AI Structured Summary
Not yet generated for this judgment
Judgment
G. Rajasuria, J.—This second appeal is focussed by the original first Defendant, animadverting upon the judgment and decree dated
22.01.2010 passed in A.S. No. 628 of 2007 by the Additional District Judge, Second Fast Track Court, Chennai, reversing the judgment and
decree of the XVIII Assistant Judge, City Civil Court, Chennai in O.S. No. 107 of 2006. The parties are referred to hereunder according to their
litigative status and ranking before the trial Court.
Compendiously and concisely, the relevant facts absolutely necessary and germane for the disposal of this Second Appeal would run thus:
(a) The Plaintiff filed the suit seeking the following reliefs:
(i) To grant Rs. 4,37,860/- along with interest at 12% per annum from the date of filing of this suit till decree and thereafter till payment; and
(ii) for costs.
(Extracted as such)
(b) The first Defendant filed the written statement resisting the suit.
(c) Whereupon the trial Court framed the issues.
(d) During trial, on the side of the Plaintiff, P. Ws.1 to 3 were examined and Exs.A1 to A28 were marked. On the side of the Defendants, one Mr.
Mahesh Pralhad Joshi was examined as D.W.1 and Exs.B1 to B4 were marked.
(e) Ultimately the trial Court dismissed the suit as against D1, but decreed the suit as against D2 who remained ex parte, as against which appeal
was filed by the Plaintiff. Whereupon, the first appellate Court reversed the judgment and decree of the trial Court and decreed the original suit as
prayed for as against D1 also.
Being aggrieved by and dissatisfied with the judgment of the first appellate Court, the first Defendant filed this appeal on various grounds and
also suggesting the following substantial questions of law.
(1) Whether the First Respondent is entitled to a decree for the recovery of money based on a illegal transaction admitted by PW1 to be illegal and
in violation of the foreign exchange laws of India and Reserve Bank of India regulations?
(2) Whether there is any vicarious liability of the Appellant company for the illegal transactions fraudulently entered into between the first
Respondent/Plaintiff and the employee of the Appellant viz. the second Respondent entered into by them with full knowledge in violation of the
reserve bank of India regulations and the foreign exchange laws?
(3) Whether there is any vicarious liability of the Appellant for the unauthorised acts of the second Respondent acting beyond the scope of his
authority and employment?
(4) Whether the judgment of the appellate court is not perverse in reversing the judgment and findings of the trial Court?
After hearing both sides, I thought fit to frame the following substantial questions of law:
(1) Whether the first appellate Court was justified in decreeing the suit, reversing the judgment and decree of the trial Court in dismissing the suit,
on the ground that even though as per P.W.1, the Plaintiff did not adhere to the legal procedures in issuing the foreign exchange, the Plaintiff was
entitled to file the suit and recover the dues from D1 also?
(2) Whether the first appellate Court properly appreciated the concept vicarious liability? and whether in the absence of any correspondence
between D1 the Corporate personality and the Plaintiff, another Corporate personality relating to purchase of foreign exchange and also in the
absence of production of evidence on Plaintiff''s side as pointed out by the trial Court in its judgment, was justified in decreeing the suit?
(3) Whether there is any perversity or illegality or non-adherence to Order 41, Rule 31 of CPC in the judgment and decree passed by the first
appellate Court in decreeing the original suit after reversing the judgment and decree of dismissal, passed by the trial Court?
The learned Counsel for the Appellant/D1 would put forth and set forth his arguments, which could pithily and precisely be set out thus:
(a) D2 and the Plaintiff colluded together and indulged in certain activities which are against the Foreign Exchange Management Act, 1999.
(b) D2 was not at all authorised to purchase any foreign exchange or enter into any contract with the Plaintiff, so as to make arrangements for
purchase of foreign exchange so as to enable the employees of D1 to go to foreign countries for their training purpose.
(c) The Plaintiff ex facie and prima facie did not comply with the procedures contemplated in the Foreign Exchange Management Act, 1999 and
also the Memorandum of Instructions to Authorised Money Changers issued by the Reserve Bank of India.
(d) Though D2 happened to be the Manager of D1, yet D1 being a corporate body, so to say a Company, did not in any way authorise D2 to act
on behalf of the Company.
(e) The Plaintiff who ventured even to extend some concessions to D2 on the alleged ground that D2 on behalf of D1 was transacting business,
never choose to contact any one of the Directors or the Managing Director of the D1 Company before entering into such contract with D2 or
extending such concession.
(f) None of the 27 employees of D1, on behalf of whom D2 allegedly contacted the Plaintiff for availing foreign exchange so as to enable them to
go to foreign countries availed such facility, whereas, those 27 employees were provided with foreign exchange facilities at the instance of D1 by
contacting other money changers and not the Plaintiff, and that itself is indicative of the fact that D2 was not authorised to act on behalf of D1 with
regard to the purchase of foreign exchange was concerned.
(g) No application was received from the prospective travellers by the Plaintiff in connection with the sale of foreign exchange.
(h) The first appellate Court while holding that the Plaintiff was not proper in processing the foreign exchange money contract, however, held as
though D1 was liable to pay the suit claim amount in favour of the Plaintiff.
