P. N. P. THULKARUNAI and CO. vs DIRECTOR, ENFORCEMENT DIRECTORATE, FINANCE MINISTRY.

The petitioner is a partnership firm consisting of brothers. f It was formed in the year 1959. the firm has filed this writ petition to quash the order

dated January 6, 1965, passed by the Director, enforcement Directorate, Ministry of Finance, New Delhi, levying a penalty of Rs. 10,000 u/s

23(1)(a) of the Foreign Exchange Regulation Act, 1947, for contravention of the provisions of section 5(1) of the Act.

As a result of the search of the petitioners premises under the provisions of section 19(3) of the Act, certain incriminating documents were seized

and a close scrutiny of the documents revealed, f according to the department, a number of contraventions of the provisions of the Act. The

petitioner was called upon to give full details about the petitioners connection with one K. S. Mohammed Ismail of Penang. Not being satisfied with

the explanation offered, the department proceeded to take proceedings u/s 23D. Finally, the department found the petitioners connection with one

K. S. Mohammed Ismail of Penang. not being satisfied with the explanation offered, the department proceeded to take proceedings u/s 23 D.

Finally the department found the petitioner-firm guilty of contravening the provisions of section 5(1) of the Act, relating to restrictions of payments

and imposed the penalty aforementioned.

According to the petitioner, the partnership firm was formed on April 14, 1959. before that date, the petitioner-company, known as Thulkarunai &

Co., was the sole proprietorship concern of the father of the present partners including the petitioner representing the firm in this writ petition. The

proprietorship concern was in existence form August 16, 1940, to April 11, 1959, when the father died. Soon after the death of their father, the

sons formed the partnership firm and carried over all the assets and liabilities of the sole proprietorship concern of their father and continued the

business. In the course of their business, they found that their father and continuous dealings with one K. S. M. Ismail, Madurai, form 1952. During

the course of the hearing of the writ petition, I directed the petitioner to file a statement of accounts and the company has accordingly filed a

statement of account of K. S. M. Ismail Madurai as found in the ledger of P. N. P. Thulkarunai & Company, between 1953 and 1963. One sees

in the account that large amounts had been taken as loan by the petitioners father form K. S. M. Ismail, Madurai, and all those amounts had been

adjusted from time to time by payments to third parties under instructions and these amounts had been debited in his account. According to the

petitioner, this K. S. M. Ismail and his brothers and ancestral business in Penang under the name and style of K. Sultan Alaudeen Sons. They had

a branch at Madurai. On January 1, 1953, the partnership firm was dissolved and K. S. M. Ismail continued to have his account. According to the

petitioner, this K. S. M. Ismail and his brothers had ancestral business in Penang under the name and style of K. Sultan Alaudeen Sons. They had

a branch at Madurai. On January 1, 1953, the partnership firm was dissolved and K. S. M Ismail continued to have his branch at Madurai. This

petitioner firm has nothing too do with the business activities of the Penang firm. The father of the petitioner had transactions ever since 1952 with

said Madurai firm and in the account books of the sole proprietorship concern of the father, there was a folio in the name of K. S. M. Ismail &

Bros., Madurai, until January 1, 1953, and subsequently in the name of K. S. M. Ismail, Madurai. The accounts were not closed at the time of the

death of their father and the petitioners firm and had perforce to continue the accounts.

The learned consul for the petitioners contends that the entire transactions were with the Madurai Branch which is an independent entity, that

borrowing loans and crediting the same to the leaders account does not amount to placing any sum to the credit of any person resident in Indian

within the meaning of section 5(1)(d) of the Act, that the sole proprietorship concern was not a family concern as mentioned by the department.

I see much force in the contentions of learned counsel for the petitioner. It is true that u/s 23C of the Act, if the person committing a contravention

is a company, every person who, at the time the contravention was committed, was in charge of and was responsible to the company for the

conduct of the business of the company, shall be deemed to be guilty of the contravention. But the acts in the case are alleged to have taken place

in the sole proprietorship concern of their father. The petitioners, that is the sons, have had no interest in the concern of their father. They have not

taken part in the management or control of the business during the life-time of their father. The sons were not in charge of or responsible to the

company for the conduct of the business of the sole proprietorship concern of their father at the relevant time. There is no provision in the Foreign

Exchange Regulation Act that, if there is any contravention of the provisions of the Act by the father, his legal representatives would be victoriously

liable and responsible for the same. The action taken by the department against the legal repressentatives of Thulkarunai (father) is in the nature of

enforcement of the doctrine of vicarious liability.

