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Criminal Law
Liability for Cheque Dishonor
06-Mar-2025
Source: Supreme Court
Why in News?
A bench of Justice BV Nagarathna and Justice Satish Chandra Sharma held that mere directorship does not create automatic liability under Section 141 of Negotiable Instruments Act, 1881 (NI Act).
- The Supreme Court held this in the case of K.S. Mehta v. M/s Morgan Securities and Credits Pvt. Ltd. (2025).
What was the Background of K.S. Mehta v. M/s Morgan Securities and Credits Pvt. Ltd. (2025) Case?
- Appeals were filed against the Delhi High Court’s order dated 28th November 2023, which dismissed petitions under Section 482 Code of Criminal procedure,1973 (CrPC), rejecting the request to quash criminal proceedings.
- The Appellants, K.S. Mehta and Basant Kumar Goswami, were Non-Executive Directors of Blue Coast Hotels & Resorts Ltd. They faced criminal charges under Section 138 & 141 of NI Act related to cheque dishonor.
- They were non-executive directors with no financial decision-making power and were appointed as per the SEBI Listing Agreement (Clause 49). They had no involvement in daily operations or financial transactions.
- The dispute originated from an Inter-Corporate Deposit (ICD) Agreement executed on 09th September 2002, where the company took a loan of ₹5 Crores from the Respondent. The Appellants were not present at the board meeting when the loan was approved and did not sign any financial documents.
- Two post-dated cheques were issued as repayment: Cheque No. 842628 (₹50,00,000) dated 28th February 2005 and Cheque No. 842629 (₹50,00,000) dated 30th March 2005. Both cheques bounced due to insufficient funds. Legal notices were sent, but no payment was made.
- The loan agreement included an arbitration clause, which the Appellants were unaware of. On 27th May 2003, a settlement was signed between some accused parties, but the Appellants were not part of this settlement.
- K.S. Mehta resigned on 10th November 2012, while Basant Kumar Goswami remained a Non-Executive Director until 2014. Official records, including ROC & CGR reports, confirmed their non-executive status, and they did not receive any salary apart from a nominal meeting fee.
- Criminal complaints were filed against the Appellants: Complaint No. 15857/2017 (Filed on 10th November 2005) for Cheque No. 842629 and Complaint No. 15858/2017 (Filed on 25th October 2005) for Cheque No. 842628.
- The Appellants filed petitions under Section 482 CrPC to quash the case, but the High Court rejected their plea, allowing proceedings to continue.
What were the Court’s Observations?
- The Court held that it has been consistently held that non-executive and independent director(s) cannot be held liable under Section 138 read with Section 141 of the NI Act unless specific allegations demonstrate their direct involvement in affairs of the company at the relevant time.
- The Court held that in the present facts the appellant (s) neither signed nor had a role in the execution of the cheques.
- The Court observed that their involvement in the company’s affairs was purely non-executive and confined to governance oversight and did not extend to financial decision making or operational management.
- The complaint however fails to make specific averments that establish a direct nexus between the Appellant (s) and the financial transactions in question or demonstrate their involvement in the financial affairs of the company.
- The mere fact that the appellants attended the board meetings would not suffice to impose financial liability on the appellants and does not automatically translate into control over financial operations.
- Thus, the Court held that the appellant (s) cannot be held vicariously liable under Section 141 of NI Act.
- Given the lack of specific allegations and in view of the aforesaid observations, the Appellant(s) cannot be held vicariously liable under Section 141 of the NI Act.
What is the Liability of a Company under Section 141 NI Act?
- Section 141 (1) of NI Act provides for the following:
- If a company commits an offence under Section 138 of the NI Act (cheque dishonor), every person in charge of and responsible for the company’s business at that time will also be deemed guilty and can be punished.
- A person will not be held liable if they can prove that:
- The offence was committed without their knowledge.
- They exercised due diligence to prevent the offence.
- A government-nominated director (appointed due to their role in the Central/State Government or a government-owned financial corporation) cannot be prosecuted under this section.
- Section 141 (2) of NI Act lays down the following:
- If a company commits an offence under this Act, certain individuals within the company can also be held guilty if it is proven that the offence was committed:
- With their consent.
- With their connivance (active involvement or approval).
- Due to their neglect.
- This applies to directors, managers, secretaries, or other officers of the company.
- Definition for clarity:
- "Company" includes any corporate body, firm, or association of individuals.
- "Director" (in case of a firm) refers to a partner in the firm
- If a company commits an offence under this Act, certain individuals within the company can also be held guilty if it is proven that the offence was committed:
What are the Landmark Cases on Liability of Director?
