2): Conditions (b) & (d)

b) Information was fed in computer in the ordinary course of the activities of the person having lawful control over the computer;

d) Information reproduced is such as is fed into computer in the ordinary course of activity.

Broadly related to informational integrity

 

  1. Certificate u/s Sec. 65B(4): Certificate :
  • identifying the electronic record containing the statement and describing the manner in which it was produced;
  • giving the particulars of any device involved in the production of that electronic record
  • dealing with any of the matters to which the conditions mentioned in sub-section (2) relate,

 

  1. Whether certificate u/s 65B Evidence Act is mandatory ?
  • Earlier view – No (State (NCT of Delhi) v. Navjot Sandhu (2005) SC)
  • Current view – Yes. ((ANVAR P.V. VS. P.K. BASHEER AND OTHERS – 2014 (SC) Navjot Sandhu stands overruled in this context by PV Anvar.
  • See Dictation Notes for detailed discussion.
  • Generalia Specialibus Non Derogant

 

  1. Oral Deposition as to conditions of S.65B(2) – whether sufficient compliance ?

Oral Statement in court as to compliance of Section 65B of the IEA will not suffice and certificate u/s 65B is mandatory.  Jagdeo Singh and Ors. Vs. The State (2015) Delhi High Court

Principle : When something is categorically prescribed to be done in law in a certain manner, it has to be done in that manner alone and no other.

 

  1. Who is Competent to issue the certificate ?

After mentioning the contents of the certificate, the latter part of Section 65B(4) reads as under :-

  • and purporting to be signed by a person.
  • occupying a responsible official position in relation to the operation of the relevant device or
  • the management of the relevant activities (whichever is appropriate)
  • shall be evidence of any matter stated in the certificate; and for the purposes of this sub-section it shall be sufficient for a matter to be stated to the best of the knowledge and belief of the person stating it.

 

Section 65B(4) Certificate and the Doctrine of Hearsay

  • In cases where information as to proper functioning of computer system/server is derived from system logs, made in the ordinary course of business, a witness deriving his knowledge from such written records can produce certificate u/s 65B(4) and prove the electronic record and his testimony is not barred by doctrine of hearsay.
  • This is premised on the fact that : Proper functioning of the computer in such cases is not a matter of personal testimonial knowledge but knowledge derived from records maintained in the usual course of working of the system.
  • Doctrine of hearsay primarily applies in the domain of oral evidence.
  • Doctrine of hearsay limited in its application in cases of Electronic Evidence. (Kundan Singh Vs. The State (2015) Delhi High Court)

 

 

  1. Stage of filing of certificate u/s 65B(4) ? Is it mandatory to file it alongside the electronic evidence output or can it be filed later ?
  • Certificate u/s 65B IEA can be filed even after receipt of document/Electronic evidence on record.
  • Court may invoke Sections 91, 311,391 of the CrPC to facilitate filing of certificate. Investigating authority (police) can also file the certificate alongwith a supplementary police report u/s 173(8) of the CrPC.
  • In civil proceedings, Ord. XVI R. 14, Ord. XVIII R.17 r/w 151 CPC can be used to recall a witness for the purpose of certificate.

 

(See : Kundan Singh Vs. The State (2015) Delhi High Court & Paras Jain and Ors. Vs. State of Rajasthan,(2015) Raj. HC).

 

  1. Whether judicial admission by the opposite party as to the electronic record dispenses with formal proof and compliance of Section 65B of the IEA ?

 

Judicial Admission by the Witness as to electronic record waives the requirement of formal proof and conditions of Section 65B IEA need not be complied with.  (Shamsher Singh Verma Vs. State of Haryana, 2015 – SC)

 

  1. E-Contract – territorial jurisdiction;

 

Section 13(3) of the IT Act reads as under :-

 

(3) Save as otherwise agreed to between the originator and the addressee, an electronic record is deemed to be despatched at the place where the originator has his place of business, and is deemed to be received at the place where the addressee has his place of business.

 

P.R. Transport Agency vs. Union of India & others – 2005 SCC OnLine All 880 Allahabad High Court.