Accordingly, the learned Counsel for the Appellant/D1 would pray for setting aside the judgment and decree of the first appellate Court and for
restoring the judgment and decree of the trial Court in dismissing the original suit as against D1.
In a bid to torpedo and pulverise and to take the edge off the arguments as put forth and set forth on the side of the Appellant/D1, the learned
Counsel for the Plaintiff would advance his arguments, the warp and woof of them would run thus:
(a) Absolutely there is no iota or shred, shard or miniscule extent of illegality involved in the Plaintiff''s transaction with D2, because D2 at the
relevant point of time was the Manager Administration as well as the Manager Accounts of D1. As such, he was holding two responsibilities and in
his capacity, he signed the Liberalised Exchange Management System (LEMS) letter.
(b) The entire transaction took place only in the business premises of D1, while D2 was in that office.
(c) Simply because as per the version of D1, his employees did not make use of the foreign exchange facility extended by the Plaintiff, that it does
not mean that D1 could wriggle out of its liability to pay the decree amount.
(d) In view of D2 having been the prominent as well as important functionary in D1''s office, D1 cannot wriggle out of its liability for the acts of D2
which had been performed in the course of transacting the business of D1.
(e) By no stretch of imagination it could be stated that what D2 availed from the Plaintiff was not in the course of the business of D1.
(f) D2 might have indulged in some fraud and he might have even committed fraudulent acts as against some other money changers also, but that it
does not mean that D1 could wash its hands and disown its liability. It is for D1 to discharge the dues towards the Plaintiff and try to get
reimbursed from D2 and the Plaintiff cannot be driven to the extent of proceeding as against only D2, who is not at all traceable.
(g) In letter and spirit the Memorandum of Instructions to Authorised Money Changers issued by the Reserve Bank of India was complied with.
(h) No specific application from the individual proposed traveller, so to say, the employee of a business concern is required at all.
(i) The bona fides of the Plaintiff cannot be doubted for the reason that they believed that D2 had full authority to transact business on behalf of D1.
(j) D1 having been negligent in supervising D2, cannot try to put the Plaintiff into any monetary loss.
(k) The vicarious liability of D1 for the acts of its agent, so to say D2''s acts is writ large and D1 should necessarily pay the suit claim.
(l) D.W.1, who deposed on behalf of D1, as a successor of D2 in the office, clearly and categorically admitted that it was D.W.1 as a single
individual transacting on behalf of D1 business with other foreign money changers.
(M) The question of two persons signing the cheques of D1 would not arise in this case because, the cheques issued by D2 were not returned on
the ground that they were not properly signed by two persons, but they were returned on the ground of insufficient funds. By citing several
decisions, the learned Counsel for the Plaintiff would submit that there is nothing wrong in the judgment of the first appellate Court, warranting
interference in the Second Appeal.
All the aforesaid substantial questions of law are taken together for discussion as they are inter linked and inter woven with one another.
Admittedly or at least undeniably, the following are the facts.
The Plaintiff and the D1, are the companies registered under the Companies Act. At the first instance, I would like to discuss the normal
permissible activities of a Company. The corporate body no doubt, is sui juris, it is having no physical existence but is having only legal personality,
which is a legal person. However, it could act only through its officials. The core question arises as to how a corporate body could act and how a
third party could fasten it with liability. The memorandum of association and the articles of association are the vital documents displaying its
characteristics and capabilities. Pithily and precisely, it could be stated that within the vires of the memorandum and articles of association only a
Company could act. Furthermore, the Company could be made liable only under certain circumstances legally. Here it is the case of the Plaintiff,
that D2 contacted the Plaintiff for and on behalf of D1 projecting himself as the integral part of D1 and he wanted foreign exchange money facilities
so as to enable as many as 27 employees of D1 to go to foreign countries in connection with their business trips at different periods of time.
Believing the same, the letters similar to that of Exs.A1 to A8 were received from D2 by the Plaintiff and agreed for the consideration being paid
by D2 in the form of cheques or Demand Drafts at a latter point of time, because D2 projected as though D1 was having no immediate liquid cash
to pay for the same.
At this juncture, I hark back to the following maxims:
(i) Rerum suarum quilibet est moderator et arbiter -Every one is the regulator and disposer of his own property;
(ii) Vigilant bus et non dormientibus jura subveniunt -The laws aid those who are vigilant, not those who sleep upon their rights.
Here it is to be seen as to whether the Plaintiff took the precautions before transacting business with D2. No doubt, D2 was admittedly the
Manager of D1''s Company. It is not the case of any one that prior to the transaction involved in this suit, there were other transactions between
D1 and the Plaintiff. As such, what was expected from the Plaintiff was that before entering into foreign exchange transaction with D2, the
responsible official of the Plaintiff should have met at least the Managing Director or one of the Directors of the D1 Company and after preliminary
correspondences, the Plaintiff should have started doing business with D1 through D2. But in this case, except for the letters like Exs.A1 to A8
signed by D2, there is nothing to demonstrate and evidence that there were correspondences between the Plaintiff Company and D1 Company. It
is also clearly and categorically highlighted and spotlighted by the first Defendant that none of the 27 employees of D1 availed the foreign exchange
facility from the Plaintiff at the instance of D2. It is therefore a clear case of D2 having meddled with the foreign exchange illegally, and some how
or other D2 managed to obtain foreign exchange from the Plaintiff and misappropriated and misused it virtually. There is no iota or miniscule,
molecular or pint of evidence that the foreign exchange paid by the Plaintiff was entered into the account books of D1. In order to understand that
D1 impliedly availed the Plaintiff''s service, there is nothing to indicate that in response to the foreign exchange money given by the Plaintiff to D2,
D1''s money flowed into the Plaintiff''s account.