- S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. (2005)
- The Court in this case laid down that mere designation as a director is not sufficient; specific role and responsibility must be established in the complaint.
- Pooja Ravinder Devidasani v. State of Maharashtra & Anr. (2014)
- A non-executive director primarily has a governance role and does not handle daily operations or financial matters of the company.
- To be held liable under Section 141 of the NI Act, the accused must have been actively in charge of the company’s business at the time of the offence.
- Mere directorship does not automatically make a person liable under the Act.
- The law consistently holds that only those responsible for the day-to-day business operations can be prosecuted.
- Hitesh Verma v. M/s Health Care at Home India Pvt. Ltd. & Or, (2025)
- Only the signatory of the cheque is liable under Section 138, unless liability is established under Section 141.
- Under Section 141(1), two conditions must be met for vicarious liability:
- The accused must have been in charge of the company’s business at the time of the offence.
- The accused must have been responsible for the conduct of the company’s business.
- Being in charge of the company and being responsible for its business operations are two different things.
- Both conditions must be explicitly mentioned in the complaint to establish liability.
- Since the complaints do not allege that the appellant was in charge of the company’s business at the time of the offence, they cannot be prosecuted under Section 141(1).
Criminal Law
Opinion of Handwriting Expert
06-Mar-2025
Source: Supreme Court
Why in News?
Recently, the bench of Justices Vikram Nath and Sandeep Mehta has held that handwriting science is "not nearly so perfect" and requires careful examination of reasons.
- The Supreme Court held this in the matter of C. Kamalakkannan v. State Of Tamil Nadu Rep. By Inspector Of Police C.B.C.I.D., Chennai (2025).
What was the Background of C. Kamalakkannan v. State Of Tamil Nadu Rep. By Inspector Of Police C.B.C.I.D., Chennai Case?
- The case revolves around a forged marksheet that was used for MBBS course admission.
- Kumari Amudha applied for admission to an MBBS course using a falsified marksheet.
- The original marks secured by Kumari Amudha were 767 out of 1200, but the fabricated marksheet showed 1120 out of 1200 marks.
- A criminal case was registered upon discovery of this forgery.
- After investigation, a charge sheet was filed against C. Kamalakkannan (the appellant) and other co-accused persons.
- The specific allegation against the appellant was that he prepared the postal cover in which the forged marksheet was transmitted.
- The prosecution relied primarily on the testimony of a handwriting expert to establish the appellant's connection to the crime.
- The appellant was charged with offences under Sections 120B (criminal conspiracy), 468 (forgery for purpose of cheating), and 471 (using a forged document as genuine) read with Section 109 (punishment of abetment) of the Indian Penal Code, 1860 (IPC) by the trial court.
- The appellant was initially arrested and remained in custody as an undertrial.
- The High Court upheld the conviction and modified sentence passed by the lower courts in the revision petition.
- Aggrieved by the decision of the High Court the present appeal has been filed before the Supreme Court.
What were the Court’s Observations?
- The Supreme Court made the following observations:
- The Supreme Court noted that the highest case of the prosecution against the appellant was that the postal cover bore his handwriting.
- The Supreme Court found that the prosecution failed to provide the original postal cover as evidence.
- The Supreme Court observed that the postal cover was never exhibited or properly identified in evidence.
- The Supreme Court referenced Murari Lal v. State of M.P. (1980) case regarding principles for reliance on handwriting expert evidence.
- The Supreme Court emphasized that handwriting science is "not nearly so perfect" and requires careful examination of reasons.
- The Supreme Court concluded that since the postal cover itself was not exhibited and proved in evidence, there was no basis to accept that it bore the appellant's handwriting.
- The Supreme Court determined that "the prosecution miserably failed to prove the existence of the disputed postal cover."
- The Supreme Court held that the conviction as recorded by the trial court and affirmed by the appellate court and High Court "does not stand to scrutiny."
- The Supreme Court granted the appellant "a clean acquittal" by allowing the appeal and quashing the judgments of all lower courts.
What is Section 45 of Indian Evidence Act, 1872?
- The Indian Evidence Act, 1872 (IEA) talks about Evidence of Expert under Section 45 of IEA.
- Section 45 - Opinions of experts – When the Court has to form an opinion upon a point of foreign law or of science, or art, or as to identity of handwriting or finger impressions, the opinions upon that point of persons specially skilled in such foreign law, science or art, or in questions as to identity of handwriting or finger impressions are relevant facts. Such persons are called experts.