  • No expert opinion can be led w.r.t an electronic evidence without first complying with Section 65B of the IEA. (See Anvar P.V v. P K Basheer, 2014 SC)

 

  1. Electronic Evidence Vis-à-vis Criminal Law and the Constitution.
    • Section 27 of IEA or Section 65B – which one is to prevail ?
    • Certificate from the Accused u/s 65B(4) IEA – is it a violation of Article 20(3) of the Indian Constitution ?
Criminal Justice System · Uncategorized

All you need to know about the Law relating to Money-Laundering in India

The Indian Government’s crackdown on black money continues unabated and a spate of prosecutions have been launched in the recent times under the Prevention of Money Laundering Act, 2002. This article is an attempt to demystify the law relating to money laundering in India and provide a brief overview of its scheme and operation.

1. What is Money Laundering ?

Investopedia[2] defines money laundering as The process of creating the appearance that large amounts of money obtained from serious crimes has originated from a legitimate source.”

Illegal arms sales, smuggling, and other organized crime, including drug trafficking and prostitution rings, can generate huge amounts of money. Embezzlement, insider trading, bribery and computer fraud schemes can also produce large profits and create the incentive to “legitimize” the ill-gotten gains through money laundering. The money so generated is tainted and is in the nature of ‘dirty money’. Money Laundering is the process of conversion of such proceeds of crime, that is to say the ‘dirty money’, to make it appear as ‘legitimate’ money.[3]

1.1              The USUAL modus operandi

A case of Money laundering ostensibly appears to be an above-board financial transaction, however, the criminality underneath is hidden by a three stage process :

  • The first stage is when the crime money is injected into the formal financial System. This is called ‘placement’;
  • In the second stage, money injected into the system is layered and spread over various transactions with a view obfuscate the tainted origin of the money. This process is called ‘layering’;
  • In the third and the final stage, money enters the financial system in such a way that original association with the crime is sought to be obliterated so that the money can then be used by the offender or person receiving as clean money. This is called ‘Integration’.

1.2             Methods of Money Laundering

Structuring, Bulk Cash Smuggling, Cash Intensive Businesses, Trade-based laundering, Shell companies and trusts, Round-tripping, Bank Capture, Gambling, Real Estate, Black Salaries, Fictional Loans, Hawala, False invoicing are some of the common methods of money laundering.

2. What is the Indian Law on the subject ?

In India, the specific legislation dealing with money laundering is the Prevention of Money-Laundering Act, 2002 (for short ‘PMLA’). The law was enacted to combat money laundering in India and has three main objectives :

  • To prevent and control money laundering;
  • To provide for confiscation and seizure of property obtained from laundered                                  money; and
  • To deal with any other issue connected with money-laundering in India.

Apart from the provisions of PMLA, there are other specialised provisions such as RBI/SEBI/IRDA anti money laundering regulations. Many of these authorities are bound to provide suspicious transaction reports, which are in-turn analysed by Financial Intelligence Units established by the Central Government.

3. What is the Legal Definition of Money Laundering ?

3.1       Money Laundering

The offence of ‘Money Laundering’ is defined under Section 3 of the PMLA, which, for ease of understanding, can be deconstructed as :

Whosoever :

  • directly or indirectly,
  • attempts to indulge, or
  • knowingly assists, or
  • knowingly is party, or
  • is actually involved in
  •             any process, or activity connected,
  • with the Proceeds of Crime, including its :

            ◦          Concealment,

            ◦          Possession,

            ◦          Acquisition or use; and

  • Projecting or Claiming it as Untainted Property

                     shall be guilty of offence of Money-Laundering.

It is clear that the section is most widely worded and almost any kind of dealing with the proceeds/fruits of crime, is brought within the purview of the section and made culpable.