The learned Counsel for the Plaintiff would invite the attention of this Court to the fact, that initially D2 was in the habit of issuing some cheques
with the instructions that the cheques might not be presented for the reason that within a short span of time he would pay the amount due towards
Plaintiff in the form of Demand Draft. Accordingly, he also except for these 8 transactions paid in the form of Demand Drafts. There is nothing to
show that those Demand Drafts were obtained by using the funds of D1. I could see that the Plaintiff being a business Company, cannot look into
the fact as to how the Demand Drafts were taken, so to say whether from out of the money of D1 or from out of the money of D2. But the whole
fact hinges on one crucial aspect, so to say, the Plaintiff before extending their concession as demanded by D2 should have discussed the matter
with the Managing Director or any one of the Directors of the D1 Company, but the Plaintiff miserably for reasons best known to themselves did
not choose to do so.
The learned Counsel for the Plaintiff would try to project that D1 cannot capitalise his own fault or negligence. I recollect the maxims:
(i) Nullus commodum capere potest de injuria sua propria: No one can gain advantage by his own wrong.
(ii) Nul prendra advantage de son tort demesne: No one shall take advantage of his own wrong.
Here what the learned Counsel for the Plaintiff would try to stress upon is that D1 should have been cautious enough in supervising D2 and
after allowing him to commit fraud, they cannot now try to disown their liability. The same principle would be applicable to the Plaintiff. Physician
cure thyself -Doctor cure yourself. The Plaintiff being a corporate body should not have extended such concession or should not have transacted
business with D2 without ascertaining or corresponding with D1. It is not the case of any one that D1 Company is not having a Managing Director
of its own or Directors of its own. Had one of the Directors of D1 Company been contacted by the Plaintiff earlier to such business dealings, then
without any hesitation it could be stated that D1 is squarely liable for the act of its Director, but the status of D2 being the Manager cannot be
equated to the one that of a Director or that of the Managing Director of D1. The Plaintiff, was expected to ascertain about the status and the
capacity of D2 to enter into contract on behalf of D1, with the Plaintiff. As such, I am of the considered view that the Plaintiff was not careful
enough in transacting business with D2 without ascertaining the powers and locus standi of D2. The claim of the Plaintiff that D2 projected himself
as a Manager in Exs.A1 to A8 by itself, would not legally fasten D1 with vicarious liability.
I would like to refer to the following Sections in the Indian Contract Act:
Principal how far bound, when agent exceeds authority - When an agent does more than he is authorized to do, and when the part of what he
does, which is within his authority, can be separated from the part which is beyond his authority, so much only of what he does as is within his
authority, is binding as between him and his principal.
Effect, on agreement, of misrepresentation or fraud by agent. -Misrepresentations made, or frauds committed, by agents acting in the course
of their business for their principals, have the same effect on agreements made by such agents as if such misrepresentations or frauds had been
made, or committed by the principals; but misrepresentations made, or frauds committed, by agents, in matters which do not fall within their
authority, do not affect their principals.
At this juncture, it is just and necessary to refer to the decisions cited on the side of the Plaintiff:
(i) The decision of the Hon''ble Apex Court reported in State Bank of India (Successor to The Imperial Bank of India) Vs. Shyama Devi,
(ii) The decision of this Court reported in 1898 (9) MLJ 57 [Ramaswami Aiyar v. Kanthayyan and others]
(iii) The decision of the Calcutta High Court reported in AIR 1923 Cal 157 [Dina Bandhu Saha v. Abdul Latif Molla]
(iv) The decision of the Nagpur High Court reported in AIR 1945 121 (Nagpur)
(v) The decision of the Lahore Court reported in AIR 1929 822 (Lahore)
A mere reading of those decisions in the light of those two Sections would unambiguously and unequivocally highlight and spotlight the fact that
if a principal empowers his agent to act, whereupon if the agent act in the course of the business of his Principal, then the Principal is liable for the
act of his agent. However, the illustration appended to Section 227 of the Indian Contract Act would clearly show that if an agent exceeds his
power even though he might be acting in the course of his business, then his activities would not bind the principal. Over and above that, fraud
vitiates everything.
As such, the fraudulent act of the agent would not bind the Principal. Here the facts are to the effect that the Plaintiff herein who entered into
transaction with D2 did not take sufficient care to verify as to whether D2 had the authority to act on behalf of D1. In the cited decisions supra, I
could come across instances, where a clerk in the Bank misappropriated the customer''s amount, whereupon the Bank was made liable and there
could no quarrel over such a proposition. Further more, if an agent to whom goods entrusted by the customers misappropriates the same, then it is
quite axiomatic and obvious that the Principal would be made liable. There are also catena of decisions, where for the acts of the clerks, the
Principals were fastened with vicarious liability. But here the case is entirely different. For the first time the Plaintiff started doing business with D1,
but not directly with D1, but believing that D2 was transacting business on behalf of D1. It is not the case of the Plaintiff that before entering into
such transaction there were some preliminary correspondences which normally one Company will have with another Company before commencing
business.
