Corporate Laws Daily
Dear Reader,
Welcome to Taxmann.com | Newsletter – Reporting the Facts with Taxmann's Analysis. Today's Edition Brings You Updates on Company & SEBI Laws | FEMA Banking & NBFCs | Insolvency & Bankruptcy Code (IBC) | Competition Laws.
RBI updates FEMA compounding directions to align with newly notified compounding rules
Earlier, the Govt. has issued Foreign Exchange (Compounding Proceedings) Rules, 2024. These rules supersede the erstwhile Compounding rules. Therefore, now RBI has issued updated directions/guidelines to align the same with the newly notified rules. Further, the list of circulars that have been superseded has also been provided.
SEBI revises 'Stress Testing Framework' for equity derivatives to enhance determination of Core SGF corpus
SEBI has revised the stress testing framework for equity derivatives segment to determine the Minimum Required Corpus (MRC) of Core Settlement Guarantee Fund (Core SGF). The updated guidelines introduce new stress testing methodologies like Stressed VaR, Filtered Historic Simulation, & Factor Model to capture tail risks more effectively. Further, the Clearing Corporations shall jointly frame a policy on updation and review of stress periods and get it approved by their Risk Committees.
RBI's committee proposes extending MIBOR calculation to first 3 hours of transactions for better market representation
The RBI has released the Report of the Committee on MIBOR Benchmark, led by Shri R. Subramanian. The Committee was tasked with reviewing Rupee interest rate benchmarks, particularly MIBOR, & assessing the need for transitioning to new benchmarks. The committee recommended extending the calculation of MIBOR to the first three hours of transactions, instead of just the first hour. This change aims to make MIBOR more representative of call money market activities & enhance its reliability.
Trial Court rightly acquitted accused in Section 138 case as complainant failed to prove debt after defense was raised
In the instant case, a complaint was filed against accused under section 138 of the Negotiable Instruments Act, 1881, by complainant on the ground that accused had taken friendly loan of Rs.48 lakh from complainant and a cheque issued by accused in favour of complainant was dishonoured on presentation.
Later, the Trial Court by impugned order acquitted accused of offence under Section 138. Complainant filed instant appeal against order of acquittal. Accused, however, raised a defence that he was not signatory to cheques in question.
In order to bolster his claim, an application was moved by accused seeking expert opinion for verification of signature of accused and comparison with those appearing on impugned cheques.
Said application was allowed, and cheques were sent to Central Forensic Science Laboratory (CFSL) for comparison with the admitted signature of the accused on the account opening form, vakalatnama, and bail bond.
Further, it was noted that the CFSL report substantiated the contention of accused that he was not signatory to impugned cheques. Accused already having dislodged his burden, it was on the complainant to show the existence of the debt, that too, as a matter of fact.
However, the complainant had failed to prove that there existed any debt/liability on date, or show the mode and manner of advancement of loan, or lead any evidence/documentary proof to establish how the sum of Rs. 48 lakh was advanced.
Since, the complainant having failed to lead evidence to show the existence of debt/liability, the High Court held that there was no perversity in impugned judgment so as to merit interference in the finding of acquittal, and consequently, there was no reason to entertain instant petition, and accordingly, an instant appeal against impugned order was to be dismissed.
Summons to an Accused in a Criminal Case not to be Issued in a Mechanical Manner
[2024] 167 taxmann.com 66 (Article)
Obtaining a final decision for a monetary claim can be an exhausting and long drawn-out process in an Indian court. Over the years, therefore, aggrieved parties began exploring the possibility of setting criminal law in motion even in cases of civil wrong. The obvious intent is to exert pressure on the opposite party to settle the claim to avoid the unpleasantness of a criminal prosecution. Private complaints filed in the Magistrate's court under India's penal laws came to be commonly used to intimidate the opposite party into a settlement.[1] Recently in the matter of Delhi Race Club (1940) Ltd. and Others v. State of Uttar Pradesh and Another[2] ("Delhi Race Club"), the Supreme Court of India (the "Supreme Court") has expressed displeasure at private complaints being registered and summons being issued in a mechanical manner.
The decision in Delhi Race Club acknowledges that calling a person to appear in a criminal court as an accused is a matter affecting one's dignity, self-respect and image in society and should not be used as a weapon of harassment.[3] Summoning an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course.[4] A magistrate is not required to act on a complaint simply because such complaint is filed before him.[5] Before summons are issued to any accused, a magistrate is required to carefully scrutinize the evidence placed by the complainant, and if required question the complainant and the witness(es) to find out the truthfulness of the allegations and examine if any offence is prima facie committed.[6]
The judgment in Delhi Race Club succinctly covers the following key issues of law:
(a) difference between 'breach of trust' and 'criminal breach of trust',
(b) difference between 'cheating' and 'criminal breach of trust',
(c) vicarious liability of office bearers of a company in criminal matters; and
(d) maintainability of a petition for quashing of summons.
Difference between 'breach of trust' and 'criminal breach of trust'
The Supreme Court has clarified that unless there is evidence of a manipulating act or fraudulent misappropriation[7] every act of 'breach of trust' may not result in a penal offence of 'criminal breach of trust'. An act of 'breach of trust' involves a civil wrong in respect of which an aggrieved person may make a claim for damages before the civil courts. However, breach of trust coupled with intention (mens rea) gives rise to criminal prosecution.
Difference between 'cheating' and 'criminal breach of trust'
Allegations of 'cheating' and 'criminal breach of trust' are often used interchangeably. The Supreme Court has clarified that 'cheating' and 'criminal breach of trust' are antithetical to each other and cannot co-exist.[8] Prosecution and the magistrates have been guided to be careful when recording the charge of 'cheating' or 'criminal breach of trust'.