3.2       ‘Proceeds of Crime’

An understanding of the phrase ‘Proceeds of Crime’ is crucial to the understanding of the crime of Money Laundering. The offence of money laundering (defined u/s 3 and punished u/s 4 PMLA) is attracted only when the laundered property falls within the definition of ‘proceeds of crime’

To understand what is meant by ‘Proceeds of Crime’, one has to turn to Section 2(u) of PMLA, which provides that – ‘proceeds of crime’ means and includes :

  • Any property derived or obtained
  • Directly or indirectly
  • By any person
  • as a result of criminal activity
  • relating to a ‘scheduled offense’; or
    • the value of any such property

To further add teeth to this provision, the Finance Act of 2015 has further widened the definition of proceeds of crime and included within its ambit not only the specific property (which is the subject matter of money laundering) or its value, but also the property-equivalent in value held within the country (in a situation where property which is the ‘proceed of crime’ is taken or held outside the country). Such properties are also included within the definition of ‘proceeds of crime’. This principle of equivalence has been introduced by the Finance Act, 2015 for the first time.

To illustrate, if a person X has been accused of having proceeds of crime in country X, in that situation, his assets in India of the same value will qualify as ‘proceeds of crime’, even though these assets per se are not the ‘proceeds of crime’ or in no way connected to it. This has been done with a view to enable action in those cases where ‘proceeds of crime’ are taken or held outside the country and to allow action to be taken for attachment of equivalent asset located within the country. This step appears to have been taken in view of the increasing internationalisation of crime. However, this gives rather wide and unguided powers of attachment to the authorities under the Act, which may be exercised arbitrarily.

The Interconnectedness of PMLA and ‘scheduled offence’ 

A reading of the above definition of ‘proceeds of crime’ also makes one more thing clear, which is extremely crucial to an understanding of the offence of Money Laundering, which is that the offence of Money Laundering is not an independent crime; it depends upon another crime, which is known as the ‘predicate offence’ or ‘scheduled offence’, the proceeds of which are made the subject matter of crime of money laundering. The world over, countries include almost all serious crimes as predicate crimes for the purpose of money laundering offence, with a view to widen the ambit of prosecution.

In the next section we deal with the Schedule and the list of predicate offences.

4. What are the scheduled/predicate offences which entail proceedings under PMLA ?

4.1       List of Offences

Under PMLA, commission of any offence, as specified in the Part A and Part C of the Schedule of PMLA will attract the provisions of PMLA. Some of the Acts and offences, which may attract PMLA, are enumerated herein below:

  • Part A enlists offences under various acts such as : Indian Penal Code, 1860 (including but not limited to offences against Property such Cheating, Forgery, Counterfeiting, Fraud, murder etc) Narcotics Drugs and Psychotropic Substances Act, 1985, Prevention of Corruption Act, 1988 SEBI, Customs Act, 1955, Foreigners Act, Arms Act, Antiquities and Art Treasures Act, Copyright Act, 1957, Trademark Act,1999, Wildlife Protection Act, 1872, Information Technology Act, 2000, amongst others.
  • Part B offences (offence under the Customs Act), provided the value of property involved is more than one crore rupees or more;
  • Part C deals with trans-border crimes, and reflects the commitment to tackle Money Laundering across International Boundaries.

 

5. Authorities entrusted to investigate/prosecute under the PMLA?

Though the Code of Criminal Procedure governs the procedural aspects of prosecution, there are marked deviations from the standard procedure considering the special nature of the offence (including its cross border character) and slightly different process is envisaged. The offence is cognizable which means arrest can be made without a warrant.[4] There is a specialised investigative body for investigation of these offences. The Directorate of Enforcement in the Department of Revenue, Ministry of Finance is responsible for investigating the offences of money laundering under the PMLA.  Investigation usually begins with the registration of an Enforcement Case Information Report (also known was ECIR) which sets the investigation into motion.

This authority is empowered to carry out interim measures such as survey, search, seizure and arrest of the accused. Similarly, if an asset is found to be the proceeds of crime, the same can be confiscated and appropriated by the Government.

Financial Intelligence Unit – India (FIU-IND) under the Department of Revenue, Ministry of Finance is the central national agency responsible for receiving, processing, analyzing and disseminating information relating to suspect financial transactions to enforcement agencies and foreign FIUs.

The predicate/scheduled offences are separately investigated by agencies mentioned under those acts, for example – the local police, CBI, customs departments, SEBI or any other investigative agency, as the case may be.

After investigation is complete for the offence of money laundering, a complaint is filed by the investigating authority before the Special Court, where the trial for the offence actually takes place.

