LONG NOTE
BOMBAY HIGH COURT
Mrs. Roshan Dalvi, J.
Central Bureau of Investigation —Complainant
versus
Bhupen Champaklal Dalal & Ors.—Respondents
In the Special Court (Trial of Offences Relating to Transactions in Securities Act, 1992
Special Case No. 2 of 1995
Decided on 18.1.2014

IMPORTANT POINT
Vicarious liability is not liability of a principal for acts of his agent.

Headnote:(i) Indian Penal Code, 1860—Section 120B—Evidence Act, 1872—Section 91—Conspiracy—Dubious security transactions—Adage “witnesses is lie but documents do not” would apply with all its force to this case—Corruptibility of those witnesses and exercise which may have gone into making of such evidence relevant has not in the least mattered to prosecution case—In view of admission of execution of documents by all accused including execution of contract notes of accused, credit of cheques in bank account of accused, coupled with acceptance of Register of Bank, leaves entire oral evidence of prosecution showing business dealings of accused as wholly irrelevant and in consequential.

       Held: The adage “witnesses is lie but documents do not” would apply with all its force to this case. The corruptibility, if at all, of those witnesses and the exercise which may have gone into the making of such evidence relevant has not in the least mattered to the prosecution case. In view of the admission of the execution of the documents by all these accused including the execution of the contract notes of accused No.1 (as also accused No.13), the credit of the cheques in the bank account of accused No.2 and accused No.4 in transaction No.2 as also the cheque Exhibit 139 in the bank account of accused No.1, which shall be considered presently, coupled with the acceptance of the Register of BMC Bank, Exhibit 90 leaves the entire oral evidence of the prosecution showing the business dealings of these accused as wholly irrelevant and inconsequential. The evidence cheerfully relied upon on behalf of these accused remains at that.

       (ii) Contract Act, 1872—Section 226—Vicarious liability—Act of agent becomes act of principal because agent is authorized to act until power is revoked—Vicarious liability is not liability of a principal for acts of his agent.

       Held: The naive attempt at forsaking the criminal liability of accused No.1 is sought to be made upon the premise that admittedly PW 12 Kanani actually executed the contract notes and signed them and, therefore, the prosecution did not take the sample handwriting of accused No.1. It is, therefore, argued that for his contract notes, he cannot be faulted, his acceptance of remuneration as brokerage under the cheque, Exhibit 139 notwithstanding. This would throw to the winds the entire law of agency and the liability of the principal for the acts of his agent done under the authority given by the principal, a profound knowledge of which cannot be imputed upon such argument. The argument that the agent did not even talk to accused No.1 to inform him of the transactions or to take his permission from time to time also beats the law of agency as an agent does not have to talk to his principal and take his permission. The power is the permission and the authority. The act of the agent becomes the act of the principal because the agent is authorized to act until the power is revoked.

       Vicarious liability is not the liability of a principal for the acts of his agent. That is a statutory liability under Section 226 of the Indian Contract Act, 1872. Vicarious liability is defined and explained in the Advanced Law Lexicon of P. Ramanatha Aiyar, 3rd Edition, Volume 4, Page 4892 as the liability which falls on some persons as a result of action of some other person. e.g. that of a master for the actions of his servant or the liability that the supervisory party (such as an employer) bears for the actionable conduct of the subordinate or associate (such as an employee) based on the relationship between the two parties. Such liability is one that is incurred by one person but law imputes upon another to bear the responsibility for that act. It is, therefore, essentially tortuous liability arising out of the tort of another. It would essentially be for damages for negligence or other such torts.

       (iii) Indian Penal Code, 1860—Sections 120B, 420, 465, 467, 468 & 471 —Cheating, conspiracy and forgery—Dubious security transactions—Prosecution has not made out any case of any of the accused having entered into any criminal conspiracy upon implied or express agreement to do any illegal act or to do any act by any illegal means as defined under Section 120A and punishable under Section 120B of the IPC—All accused acquitted of charges under said section—However, stolen property received and appropriated by accused No.4 of Rs.53 lacs forms a part of public funds criminally misappropriated by accused No.2—It has remained with him from 1992 until now for a period of 21 years—He would require to compensate public treasury and State for amount appropriated by him and utilized by him for more than two decades—Compensation must be commensurate with his act—Conviction and sentence modified.

        Held: Consequently the prosecution has not made out any case of any of the accused having entered into any criminal conspiracy upon implied or express agreement to do any illegal act or to do any act by any illegal means as defined under Section 120A and punishable under Section 120B of the IPC. All the accused are acquitted of the charges under the said section.