- The IEA gives due importance to the opinion of an expert, whereas the opinion of an ordinary person is of no value.
- The evidence of expert is not conclusive and how much reliance is to be placed on such evidence or how much weightage is to be given to it is the domain to the court concerned.
- The same section has now been covered under Section 39 of the Bharatiya Sakshya Adhiniyam, 2023 (BSA).
Landmark Judgment
- Murari Lal v. State of M.P. (1980)
- The Supreme Court in this case established several crucial principles regarding the evidentiary value of handwriting expert testimony:
- Expert Evidence Status: The Court rejected the notion that handwriting expert evidence should be treated with inherent suspicion or requires mandatory corroboration in all cases. The judgment clarified that a handwriting expert is "no accomplice" and their testimony should not be automatically condemned to a lower class of evidence.
- Scientific Limitations: The Court acknowledged that handwriting analysis is an imperfect science compared to more developed forensic techniques like fingerprint analysis. The judgment noted that "the science of identification of handwriting is not nearly so perfect and the risk is, therefore, higher" of an incorrect opinion.
- Approach to Expert Testimony: The Court advocated for a cautious approach when evaluating handwriting expert testimony, stating that courts should "proceed cautiously, probe the reasons for the opinion, consider all other relevant evidence and decide finally to accept or reject it."
- No Mandatory Corroboration: The judgment explicitly rejected any rule of law or prudence "that opinion-evidence of a handwriting expert must never be acted upon, unless substantially corroborated." It emphasized that in cases where the expert's reasoning is convincing and there is no reliable contradictory evidence, uncorroborated testimony may be accepted.
- Basis for Evaluation: The Court emphasized that an expert's opinion should be "tested by the acceptability of the reasons given by him" rather than being viewed with initial suspicion. The judgment stated that "an expert deposes and not decides," highlighting the advisory rather than determinative nature of expert testimony.
- Flexible Approach: The Court advocated for a case-by-case approach rather than rigid rules, stating "there can be no hard and fast rule, but nothing will justify the rejection of the opinion of an expert supported by unchallenged reasons on the sole ground that it is not corroborated."
- The Supreme Court in this case established several crucial principles regarding the evidentiary value of handwriting expert testimony:
Civil Law
Insurance Act Can't Override Succession Law
06-Mar-2025
Source: Karnataka High Court
Why in News?
Recently, Justice Anant Ramnath Hegde has held that a nominee under Section 39 of the Insurance Act does not override legal heirs' succession rights.
- The Karnataka High Court held this in the matter of Neelavva @Neelamma v. Chandravva & Others. (2025).
What was the Background of Neelavva @Neelamma v. Chandravva & Others. 2025?
- Sri. Ravi Somanakatti subscribed to two Life Insurance Policies with benefits of Rs.19,00,000/- and Rs.2,00,000/- respectively, nominating his mother as the sole beneficiary in the event of his death.
- At the time of taking these policies, Sri. Ravi Somanakatti was unmarried, but he later married and had a son without updating the nomination in his insurance policies.
- Following Sri. Ravi Somanakatti's death on 20th December, 2019, a dispute arose regarding the distribution of the insurance benefits between his mother (the nominated beneficiary) and his widow and minor son.
- The widow and minor son of the deceased filed a lawsuit against the mother, claiming their rightful share in the insurance benefits despite the mother being the sole nominee.
- The mother contended that as the nominated beneficiary under Section 39 of the Insurance Act, 1938 as amended in 2015, she was entitled to receive the entire benefit to the exclusion of other legal heirs.
- The respondents argued that the mother, as a nominee, was merely a custodian of the funds and was obligated to distribute them to all legal heirs according to personal succession laws.
- The trial court rejected the mother's claim to the entire benefit, decreeing that each party (the mother, widow, and minor son) was entitled to a one-third share of the insurance proceeds.
- Aggrieved by this judgment, the mother (defendant no. 1) filed an appeal in the Karnataka High Court, challenging the trial court's decision.
- The core legal issue in the case centered on whether the 2015 amendment to Section 39 of the Insurance Act created a new mode of succession that could override the personal laws of succession.
What were the Court’s Observations?
- The Karnataka High Court observed that the Law Commission of India had recommended a clear distinction between "beneficiary nominee" and "collector nominee" in insurance policies, but Parliament did not incorporate this distinction when amending Section 39 of the Insurance Act, 1938.
- The Court noted that Parliament did not accept the Law Commission's suggestion to provide policyholders with an option to declare whether the nominee would be a beneficiary nominee or a collector nominee, which suggests Parliament did not intend for nomination to override succession laws.