Since the offence of Money laundering is inextricably connected with the predicate offence, 2013 amendments to the PMLA provide that the trial for the predicate offence as well as offence punishable under Section 4 shall be conducted by the Special Court. If court which has taken cognizance of the scheduled offence is other than the Special Court (which has taken the cognisance of the complaint of the offence of money laundering under sub-clause (b), it shall, on an application by the authority authorised to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it was committed. [5]

As opposed to this, the process relating to attachment of property (including its confirmation) is dealt with by the Adjudicating Authority established under the Act.

6. Actions that may be initiated against person laundering money?

  • Attachment of property under Section 5, seizure/freezing of property and records under Section 17 or Section 18.
  • Persons (Individuals and/or juristic person such as a Company etc) found guilty of an offence of Money Laundering are punishable with imprisonment for a term which shall not be less than three years but may extend up to seven or even ten years (depending on circumstances) and shall also be liable to fine (no upper limits) [Section 4].[6]

7. Attachment of Property.

The PMLA gives extremely wide powers to the authorities to attach properties suspected to be involved in Money Laundering. Section 5 of the PMLA authorises the Director or any other officer not below the rank of Dy.Director to attach property. This power is to be exercised if the authority, as specified above, has a reason to believe (and such reasons have to be recorded in writing to prevent arbitrariness), on the basis of material in their possession, that –

Any person is in possession of any Proceeds of Crime; and such Proceeds of crime are likely to be :

  • Concealed,
  • Transferred, or
  • dealt with in any manner

which may result in frustrating any proceedings relating to confiscation of such proceeds of crime.

 If the aforesaid conditions are satisfied, the authority may by order in writing, provisionally attach such property for a period not exceeding 180 days from the date of order.

Under normal circumstances, presence of a complaint/police report against the accused for the predicate/scheduled offence, whether in India or abroad, is a necessary precondition for provisional attachment of property.  This is, however, not an absolute pre-condition and in cases where immediate attachment is needed and non-attachment is likely to frustrate the proceedings, the Director or the Dy.Director, for reasons to be recorded in writing, may nevertheless go ahead with provisional attachment even with there being no prosecution qua the scheduled offence against the accused. 

It may be noted that there is no provision for a prior notice of a provisional attachment and the same can come like a total bolt from the blue.

What happens post-provisional attachment ?

After provisional attachment, the Director or any other officer, has to file a complaint stating the facts of such attachment before the Adjudicating Authority, within a period of thirty days from such attachment

Remedy

Thereafter, the person aggrieved by the provisional attachment may file his objections before the Adjudicating Authority.  This is the remedy under the PMLA, however, an order without jurisdiction or suffering from any jurisdictional error may be challenged directly before the High Court by invoking Article 226 of the Constitution.  The Courts have held that a mere mechanical noting that the property in question is likely to be concealed, transferred or dealt-with would not meet the requirements of Section 5(1) of the Act and such a non speaking order by a Director can be set aside in writ proceedings by the High Court if it is devoid of strong and cogent reasons[7]

 

  1. Can provisional attachment be invoked against a person not accused of any Scheduled Offence ?

 The answer is Yes. Provisional attachment can be invoked even against a person who is not accused of any ‘scheduled-offence’. A conjoint reading of Sections 2(s) and 2(u) reveals that reference made is to ‘any person’; this coupled with the purpose and intent of the Act, calls for a wide interpretation.

In fact, Section 5(1) second proviso specifically allows attachment of property in the hands of a  third person even without there being a prosecution qua that person under the PMLA. It provides that if the designated officer has reason to believe that the property in possession of such person is involved in Money-Laundering, and non-attachment will frustrate any proceedings under the Act, he can go ahead and attach the same. The essence of the matter being ‘freezing of tainted assets’ at the earliest.

However, even post attachment, the person may continue in the enjoyment of the property during the period of attachment, but is prohibited from creating any third party interest in the property.