This is a case where D2 sought for certain concessions and the Plaintiff also responded to it positively, and in such a case, before that there
should have been some exchange of correspondences between the Plaintiff and D1 Company directly, but in this case that was not undertaken by
the Plaintiff.
The learned Counsel for D1 would cite the following English decision:
1965 1 All E.R. 639 [Shaw v. Shaw]; an excerpt from it would run thus:
The claim was based on nothing but the payment, which by virtue of Section 7 of the Exchange Control Act, 1947, was an illegal payment, and the
statement of claim would be struck out.
The above excerpts would support the view taken by this Court.
The learned Counsel also cited the following decisions:
(i) 1963 3 All E.R. 50 [Snell v. Unity Finance Ltd.]; an excerpt from it would run thus:
Once the facts which made the hire-purchase agreement illegal had become apparent to the country court it was the court''s duty, whether illegality
was or was not raised by the parties, to refuse to enforce the hire-purchase agreement; the Court of Appeal would not allow any limitation on
appeals from county courts by reason of the point of illegality not having been taken below to prevent the court''s giving effect to this principle, and
accordingly the appeal would be allowed and the action would be dismissed.
(ii) 2009 EWHC 3218 (QB) [Romy Nayyar and Ors. v. Denton Wilde Sapte and another]; an excerpt from it would run thus:
I accept that in considering whether the ex turpi causa principle applies the degree of connection between the wrongful conduct and the claim
made is an important consideration. As Bingham LJ stated in Saunders v. Edwards 1987 2 All ER 651 at 665-666:
Where issues of illegality are raised, the courts have (as it seems to me) to steer a middle course between two unacceptable positions. On the one
hand it is unacceptable that any court of law should aid or lend its authority to a party seeking to pursue or enforce an object or agreement which
the law prohibits. On the other hand, it is unacceptable that the court should, on the first indication of unlawfulness affecting any aspect of a
transaction, draw up its skirts and refuse all assistance to the Plaintiff, no matter how serious his loss nor how disproportionate his loss to the
unlawfulness of his conduct.
(ii) The decision of the Honb''le Apex Court reported in Immani Appa Rao and Others Vs. Gollapalli Ramalingamurthi and Others, certain
excerpts from it would run thus:
There can be no question of estoppel in such a case for the obvious reason that the fraud in question was agreed by both the parties and both
parties have assisted each other in carrying out the fraud. When it is said that a person cannot plead his own fraud it really means that a person
cannot be permitted to go to a court of law to seek for its assistance and yet base his claim for the Court''s assistance on the ground of his fraud. In
this connection it would be relevant to remember that Respondent 1 can be said to be guilty of a double fraud; first he joined Respondent 2 in his
fraudulent scheme and participated in the commission of fraud the object of which was to defeat the creditors of Respondent 2, and then he
committed another fraud in suppressing from the Court the fraudulent character of the transfer when he made out the claim for the recovery of the
properties conveyed to him. The conveyance in his favour is not supported by any consideration and is the result of fraud; as such it conveys no
title to him. Yet, if the plea of fraud is not allowed to be raised in defence the Court would in substance be giving effect to a document which is
void ab initio. Therefore, we are inclined to hold that the paramount consideration of public interest requires that the plea of fraud should be
allowed to be raised and tried, and if it is upheld the estate should be allowed to remain where it rests. The adoption of this course, we think, is less
injurious to public interest than the alternative course of giving effect to a fraudulent transfer.
(iii) The decision of this Court reported in Mrs. Shoba Viswanatha Vs. D.P. Kingsley, an excerpt from it would run thus:
In Gedge and Ors. v. Royal Exchange Assurance Corporation, 1900 Q B D 214 it is held thus:
Where, on the trial of an action, the Plaintiff''s case discloses that the transaction which is the basis of his claim is illegal, the Court cannot properly
ignore the illegality or give effect to the claim, even if the illegality be not pleaded or relied on by the Defendants.
The learned Counsel for the first Defendant would try to project as though the Plaintiff and D2 colluded together in those transactions. I would
like to point out that ex facie and prima facie, I do not see any such collusion between the Plaintiff and D2. As correctly pointed out by the learned
Counsel for the Plaintiff, if the Plaintiff had any mala fide or criminal intention in doing such foreign exchange business with D2, then the Plaintiff
would not have gone to the extent of openly coming and filing this case as against D2 also for recovery of the suit claim. Be that as it may, even
otherwise, I could see no fraudulent or malicious intention on the part of the Plaintiff in transacting business with D2. From the Plaintiff''s point of
view, no doubt they might have believed that D2 had authority on behalf of D1 to transact business with the Plaintiff relating to foreign exchange,
but that mere bona fide belief on the part of the Plaintiff by itself will not fasten D1 with liability to pay the suit claim and that is my categorical
finding in this case.