The distinction between 'cheating' and 'criminal breach of trust' can be identified as follows: 'cheating' requires deception either by a false or misleading representation to a person leading such person to deliver property to the accused. Whereas 'criminal breach of trust' requires the accused who is in legal possession of property of another to dishonestly misappropriate such property for use or benefit contrary to the purpose for which such property was entrusted. Mens rea is an essential element in both cases. In a case of cheating, dishonest intention should exist from the very beginning[9] of the relationship, while in the case of criminal breach of trust, dishonest intention comes into existence in the course of the relationship.
Vicarious liability of office bearers of a company in criminal matters
Often, office bearers (including directors) of a company are included as accused in a criminal complaint against the company. In Delhi Race Club, the Supreme Court has confirmed that the Indian Penal Code, 1860 does not contain any provision for attaching vicarious (indirect) liability to office bearers of a company. Office bearers can be included as accused in a complaint only if direct allegations are leveled against them. A complainant must demonstrate that he has been deceived by the specific acts or omissions by the relevant officer bearers before such office bearers can be identified as an accused along with the company. Vicarious liability can be attributed to officer bearers of the company only in cases where the applicable statute/law provides for it.[10]
Maintainability of a petition for quashing of summons
In Delhi Race Club, the Supreme Court once again recognized the right of an accused to approach the High Courts for quashing of the order issuing summons against him.[11] The Supreme Court observed that, in the case of a private complaint, it is the duty of the High Court to examine whether the magistrate had 'applied his mind' 'to form an opinion' as to the 'existence of sufficient ground(s) to proceed' against the petitioning accused.[12] 'Ground(s) for proceeding further' is a prerequisite without which a magistrate does not have the power to issue summons to an accused.
Summons are liable to be quashed in cases where:
(a) no case is made out against the accused in the complaint,
(b) the complaint does not disclose the essential ingredients of the alleged offence;
(c) the complaint is patently absurd and inherently improbable,
(d) the complaint suffers from legal defects or lacks requisite approval from the competent authority, and
(e) the magistrate has exercised discretion arbitrarily or capriciously.
Closing remarks
While the law in relation to issuance of summons by Magistrates dealing with a private complaint has been well settled, the Supreme Court in Delhi Race Club has taken the opportunity to reiterate the ingredients of the offences of 'criminal breach of trust' and 'cheating' and the scope of 'vicarious liability' of office bearers of companies for such offences. The Supreme Court has reminded the police and the magistrate courts to be mindful of the distinction between the two offences. The decision in Delhi Race Club has the potential to provide respite to several litigants who may be facing criminal prosecution in matters which should properly be pursued strictly as civil law claims for money or injunctive relief.
[1] The Supreme Court, in many cases, has held that if the police refuses to register the First Information Report ("FIR"), or having registered it do not hold a proper investigation, or comes to the conclusion that no FIR needs to be registered, then it is open for the complainant to file a pr.
[2] Delhi Race Club (1940) Ltd. and Others v. State of Uttar Pradesh and Another, 2024 SCC Online SC 2248.
[3] Mehmood Ul Rehman v. Khazir Mohammad Tunda, [2015] 12 SCC 420.
[4] Delhi Race Club, paragraph 13.
[5] Delhi Race Club, paragraph 15.
[6] Delhi Race Club, paragraph 13.
[7] Delhi Race Club, paragraph 28.
[8] Delhi Race Club, paragraph 43.
[9] Delhi Race Club, paragraph 26.
[10] Delhi Race Club, paragraph 14.
[11] Delhi Race Club, paragraph 22.
[12] Delhi Race Club, paragraph 22.
That's it from us for today!
We're keen on enhancing Your Taxmann.com | Newsletter Experience and would greatly value your input. Your feedback is pivotal in guiding our improvements. Could you spare a few moments to share your thoughts in the comments on how we might better serve your needs?
Register Now for Taxmann's [Virtual] Masterclass on Business Valuation – Practical Approach | Case Studies | Templates
1 Speaker | 5 Sessions | 15 Hours | Weekend Classes
?? Starting from 8th November 2024 | ?? 4:00 PM to 7:00 PM (IST)
Fees: ? 9999/- (Taxes Extra)
?? Register Now! (Limited Slots Available): https://taxmann.social/boHY3
Faculty:
? CA. Vikash Goel – Head | Omnifin Group
He is a seasoned expert in Valuation and Talent Management. With impressive qualifications, including a Chartered Accountancy (CA), a Chartered Financial Analyst (CFA) from India, an MS in Finance, and an MBA, Vikash is a distinguished alumnus of the Indian Institute of Management, Calcutta. He is an accomplished author, having penned multiple books focusing on the intricacies of valuation.
Key Learnings:
?? Basics of Business Valuation
?? Understanding Business Valuation Models & their Applications
?? Overview of Valuation Methods – Income, Cost, & Market Approaches
?? Business Valuation for Startups
?? Business Valuation in Mergers & Acquisitions
?? Valuing Complex Securities – Bonds & ESOPs
?? Case Studies
Benefits to Participants:
?? Get Replies to your Queries
?? Opportunity to Consult with the Speaker
?? Complimentary Access to the Accounts & Audit Module of Taxmann.com | Research for One Month
?? Complimentary Copy of Taxmann's Valuation of Business, Securities & Financial Assets Authored by CA. Vikash Goel
?? Access Excel Templates for Valuation
?? Earn a Certificate of Participation
?? Relevant For:
? Chartered Accountants
? Cost Accountants
? CA Students
? Accountants
? Entrepreneurs & Startup Founders
? MBA Professionals