  1. Post Attachment proceedings.

We have already seen that after provisional attachment u/s 5 of the PMLA, the Director has to file a complaint before the Adjudicating authority. Section 8 of PMLA lays down an elaborate procedure for adjudication of a complaint under Section 5 of PMLA. It calls for a show cause notice to be issued to the offender/person from whom property has been seized, so as to give the person an opportunity to make a case against attachment/confiscation. Such a person, in order to avoid confiscation, can demonstrate the legitimate sources of his income, earning or assets, out of which or by means of which he has acquired the property attached, the evidence on which he relies and other relevant information and particulars, and to basically convince the authority as to why all or any of such properties should not be declared to be the properties involved in money-laundering and confiscated by the Central Government. The Authority after giving him a hearing reaches a finding, which needless to state is open to challenge before the Appellate Tribunal.

If the Adjudicating Authority, after the enquiry, comes to the conclusion that any property is involved in money laundering, it can, by an order in writing, confirm the attachment of the property. Such attachment shall :

  1. continue during the pendency of proceedings relating to any scheduled offence before a Court; and
  2. become final after the guilt of the person is proved before the Special Court and order of such Court becomes final;
  3. after the confirmation of provisional order of attachment, the Director or any other officer authorised by him in this behalf shall forthwith take the possession of the attached property.

Essentially, once the provisional attachment is confirmed, the final fate of the property depends on the decision of the Special Court (trying the offence under the PMLA). If the offence under PMLA stands proved, the Special Court shall order confiscation of the property to the Central Government. If the Special Court reaches the conclusion that the offence has not taken place, it shall order release of such property to the person entitled to receive it.

Appeal against confirmation of Attachment

Decisions of the adjudicating authority of first instance can be appealed to the Appellate Tribunal  created under the Act.

Adjudicating Authority and Special Court – Relative scope

It is to be noted that the Adjudicating Authority under this section is concerned with questions of continuation of attachment and/or retention of property involved in money laundering and not the trial of offence of money laundering or the scheduled offence, which function falls for a judicial trial by the Special Court.

Procedure before the Adjudicating authority

 The Adjudicating Authority has been given vast powers of discovery, inspection, compelling production of records as per S.11 of the Act. Section 11 spells out the powers of the Adjudicating Authority in discovery of facts, Section 50 does so in respect of a Director.

Needless to state, being a quasi judicial authority, both of them have to conform to the principles of Natural Justice.

As per established principles, following duties are imposed on quasi judicial authorities :- (i) A quasi-judicial authority ought not to make any decision adverse to a party without affording an opportunity of meeting the allegations made against him; (ii) The party whose rights are to be affected should be provided with the information upon which the action is raised and the affected party should have reasonable notice of the case which he has to meet/face. Of course, an opportunity is to be provided to the affected party which must be real, reasonable and substantial too; (iii) The affected party should have the opportunity of letting in/adducing evidence which he relies upon.

 9A. Whether an accused can be called upon to disclose documents and give statements, or can he exercise the right to silence?

Section 11(2) & S.50(3) of the PMLA makes it mandatory for a person so summoned by the adjudicating authority to attend in person and bound to disclose documents as may be required, and answer such questions as are put and for the purposes of these sections, the adjudicating authority is considered a ‘court’ and proceedings ‘judicial proceedings’.

Moreover, Section 50(1) prescribes taking of affidavits on oath with respect to discovery of facts.

On a plain reading, any person will include an accused person too. Now, whether the accused can be compelled to disclose documents and disclose facts is a serious question as it makes serious inroads into the constitutional right of silence of the accused and protection from self incrimination, as guaranteed under Article 20(3) of the Constitution. However, the law as it stands makes the statement recorded before the Investigating officer under PMLA admissible in evidence before the Court.[8] (This, it may be noted, is in stark contrast to any other criminal prosecution where statements given to Police during investigation are not admissible in evidence during trial).

  1. Powers of the Enforcement Directorate relating to Search, Seizure and Arrest.

10.1            Search of premises

Section 17 gives wide powers of search and seizure to the investigating agency. If the investigating agency has reason to believe (and such belief should be recorded in writing) the commission of offence under the PMLA and possession of proceeds of crime, it can enter and seize property/records etc, make an inventory of the same. The seizure memo is required to be signed by two independent witnesses.