I recollect the maxim: Ubi jus ibi remedium - Where there is a right there is a remedy. Unless the Plaintiff could show that law fastens D1 with
liability for the act of D2, the question of bona fide belief on the part of the Plaintiff in transacting business with D2 and thereby fastening
automatically D1, would not arise at all.
The learned Counsel for the Plaintiff would try to point out that D1 was grossly negligent in allowing D2 to indulge in fraudulent act and
thereafter, trying to wash its hands. I would like to point out that such an argument focussed as against D1 by itself would not be sufficient to fasten
D1 with liability, so to say vicarious liability. D2 within a period of two months, so to say, during the period between 29.10.2002 and 31.12.2002
entered into certain transactions including the suit transactions with the Plaintiff. In such a case, one cannot expect a corporate body like D1 to
have a close watch on D2 as to what he had been doing every day unauthorisedly and illegally. The following maxim could also be recollected as
under:
Caveat viator: Let the seller beware.
At this juncture, the learned Counsel for D1 would try to probablise the case of D1 by pointing out that the Plaintiff was doing business with
D2 illegally. Both sides placed reliance on the Memorandum of instructions to Authorised Money Changers issue relating to 1999, 2000 and 2002
which are continued to be followed and the relevant portions therein are extracted hereunder for ready reference.
(i) An excerpt from the Memorandum of instructions to Authorised Money Changers issue relating to 1999 would run thus:
Money-changers may sell exchange in the form of foreign currency notes/coins and travellers cheques to eligible travellers proceeding abroad
under the Basic Travel Quota (BTQ) Scheme subject to the conditions given below.
....
Conditions:
....
(iv) The sale of foreign exchange should be made only on personal application and identification. While issuing travellers cheques, the conditions for
issue stipulated by the issuing company should be scrupulously observed and acknowledgment for receipt of travellers cheques duly obtained.
(v) Payment in excess of Rs. 50,000/- towards sale of foreign exchange should be received only by cheque/Demand Draft. For this purpose sales
in instalments, should be reckoned as a single drawal for the journey.
(vi) Sale of foreign currency notes and coins should be restricted up to U.S.$500/- or its equivalent only, per person within the traveller''s overall
foreign exchange entitlement. However, foreign currency notes/coins may be sold to travellers up to their full foreign exchange entitlement for visits
to Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States and not merely for visit
to these countries for transit purpose.
Sales for Business Visits Abroad
II. (i) Full-fledged money changers may sell exchange in the form of foreign currency notes/coins and traveller cheques to eligible travellers in the
following cases subject to the conditions indicated in paragraph 11(ii) below.
A. Business visits sponsored by firms/companies/organisations in India, journalists deputed on short term assignments abroad by
newspapers/journals and self-employed professionals like Solicitors, Chartered Accountants undertaking visits abroad in connection with their
profession. Exchange may also be released to foreign nationals if the visit is sponsored by the company/firm/organisation in India where they are
employed on regular basis.
B. Travel abroad by members of delegations sponsored by Trade Bodies like Chambers of Commerce, ASSOCHAM, FICCI, FIEO, etc.
Documentation
Letter (in duplicate) from the sponsoring firm/company/organisation [from the applicant in cases of self employed professionals] indicating name,
address, nationality, passport number of the traveller, duration and nature of visit to each country, exchange required and certifying that the
expenses are being borne by them. In case exchange is to be released as special scale, a declaration from the sponsoring
firm/company/organisation that the traveller is a Chief/Senior Executive in the organisation (including his designation) and confirming that he is
entitled to draw exchange at special scale.
Quantum of exchange:
(I) (a) Special Scale
For Chief/Senior Executives like Upto U.S.$ 500 per day for a period not
Chairman/Managing/ Executive Director exceeding 45 days.
(b) General scale
For others Upto U.S.$350 per day
for a period not
exceeding 45 days.
(II) Entertainment Allowance
(a) Chief Executives of Export/Trading/Star Trading Houses/Leader of delegation - not exceeding U.S.$ 5000 per trip and;
(b) Officials of other firms/companies etc. -not exceeding U.S.$2000/-
NOTE: Foreign exchange up to U.S.$5000 (inclusive of entertainment/secretarial etc. expenses) may be released regardless of the duration of the
visit and the per diem rate of exchange.
C. Business visits against foreign hospitality
Documentation:
Letter (in duplicate) from the applicant indicating name, address, nationality and passport number of the traveller, country of visit, period of stay,
name and address of the host, purpose of visit, etc., and documentary evidence in support of full hospitality.
Quantum of exchange:
Up to U.S.$ 500/- if the visit is for a period not exceeding 10 days. If the period of visit exceeds 10 days, U.S.$ 50 per day up to a maximum
period of 45 days.
Conditions:
(ii) While selling exchange in terms of paragraph 11(i), full fledged money changers should adhere to the following conditions.
1 Payment in excess of Rs. 50,000/- towards sale of foreign of exchange should be received only by cheque/Demand Draft. For this purpose sales
in instalments, should be reckoned as a single drawal for the journey.
2 The sale of foreign exchange should be made on application and after identification of the traveller.
3 It should be ensured that the traveller is in possession of documents authorising travel to the countries proposed to be visited as well as ticket for
travel to the country/ies for which exchange has been applied for. The sale of foreign exchange should be made not earlier than sixty days from the
date of departure recorded on the confirmed journey ticket.