The application of the doctrine of vicarious liability in criminal law may be described as actuated by necessity rather then desirability. Criminal

responsibility is generally regarded as being essentially personal in character and it is with considerable diffidence that the principle is accepted

whereby a man may be found guilty and punished for an offence which is actually committed by another. In Salmonds Jurisprudence, it is stated at

page 366 :

... thre are two conditions to be fulfilled before penal responsibility can rightly be imposed. The one is the doing of some act by the person to be

held liable. A man is to be accounted responsible only for what he him self does, not for what other persons do, or for events independent of

human activity altogether. The other is the mens rea or guilty mind with which the act is done.

One member of a family is not victoriously liable for acts of another member, merely because of the family relationship. Thus, one spouse is not

liable for the torts of the other; nor the parent for the torts of the child if nothing more than relationship appears in the case. In the case of

partnership, it may be victoriously liable for the tortious acts of its agents and employees, just as any other business unit may. This doctrine can also

be extended to joint enterprise. This doctrine of vicarious liability has been severely criticised in modern times by judges in clear and unmistakable

terms. Lord Goddard, delivering judgment in Gardner v. Akeroyd [1952] 2 All E. R. 306, 1311 2 Q. B. 751), observed :

That it is a necessary doctrine for the proper enforcement of much modern legislation none would deny, but it is not one to be extended. Just as in

former days the term odious was applied to some forms of estoppel, so might it be to vicarious liability. It makes a person guilty of an offence

actually committed by another when he may have no knowledge that it was being committed or may have done his best to prevent it.

Thus the doctrine of vicarious liability is not of general application in the field of statutory crimes. It is a matter of construction in each case. It is

worth while to quote the words of Atkin J. In Mousell Bros v. L. N. W. Ry. Co. [1917] 2 K. B. 836. :

... regard must be had to the object of the statute, the words used, the nature of the duty laid down, the person upon whom it is imposed, the

person by whom it would in ordinary circumstances be performed, and the person upon whom the penalties is imposed.

If we apply the above principles to the facts of the instant case, it is clear that the sons of Thulkarunai would not be liable to pay the penalty of Rs.

10,000 imposed on them for the alleged Acts of contravention by their father. The department cannot fasten the liability on the sons on the ground

that they have succeeded to their fathers business. They are no doubt the heirs of their father. But when they succeeded to the estate of their father,

they formed themselves into a partnership business. They never partook of any interest in the sole proprietary concern of their father. It is not the

case of the department that the petitioners had any knowledge of the transactions mentioned in the statement of account. By merely, stating that

Thulkarunai & Company is a family concern, the department cannot equate the business of the father with the business of the partnership of the

sons as a company contemplated in section 23C of the Act. In Mens rea in Statutory Offences by Edwards, it is observed at page 243 :

So long as modern legislation continues to intrude itself into very sphere of treading, business, health and social welfare activities, laying down

elaborate codes of conduct to be observed by responsible officials, so, too, the doctrine of vicarious liability will continue to be an evil necessity.

But each gesture on the part of the judiciary and of the legislature which refuses to extend this obnoxious principle is to be applauded.

I entirely agree with the statement made by the learned author, and I refuse to extend the obnoxious doctrine of vicarious liability to the case of the

sons of Thulkarunai who are not responsible for the acts, if any, of contravention by their father while he was running the sole proprietorship

concern. Further, it is clear that there is no provision in the Act itself that the legal representatives of a person who had contravened the provisions

of the Foreign Exchange Regulation Act would also be liable for the penalty provided in the Act. Originally, even in the Income Tax Act, there was

no such provision. It was only after the decision in Commissioner of was no such provision. It was only after the decision in Commissioner of

Income Tax Vs. Ellis C. Reid, that the Income Tax Act was amended, so as to make the legal representatives of an assessee liable to pay the tax

due by the assessee. I do not think, therefore, that the department is right in imposing a penalty of Rs. 10,000 on the legal representatives of

Thulkarunai & Co., which was originally run by the father as a sole proprietorship concern.

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

Petition allowed.