Whereas this section provides for search of premises, Section 18 provides for search of an individual.

10.2            Search of person

If the investigating authority has a reason to believe that a person has secreted about his possession, ownership or control, proceeds of crime, in that case the person can be searched. Before the search of a person, as per his wish, the authority shall take the said person before a Gazetted officer superior in rank to the authority or a Magistrate within 24 hours excluding the time of journey. This is the safeguard laid down in S. 18(4) of the PMLA, however, strangely there is no corresponding obligation on the investigating agency to inform the person about to be searched of this valuable right. Something akin to a Miranda warning will be apposite here.

The property seized has to be forwarded to the adjudicating authority for further orders.

10.3            Arrest

The offence is cognizable which means arrest can be made without a warrant.[9] Section 19 gives the authority power to arrest. Standard safeguards relating to arrest apply. Every person arrested has to be produced before the Magistrate within 24 hours (excluding time of journey).  The provision also mandates that such arresting official has to forward a copy of such arrest memo with the material in his possession to the adjudicating authority in a sealed envelop as per the procedure prescribed.

Apart from these, the investigating officer may summon and record the statements of persons concerned (S.50 of PMLA)

 

  1. Right to Bail

Section 45 of the PMLA makes the offence of money laundering non-bailable, which means that a person arrested is not entitled to bail as a matter of right, and bail becomes a matter of discretion for the court. If the predicate offence provides for punishment more than 3 years, then there is an embargo on release on bail, unless either the offence concerns a child, woman, sick or infirm; if not, then bail can only be granted after hearing the Prosecutor and only after the court comes to the conclusion that “there are reasonable grounds for believing that he is not guilty of such an offence and that he is not likely to commit any offence while on bail”. Now this is an extremely tall order, especially having regard to the fact that the matter is usually at a preliminary stage when the question of bail is being decided. For a court to record a finding, at that stage, that there are no reasonable grounds for believing commission of the offence is an unnaturally high threshold. Usually the prosecution will prepare the case in such a way so that it contains the basic allegations and there is a very less likelihood of it being thrown out at the very outset. Once that is done, the court, at the stage of bail, will normally not be in a position to return a finding of non-guilt in favour of the accused.

This makes serious inroads into the right & presumption of innocence in favour of the accused. An accused is presumed to be innocent till his guilt is proved beyond reasonable doubts. Pre-trial incarceration is frowned upon by law, as it carries a substantial punitive content and has a stigmatic effect. Such incarceration is not only a denial of ‘due process’ but prejudices the accused in the preparation of defence of his case.

Secondly, if in a case, the court releases the accused on bail, in view of the above findings and at the same time frames charges against him and takes the matter to trial, would not the two findings be mutually destructive of each other. These are some of the major anomalies with this provision and a serious constitutional challenge can be mounted on this provision on the above grounds.

  1. Can a Company and its Directors/Managers/Secretaries be accused of offence under PMLA ?

Section 70 of PMLA deals with offences by Companies. It states that where a person committing a contravention of any of the provisions of this Act or of any Rule, Direction or Order made there under is a Company (company” means a body-corporate and includes a firm or other association of individuals), in that case: 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 as well as the company, shall be deemed to be guilty of the contravention and shall also be liable to be proceeded against and punished under PMLA. This is an instance of what is known as ‘Vicarious Liability’ where liability for the acts of the company is also attributed on the individuals heading responsible positions in the company on the premise of them being the alter egos/nerve-centers of the company.

The possible defence and exception to this is for the individual to argue and prove that the contravention took place without his knowledge/despite all due diligence.

S.70(2) further provides that if the contravention has took place with the consent or connivance of, or is attributable to any neglect on the part of any Director, Manager, Secretary or other Officer of any Company, such Director, Manager, Secretary or other Officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly.

 

  1. Obligations of Banking Companies, Financial Institutions and Intermediaries

Under Section 12 of PMLA, there is a mandate on all Banking Companies, Financial Institutions and Intermediaries to maintain records of all transactions, including information relating to transactions for a period of 5 years, in such manner as to enable the investigating agency/Court to reconstruct individual transactions and find out criminality. The aforesaid agencies are required furnish to the concerned Authorities under PMLA, all information relating to such transactions, whether attempted or executed; the nature and value of such transactions; verify the identity of its clients and the beneficial owner, if any; and maintain record of documents evidencing identity of its clients and beneficial owners as well as account files and business correspondence relating to its clients.