(ii) An excerpt from the Circular issued by the Reserve Bank of India, Exchange Control Department, Central Office, Mumbai dated 01.06.2000
would run thus:
Documentation
It has been decided that henceforth the Reserve Bank will not prescribe the documents which should be verified by the Money Changers while
releasing foreign exchange. In this connection attention of Money Changers is drawn to Sub-section (5) of Section 10 of the Foreign Exchange
Management Act, 1999 (42 of 1999) which provides, that an authorised person shall before undertaking any transaction in foreign exchange on
behalf of any person require that person to make such a declaration and to give such information as will reasonably satisfy him that the transaction
will not involve and is not designed for the purpose of any contravention or evasion of the provisions of the Act or any rule, regulation, notification,
direction or order issued there under. Money Changers are advised to keep on record any information/documentation on the basis of which the
transaction was undertaken for verification by the Reserve Bank. The said clause further provides that where the said person (applicant) refuses to
comply with any such requirement or makes unsatisfactory compliance therewith, the authorised person shall refuse in writing to undertake the
transaction and shall if he has reasons to believe that any contravention/evasion is contemplated by the person, report the matter to Reserve Bank.
(iii) An excerpt from the Memorandum of instructions to Authorised Money Changers issue relating to 2002 would run thus:
Sale of foreign exchange
(i) Private Visits
FFM Cs may sell exchange up to the prescribed ceiling in the form of foreign currency notes/coins and travellers cheques to eligible resident Indian
citizens for undertaking one or more private visits to any country abroad (except Nepal and Bhutan). Exchange for such visits may be released on
the basis of declaration given by the traveller regarding the amount of foreign exchange availed of during a calendar year. Foreign nationals
permanently resident in India are also eligible to avail of this quota for private visits provided the applicant is not availing of facilities for remittance
of his salary, savings etc., abroad in terms of the existing Exchange Control regulations.
(ii) Business visits:
FFM Cs may sell exchange in the form of foreign currency notices/coins and traveller cheques to eligible travellers for business travel or for
attending conference or specialised training.
Quantum of Exchange:
Amount prescribed by Reserve Bank from time to time.
Conditions:
i. the sale of foreign exchange should be made only on personal application and identification. While issuing travellers'' cheques, the condition for
issue stipulated by the issuing company should be scrupulously observed and acknowledged for receipt of travellers cheques duly obtained.
ii. Payment in excess of Rs. 50,000/- towards foreign exchange sold should be received only by account payee cheque/demand draft. For this
purpose, sales in instalments, should be reckoned as a single drawal for the journey.
iii. The sale of foreign currency/notes and coins within the overall entitlement of foreign exchange, should be restricted to the limits prescribed by
Reserve Bank from time to time.
But the learned Counsel for the Plaintiff and the learned Counsel for D1 would try to interpret those instructions differently. In my considered
opinion, for the purpose of deciding this case my above discussion would be sufficient, even then to comprehensively deal with the matter, I would
like to refer to the aforesaid instructions issued by the Reserve Bank of India also.
The learned Counsel for the Plaintiff would submit that no separate application is contemplated under the caption ''Documentation'' of the said
memorandum.
Whereas the learned Counsel for D1 would vehemently argue that there should be an application signed by the proposed traveller,
whomsoever it might be, so to say, whether travelling for private purpose or for business purpose and such application should be enclosed with
various documents as found set out in the instructions of Reserve Bank of India.
In my considered view, the argument as put forth by the learned Counsel for D1 is plausible and it is in commensurate with the very purpose
and object of the Foreign Exchange Management Act, 1999 as well as Reserve Bank instructions.
I would like to extract hereunder Section 10(5) and 10(6) of Foreign Exchange Management Act, 1999.
Section 10(5): An authorised person shall, before undertaking any transaction in foreign exchange on behalf of any person, require that person to
make such declaration and to give such information as will reasonably satisfy him that the transaction will not involve, and is not designed for the
purpose of any contravention or evasion of the provisions of this Act or of any rule, regulation, notification, direction or order made there under,
and where the said person refuses to comply with any such requirement or makes only unsatisfactory compliance therewith, the authorised person
shall refuse in writing to undertake the transaction and shall, if he has reason to believe that any such contravention or evasion as aforesaid is
contemplated by the person, report the matter to the Reserve Bank.
(6) Any person, other than an authorised person, who has acquired or purchased foreign exchange for any purpose mentioned in the declaration
made by him to authorised person under Sub-section (5) does not use it for such purpose or does not surrender it to authorised person within the
specified period or uses the foreign exchange so acquired or purchased for any other purpose for which purchase or acquisition of foreign
exchange is not permissible under the provisions of the Act or the rules or regulations or direction or order made there under shall be deemed to
have committed contravention of the provisions of the Act for the purpose of this section.