       The prosecution has also not made out any case of cheating or committing forgery of any document or valuable security for the purpose of cheating or to use any forged document as genuine by accused No.1. The prosecution has however made out a case of accused No.1 having dishonestly received stolen property defined under Section 410 and punishable under Section 411 of the IPC.

       The prosecution has made out a clear case of accused No.4 having committed the offence of cheating in transaction No. 2 by deceiving BMC Bank and fraudulently and dishonestly inducing BMC Bank to deliver the DD made out in the name of Andhra Bank to him which caused damage and harm to BMC Bank being the offence defined under Section 415 and punishable under Section 420 of the IPC. The prosecution has however not made out any case of accused No.4 having received stolen property from another or having forged the letters of BMC Bank or any other valuable security for the purpose of such cheating or of using such document as genuine.

       The prosecution has not made out any case of accused No.13 having received stolen property by any cheque issued to it by way of brokerage fees or otherwise. The prosecution has also not made out any case of cheating or committing forgery of any document or valuable securities for the purpose of cheating or using any document as genuine by accused No.13.

       156. priated by accused No.1 forms a part of the public funds criminally misappropriated by accused No.2. It has remained with him from 1992 until now for a period of 21 years. He would require to compensate the victim which, in this case is the public treasury and the State for the amount appropriated by him and utilized by him for more than 2 decades. The compensation must be commensurate with his act as a broker in receiving the amount seen to be his brokerage fees for allowing the aforesaid bogus transaction Nos. 5 to 17 to be effectuated without GOI securities though they were meant to be interbank transactions. The appropriate compensation would be the amount that accused No.1 as an erudite broker would have made from Rs.10 lacs received by him dishonestly out of the funds criminally misappropriated and invested by him. At the normal commercial rate of interest of 18% p.a. calculated as simple interest, though it would have been compounded by any prudent investor such as accused No.1, it would be Rs. 37,80,000 after 21 years. Accused No.1 shall, therefore, also be liable to pay compensation of Rs. 37.80 L to the State.

       The profit of the outlandish amount of Rs.10.69 Cr. Received and appropriated by accused No.2 by cheating forms a part of the public funds criminally misappropriated by accused No.2. It has remained with him from 1992 until now for a period of 21 years since he has not paid back any amount to BMC bank; accused No.4 in transaction Nos.3, 4 to 15 and accused Nos.5, 10 & 14 (since deceased) have done so and they are not accepted to have acted under any agreement with accused No.2. Accused No.2, who claims that there is no criminal conspiracy between him and any of the accused, therefore, would require to compensate the victim for the amount appropriated by him and utilized by him for more than 2 decades. The victim is Mother India ! The compensation must be commensurate with his act in receiving the amount for allowing the aforesaid bogus transaction Nos. 1 & 3 to 17 to be effectuated without GOI securities and though they were meant to be interbank transactions. The appropriate compensation would be the amount that accused No.2 would have made from the investment of Rs.10.69 Cr. At the above rate of 18% p.a. simple interest, the said amount would aggregate to a neat accretion of Rs.40,40,82,000 after 21 years. Accused No.1, therefore, shall also be liable to pay compensation of Rs.40.40 Cr. to the State.

       The stolen property received and appropriated by accused No.4 of Rs.53 lacs forms a part of the public funds criminally misappropriated by accused No.2. It has remained with him from 1992 until now for a period of 21 years. He would require to compensate the public treasury and the State for the amount appropriated by him and utilized by him for more than 2 decades. The compensation must be commensurate with his act in allowing the aforesaid bogus transaction No. 4 to be effectuated without GOI securities though it was meant to be an inter-bank transaction as also his alleged acts as an advancer of loans on which he would himself charge interest. The appropriate compensation would be the amount that accused No.4 as a seasoned investor would have made from Rs.53 lacs received by him dishonestly out of funds criminally misappropriated and invested by him at the normal commercial rate of 18% p.a. simple interest, though it would have been compounded by himself. It would, therefore, be Rs.2,00,34,000/after 21 years. Accused No.4 shall, therefore, also be liable to pay compensation of Rs. 2 Cr. to the State.

       Hence the following order:

        (i) All the accused are acquitted of the charge of criminal conspiracy punishable under Section 120B of the IPC.

        (ii) Accused Nos.5, 11, 15 & 16 are acquitted of all the charges against them.

        (iii) Accused No.13 is acquitted of the charge of cheating, committing forgery of any document or valuable security for the purpose of cheating or using any forged document as genuine punishable under Sections 420, 465, 467, 468 & 471 of the IPC.