  1. Trial of PMLA offence and scheduled offence

Since the offence of Money laundering is inextricably connected with the scheduled offence, 2013 amendments to the PMLA provide that the trial for the predicate offence as well as offence punishable under Section 4 shall be conducted by the Special Court. If a Court which has taken cognizance of the scheduled offence is other than the Special Court (which has taken the cognizance of the complaint of the offence of money laundering under sub-clause (b), it shall, on an application by the authority authorised to file a complaint under this Act, commit the case relating to the scheduled offence to the Special Court and the Special Court shall, on receipt of such case proceed to deal with it from the stage at which it was committed. [10] However, this by itself should not be construed to mean a joinder or clubbing of trial. The simultaneous trial in both the cases by the same court is an expedient to reduce delays. Needless to state, both the cases are independently tried and decided on the basis of evidence in each case.  The trial of scheduled offence and PMLA offence is to be conducted by the same court – only for the sake of expediency.

The interconnectedness of PMLA and ‘scheduled offence’

It would be a truism to say that the offence of Money Laundering is inextricably linked with the scheduled offence and, logically, an exoneration in the latter should, by itself, lead to an acquittal/discharge for the offence of money laundering too. This view seems not only just and legal but also deserves to be adopted for its eminent common-sense, for if there is no scheduled offence, there cannot be any ‘proceeds of crime’ either, as the ‘crime’ in the phrase ‘proceeds of crime’ is nothing but the scheduled offence. In other words, the Special Court trying the PMLA case cannot conclude, without the scheduled offence being proved, that some property associated with that offence is tainted as ‘proceeds of ‘crime. For something to be ‘proceeds of crime’ there has to be a crime in the first place. Any other view would make the two judgments mutually inconsistent, absurd and contradictory. Therefore, an acquittal/discharge in the predicate/scheduled offence should ipso facto lead to exoneration in the PMLA offence too. Infact, since it is the same Court which tries both the scheduled offence and the PMLA case (arising out of the scheduled offence), a discharge/acquittal in the scheduled offence itself leads to a discharge/acquittal for the PMLA offence too. A conclusive decision by the Hon’ble Supreme Court is required on the matter so as to settle the issue.

It may be noted that this provision cannot be construed to mean that the Enforcement Directorate (the investigating body under the PMLA) can investigate into the scheduled offences also. Investigation for each of the offences is to be done by agency(agencies) authorised under the respective acts. Investigation by an agency other than ED for an offence under PMLA may open the entire investigation (and its result) to challenge.

 

  1. Evidence, Presumptions and Burden of Proof

Keeping in view the difficulty of investigation in complex cases like money laundering, PMLA makes a departure from the standard rule of presumption of innocence and raises certain presumptions. This is an application of the ‘doctrine of reverse burden’. Such provisions, needless to say, make the defence of a PMLA case quite challenging.

15.1            presumption of property being tainted property

Section 24 of the PMLA casts the burden of proving that (alleged) proceeds of crime are not involved in Money Laundering on the Accused. This prima facie appears harsh, but on a deeper scrutiny it seems that this section will not relieve the prosecution of its responsibility of making a specific allegation that the monies that are allegedly being laundered are earned by committing a particular schedule offence or offences under the PMLA and are, therefore, proceeds of crime. The section cannot be read so as to obviate the requirement for the prosecution to prove these foundational facts. Any other view shall seriously undermine the fairness of the process, as one has to keep in mind that negative proof (proof of innocence, as opposed to proof of commission), by its very nature, is extremely difficult to be established. It is always easier to prove a positive, than a negative. The language of Section 24 (a) demonstrates that a person should be ‘charged’ for an offence under Section 3, in order for the presumption to follow. Charge has to be read to mean a specific charge and not a vague and omnibus allegation. However, once that charge is made, the accused will have justify that the property is not tainted with vice. This can be done by making it reasonably probable that the property is legitimately acquired by lawful means. He can disclose his sources of Income, Earnings or Assets, out of which or means by which he has acquired the property attached. As per fairly established principles of standard of proof, the accused does not have to prove all this to the hilt or beyond all reasonable doubt, but on a standard of preponderance of probability, that is to say, that it is more probable that the property is above board, than not.