- The High Court observed that Insurance and Succession occupy different fields of legislation in the Constitutional Scheme, with Insurance falling under Entry 47 in List-I and Succession under Entry 5 in List-III of the Seventh Schedule.
- The Court observed that the Insurance Act was not conceived to provide law relating to succession, and treating certain nominees as exclusive successors would defeat the very purpose of insurance, which is to cover the risk of the policyholder's family and dependents.
- The High Court held that the term "beneficial interest" in Section 39(7) and "beneficial title" in Section 39(8) should be interpreted to mean that the nominee gains beneficial title only if the legal heirs do not claim benefits from the insurance policy.
- The Court determined that under Section 39(7), a nominee has no obligation to distribute benefits to legal heirs only if there is no claim by them, but if legal heirs make a claim, the nominee's claim must yield to personal law governing succession.
- The High Court acknowledged that some courts (Andhra Pradesh and Rajasthan) had taken a different view, but noted several factors that led to its conclusion, including the absence of clear legislative intent to override succession laws.
- The Court observed that the trial court had not considered the amended Section 39 in decreeing the suit for partition, but nonetheless confirmed the judgment based on the reasoning that Section 39 does not override personal succession laws.
- The High Court proposed better legislative practices, including clear statements of purpose in Objects and Reasons, explicit declarations about retrospective or prospective application, inclusion of illustrations for clarity, timely amendments to resolve conflicting interpretations, and drafting laws in simple language.
- The Court concluded that the mother, despite being the nominee, could not claim absolute ownership over the insurance benefits as the widow and minor son (Class-I heirs) had also laid claim to the benefits under the Hindu Succession Act.
What is Section 39 of the Insurance Act 1938?
- Section 39 of the Insurance Act, 1938 establishes the provisions for nomination by a policyholder in life insurance policies.
- The section permits the holder of a life insurance policy to nominate a person or persons who will receive the money secured by the policy in the event of the policy-holder's death.
- This nomination can be made either at the time of purchasing the policy or at any time before the policy matures for payment.
- When a nominee is a minor, the policyholder is legally permitted to appoint another person to receive the policy benefits in case the policyholder dies during the nominee's minority.
- For a nomination to be valid, it must either be incorporated in the policy text itself or be made through an endorsement on the policy that is communicated to and registered by the insurer.
- The policyholder retains the right to cancel or change the nomination at any time before the policy matures, either through an endorsement, further endorsement, or a will.
- The insurer is not liable for payments made in good faith to a nominee mentioned in the policy text or registered in the insurer's records, unless the insurer has received written notice of any cancellation or change.
- Insurers must provide written acknowledgment of registering a nomination, cancellation, or change, and may charge a nominal fee not exceeding one rupee for registering such changes.
- Any transfer or assignment of a policy under Section 38 automatically cancels a nomination, with a specific exception for assignments to the insurer for loan purposes.
- If the policy matures during the lifetime of the insured person or if all nominees die before the policy matures, the policy amount becomes payable to the policy-holder, their heirs, legal representatives, or the holder of a succession certificate.
- If one or more nominees survive the insured person, the policy amount becomes payable to such surviving nominee(s).
- Section 39 does not apply to policies covered under Section 6 of the Married Women's Property Act, 1874, except when nominations expressly state they are made under Section 39.
Landmark Judgments on Insurance Nomination
- Sarbati Devi v. Usha Devi (1984):
- The Supreme Court held that a nominee under Section 39 is merely a receiver of the policy money and is expected to distribute it among legal heirs according to succession laws. The judgment established that nomination doesn't confer beneficial ownership to the nominee.
- Shakti Yezdani v. Jayanand Jayant Salgaonkar (2016):
- The Supreme Court affirmed that nomination under various statutes does not override the law of succession, even when provisions use terms like "vests absolutely" or "notwithstanding anything contained in any law." This case set a precedent that nomination serves a limited purpose of receiving the amount.
- Karanam Sirisha v. IRDA (2022):
- The Andhra Pradesh High Court took a different view, holding that the amended Section 39(7) and 39(8) of the Insurance Act overrides provisions of law relating to non-testamentary succession, giving absolute rights to beneficiary nominees.
- Mallela Manimala v. Mallela Lakshmi Padmavathi (2023):
- The Andhra Pradesh High Court again ruled that the 2015 amendments to Section 39 override personal succession laws, allowing the nominee to claim absolute ownership over insurance benefits.