A mere perusal and poring over of those excerpts as well as the entire Section and also the other connected provisions in the Foreign
Exchange Management Act, would amply make the point clear that the individual who is venturing to go abroad by availing foreign exchange
should take up personal liability, because if anything goes wrong then criminal liability would be fastened on such person. Merely because the
employer signs a letter that would not be sufficient and that would be quite antithetical to the very object of the Foreign Exchange Management
Act, 1999, and more specifically chapter III as well as the provisions contained in Chapter IV of the Act. Assuming for the moment that there is no
commitment by the person who is going to undertake the travel and subsequently if he does any criminal act, then it would be very difficult for the
enforcing authorities to fasten the very traveller who violated the provisions of the said Act to be brought to books under the criminal law.
My mind is reminiscent of the following maxims:
Verba generalia genera liter sunt intelligenda - General words are to be generally understood.
Verba intelligenda sunt in casu possibili - Words are to be understood in [or ""of,"" or ""in reference to""] a possible case.
Verba ita sunt intelligenda ut res magis valeat quam pereat: Words are to be so interpreted as to be effective rather than ineffective.
Those sister maxims would indicate that the interpretation should focus towards making the legislation meaningful.
The word ''applicant'' used in the said memorandum issued by the Reserve Bank of India would imply that the traveller, viz., the applicant
should present an application. He would be labelled or dubbed as applicant if at all he files an application. The documents contemplated
additionally, should be annexed with the application. Only in the application the details of the person travelling would be found spelt out and he
could also be fastened with liability personally if his signature is there. As such, I am of the considered view that in this case the Plaintiff has not
chosen to obtain such applications also from the prospective travellers, even though those prospective travellers happened to be the employees of
D1 Company.
There is nothing to indicate and exemplify that there was any communication between the Plaintiff and D1 or D1''s 27 employees concerned in
connection with such foreign exchange. The deposition of D.W.1, who is a successor of D2 in office has been commented upon by the learned
Counsel for the Plaintiff, which in my opinion may not be very relevant for the purpose of this case.
I recollect the following maxims:
(1) Affirmantis est probare: The person who affirms must prove
(2) Affirmanti, non neganti, incumbit probatio: The proof is incumbent on the one who affirms, not on the one who denies.
The burden is on the Plaintiff to prove clearly their case how they were vigilant in complying with the Reserve Bank of India instructions and
also in transacting business with D1. In this case, they put the entire burden on D2 and the transactions were all with D2. No correspondences
emerged with D1. In such a case, I am of the considered view that a corporate body like D1, cannot be fastened with the acts of D2 who was not
all authorised to enter into any foreign exchange transaction on behalf of D1 with the Plaintiff.
At this juncture, the precedent of the Hon''ble Apex Court reported in Iridium India Telecom Ltd. Vs. Motorola Incorporated and Others,
could fruitfully be cited; an excerpt from it would run thus:
The aforesaid sentiment is reiterated in 19 American Jurisprudence 2d, Para 1434 in the following words:
Lord Holt is reported to have said (Anonymous, 12 Mod 559, 88 eng Reprint, 1164) that ''a corporation is not indictable, but the particular
members of it are''. On the strength of this statement it was said by the early writers that a corporation is not indictable at common law, and this
view was taken by the courts in some of the earlier cases. The broad general rule is now well established, however, that a corporation may be
criminally liable. This rule applies as well as acts of misfeasance as to those of nonfeasance, and it is immaterial that the Act constituting the offence
was ultra vires. It has been held that a de facto corporation may be held criminally liable.
As in case of torts the general rule prevails that a corporation may be criminally liable for the acts of an officer or agent, assumed to be done by
him when exercising authorised powers, and without proof that his act was expressly authorised or approved by the corporation. A specific
prohibition made by the corporation to its agents against violation of the law is no defence. The rule has been laid down, however, that
corporations are liable, civilly or criminally, only for the acts of their agents who are authorised to act for them in the particular matter out of which
the unlawful conduct with which they are charged grows or in the business to which it relates.
The principle has been reiterated by Lord Denning in Bolton (H.L.) (Engg.) Co. Ltd. v.T.J. Graham & Sons Ltd., in the following words: (AC
p.172)
A company may in may ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have
hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents
who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who
represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the
company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the
fault of the manager will be the personal fault of the company. That is made clear in Lord Haldane''s speech in Lennard''s Carrying Co. Ltd. v.
Asiatic Petroleum Co. Ltd. (AC at pp.713, 714). So also in the criminal law, in cases where the law requires a guilty mind as a condition of a
criminal offence, the guilty mind of the directors or the managers will render the company themselves guilty.
The aforesaid principle has been firmly established in England since the decision of the House of Lords in Tesco Supermarkets Ltd. v.
Nattrass. In stating the principle of corporate liability for criminal offences, Lord Reid made the following statement of law: (AC p.170 E-G)
I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can
have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living
persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the
company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not
acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the
persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the
company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the
company or merely as the company''s servant or agent. In that case any lability of the company can only be a statutory or vicarious liability.
From the above it becomes evident that a corporation is virtually in the same position as any individual and may be convicted of common law
as well as statutory offences including those requiring mens rea. The criminal liability of a corporation would arise when an offence is committed in
relation to the business of the corporation by a person or body of persons in control of its affairs. In such circumstances, it would be necessary to
ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the
person or the body of persons. The position of law on this issue in Canada is almost the same. Mens rea is attributed to corporations on the
principle of ""alter ego"" of the company.