15.2            presumption in inter-connected transactions

Where proceeds of crime are layered through plural transactions, the intent to camouflage the source of the property as a derivative of criminality renders it difficult to identify the succeeding transactions as relatable to the initial proceeds of crime. It is for this reason and to effectuate the purposes of the Act that Section 23 incorporates the presumption that where money-laundering involves two or more connected transactions and one or more such transactions is/are proved to be involved in money-laundering, then for the purposes of adjudication or confiscation under Section 8, it shall, unless otherwise proved to the satisfaction of the adjudicating authority, be presumed that the remaining transactions form part of such interconnected transactions i.e., involved in money-laundering as well. (Section 23 of PMLA).

15.3            presumption in cases of records/property found in possession of person

A presumption is raised that property/records/documents found, seized from the possession or control of a person actually belong to such person (from whom they are seized) and the contents of such records are true. Further, there is also a presumption as to the records being in the handwriting/signatures of the person from whose possession they are seized. Due to the operation of the presumption, the onus, once again, is on accused to rebut the same. (Section 22 of PMLA)

  1. Punishment under PMLA

Section 4 of PMLA prescribes the punishment for Money-Laundering as under:

                        Rigorous Imprisonment for a term

            ◦          which shall not be less than 3 years, but

            ◦          which may extend to 7 years/10 years, and

            ◦          shall also be liable to fine.

A notable feature is that there is no upper limit on the fine that may be imposed for an offence under the PMLA. The obvious intent is for the fine imposed to be commensurate to the nature and extent of offence committed and the money laundered.

  1. Conclusion

Money laundering poses a serious threat not only to the financial systems of countries, but also to their integrity and sovereignty. To obviate such threats, certain legislations including PMLA, have been enacted. The above analysis of the PMLA manifests that the Act, although extremely well intentioned, compromises on the fundamental principles of natural justice, fair trial and due-process. In its enthusiasm to fight black money, the Act transgresses upon basic rights and liberties. Some of the provisions under the Act are legally and jurisprudentially unsound and tenuous and may not pass constitutional muster. Since the Act is fairly new, it is expected that the Hon’ble Courts would interpret/strike/read-down these provisions in such a manner, so as to make the Act less prone to arbitrary exercise of power and ensure that its operation is constitutionally compatible.

[1] This article has been co-authored by Anirban Bhattacharya, Partner & Bharat Chugh, Counsel at Luthra and Luthra Law Offices, New Delhi. (bharat.law06@gmail.com) The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of the Firm.

[2] http://www.investopedia.com/terms/m/moneylaundering.asp

[3] FAQ on Money Laundering Act, Enforcement Directorate, Government of India

http://www.enforcementdirectorate.gov.in/faqs_on_pmla.pdf

[4] Chahagan Chandrakant Bhujbal v. Union of India, 2016 SCC OnLine Bom 938.

[5] Section 44 of the PMLA.

[6] If the proceeds of crime involved in money-laundering relates to any offence specified under paragraph 2 of Part A of the Schedule, the provisions of this section shall have effect as if for the words “which may extend to seven years”, the words “which may extend to ten years” had been substituted. Section 4 – proviso.

[7] M/s. Mahanivesh Oils & Foods Pvt. Ltd. v. Directorate of Enforcement – 2016 SCC OnLine Del 475

[8] Section 50(2) and 50(3) of the PMLA. The person summoned is bound to attend and state the truth upon any subject respecting which they are examined or make statements and produce such documents as may be required. These proceedings are deemed to be judicial proceeding within the meaning of Section 193 and 228 of the IPC. The proceedings relating to perjury/contempt of court apply with respect to these proceedings.

[9] Chahagan Chandrakant Bhujbal v. Union of India, 2016 SCC OnLine Bom 938.

[10] Section 44 of the PMLA.