        (iv) Accused No.13 is given benefit of doubt and acquitted of the charge of dishonestly receiving stolen property punishable under Section 411 of the IPC.

        (v) Accused No.1 is acquitted of the charge of cheating, committing forgery of any document or valuable security for the purpose of cheating or using any forged document as genuine punishable under Sections 420, 465, 467, 468 & 471 of the IPC.

        (vi) Accused No.1 is convicted of the charge of dishonestly receiving stolen property punishable under Section 411 of the IPC and is sentenced to suffer rigorous imprisonment for the period of 1 year and to pay fine of Rs.1 lac and in default to suffer further rigorous imprisonment for the period of 3 months.

        (vii) Accused No.1 shall also pay compensation of Rs.37.80 lacs to the State/public treasury under Section 357(3) of the Cr.P.C.

        (viii) Accused No.2 is acquitted of the charge of dishonestly receiving stolen property, committing forgery of any document of valuable security used for the purpose of cheating or using any forged document as genuine punishable under Sections 411, 465, 467, 468 & 471 of the IPC.

        (ix) Accused No.2 is convicted of the charge of cheating and dishonestly inducing delivery of property punishable under Section 420 of the IPC and sentenced to suffer rigorous imprisonment of 5 years and to pay fine of Rs.10 lacs and in default to suffer further rigorous imprisonment for a period of 1 year.

        (x) Accused No.2 shall also pay compensation of Rs.40.40 Cr. to the State/public treasury under Section 357(3) of the Cr.P.C.

        (xi) Accused No.4 is acquitted of the charge of dishonestly receiving stolen property, committing forgery of any document of valuable security used for the purpose of cheating or using any forged document as genuine punishable under Sections 411, 465, 467, 468 & 471 of the IPC.

        (xii) Accused No.4 is convicted of the charge of cheating and dishonestly inducing delivery of property punishable under Section 420 of the IPC and sentenced to suffer rigorous imprisonment of 1 year and to pay fine of Rs.5 lacs and in default to suffer further rigorous imprisonment for a period of 3 months.

        (xiii) Accused No.4 shall pay compensation of Rs.2 Cr. to the State/public treasury under Section 357(3) of the Cr.P.C.

        (xiv) The period of imprisonment, if any, already undergone by accused Nos. 1, 2 & 4 shall be set off under Section 428 of the Cr. P. C.

        (xv) The bail bonds of accused Nos.1, 2 & 4 are cancelled.

        (xvi) The bail bonds of accused Nos.5, 11, 13, 15 & 16 are discharged.

       (iv) Criminal Procedure Code, 1973—Section 357—Compensation—Word “compensation” denotes an amount which would compensate for loss suffered by victim—It would be commensurate with such loss—It should place victim in a position it would have been had loss not been suffered by criminal act of accused constituting offence—It must require compulsory recoupment by wrongdoer of damage inflicted, in this case calculable financial damage.

       Held: Accused Nos.1, 2 & 4 have appropriated public funds for their own personal aggrandizement and profit. Accused No.2 has wiped off BMC Bank funds for large amounts under the guise of broker’s fees which went into his personal bank account. Accused No.4 did much the same, albeit to a limited extent in only 1 transaction. Accused No.1 has been privy to a fee from the ill-gotten gains of accused No.2 from accused No.2 for lending the name of his firm through the work of his employee as his agent to secure for himself a sinecure position. These accused have acted for their own gain disregarding the economic interest of their country itself. Though they may not suffer imprisonment for the maximum extent otherwise imposable deserved and the extent of imprisonment may be reduced, they require to defray the huge cost of the expenses incurred by the prosecution and in addition thereto also to compensate the State under Section 357 of the Cr.P.C. as per the judgment in the case of Ankush Shivaji Gaikwad v. State of Maharashtra, in which the Supreme Court has exalted and enjoined every criminal court to consider the amount of compensation which a convicted accused would have to pay the victim, in this case the State and the public treasury. The word “compensation” denotes an amount which “would compensate” for the loss suffered by the victim. It would, therefor, be commensurate with such loss. It should place the victim in a position it would have been had the loss not been suffered by the criminal act of the accused constituting the offence. It must require “compulsory recoupment by the wrongdoer of the damage inflicted”, in this case calculable financial damage. (See. Maru Ram v. Union of India, cited in the case of Ankush (supra). Each of these accused who claim to be stock brokers, underwriters, financial consultants, industrialists, investors or advancers must be taken to have the capacity to repay.