I hark back to the maxim:
Qui facit per alium facit per se - He who acts through another acts himself [i.e., the acts of an agent are the acts of the principal].
In this connection, I would like to refer to an excerpt from the Broom''s Legal Maxims, Tenth Edition:
The Plaintiff, on whom the burden of proof lies in all these cases, must, in order to recover against the Defendant, show that the Defendant
contracted expressly or impliedly, expressly, by making a contract with the Plaintiff; impliedly, by giving an order to him under such circumstances
as show that it was not to be gratuitously executed: and, if the contract was not made by the Defendant personally, it must be proved that it was
made by an agent of the Defendant properly authorised (i) [See Cooke v. Tonkin, 9 Q.B.936]
Cui bono: For whose good; for whose use or benefit.
No doubt, D2 is the person who got such illegal benefit. My ratiocination that there should be an application by the individual traveller would
turn out to be on a strong footing in the facts and circumstances of the case. Had the Plaintiff chosen to obtain individual applications from those
employees of D1, sponsored by D1, then the Plaintiff would not be in a precarious position now, because those individuals'' liability coupled with
the liability of D1 would be subsisting and available and enure to the benefit of the Plaintiff''s claim. But in this case such a procedure has not been
followed by the Plaintiff. The Plaintiff has to drag its feet and they cannot enforce the suit claim as against D1 by invoking the concept vicarious
liability. Simply because D2 was the Manager, D1 being a corporate body cannot be fastened with liability for D2''s criminal acts. Simply because
the cheques issued by D2 on behalf of D1 Company were returned on the ground of insufficient funds, that it does not mean that the Bank
acknowledged that the D1''s signature alone was sufficient. No doubt, in the cheques it is found printed signatories, but only one person signed it.
Of course, it is a technical interpretation. In some cases the word might be in plural, however, due to some arrangement between the Bank and the
customer, even a single signature would be taken as sufficient. I do not attach much importance to the grammar involved in the relevant cheques.
The possibilities are legion and very many and I do not want to base my judgment on such technicalities and trivialities in the facts and
circumstances of this case.
The first appellate Court no doubt pointed out that the Plaintiff did not comply strictly with the RBI instructions; however it held that D1 was
vicariously liable for D2 by placing reliance on the following judgments:
(1) Aneeta Hada Vs. Godfather Travels and Tours Pvt. Ltd.,
(2) State Bank of India (Successor to The Imperial Bank of India) Vs. Shyama Devi,
(3) M.S. Grewal and Another Vs. Deep Chand Sood and Others,
The first appellate Court did not elaborate on those decisions, which are on different footings and without discussing the relevant facts involved in
those decisions, it simply placed reliance on them and reversed the finding of the trial Court.
The decision reported in Aneeta Hada Vs. Godfather Travels and Tours Pvt. Ltd., would be on the point that the Company would be liable to
be proceeded against Sections 138 and 141 of the Negotiable Instruments Act, for the act of having issued the bounced cheque by the authorised
signatory. The said ratio decidendi is having no relevance at all to the facts and circumstances of this case and it is quite obvious.
The precedent reported in State Bank of India (Successor to The Imperial Bank of India) Vs. Shyama Devi, would exemplify, that if a Bank
employee misappropriates the cheque deposited by the customer with him, then the Bank would be liable. It is palpably and pellucidly clear that
here my discussion supra would show as to how the facts are entirely different in this case.
The decision of the precedent reported in M.S. Grewal and Another Vs. Deep Chand Sood and Others, is relating to the vicarious liability of
the School authority, to compensate for the negligent conduct of its two teachers, which is having no relevance whatsoever with regard to the facts
and circumstances of this case are concerned, and those three decisions could have been refrained from being cited before the lower appellate
Court, but to the shock and surprise of this Court, those three decisions were cited out of context and they were also taken as precedents for
deciding this case wrongly by the first appellate Court after misdirecting itself.
The trial Court discussed in paragraph No. 11 of its judgment the relevant facts and held that the Plaintiff did not adhere to the provisions of
the Act strictly and thereby it cannot fasten D1 with vicarious liability and the first appellate Court after accepting such finding of trial Court,
allowed itself to be misguided and mislead by the theory of vicarious liability and made D1 liable for the suit claim, warranting interference in the
Second Appeal.
Wherefore, the substantial question of law No. 1 is decided to the effect that the first appellate Court was not justified in decreeing the suit on
the ground that the Plaintiff was entitled to file the suit and recover the dues from D1.
The substantial question of law No. 2 is decided to the effect that the first appellate Court failed to properly appreciate the concept vicarious
liability.
The substantial question of law No. 3 is decided to the effect that since the first appellate Court failed to take into account the aforesaid points
discussed supra, interference in the Second Appeal is warranted.
In the result, I am of the considered view that the judgment and decree of the first appellate Court has to be set aside and the judgment and
decree of the trial court has to be restored. Accordingly, this Second Appeal is allowed and the original suit shall stand dismissed only as against
D1. The decree passed by the trial Court as against D2 only shall be in tact. However, there shall be no order as to costs in the Second Appeal.
Consequently, connected miscellaneous petition is closed.