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The Persistent Challenge of Investment and Stock Market Frauds in India.

Abstract:

This article delves into the landscape of financial frauds in India, examining major frauds, regulatory responses, and the underlying factors that contribute to their persistence. As the country moves forward, the lessons learned from past frauds must inform stronger, more effective strategies to prevent future ones, ensuring that India’s financial markets can fulfil their potential as engines of economic growth and prosperity for all.

 

Introduction

India’s journey towards becoming a global economic powerhouse has been marked by several strides in its financial markets. However, this growth has been periodically stained by a series of investment and stock market frauds that have shaken investor confidence and exposed systemic vulnerabilities.

Since the liberalization of India’s economy in the early 1990s, the country’s financial markets have experienced rapid growth and transformation. However, this period has also witnessed a parallel evolution of financial frauds. From the infamous Harshad Mehta fraud in 1992 to more recent cases like the Saradha Group financial scandal in 2013, these frauds have consistently exploited regulatory loopholes, technological advancements, and investor naivety.

The future of India’s economic growth and its position in the global financial landscape depends significantly on its ability to tackle these persistent frauds and build a robust, fraud-resistant financial ecosystem.

Major Scams and Their Impact:

  1. Harshad Mehta Scam (1992)

Often referred to as “The Big Bull,” Harshad Mehta orchestrated one of India’s largest financial frauds, estimated at 4,000 crore rupees. Mehta exploited the banking system’s weaknesses, using inter-bank transactions to funnel money into the stock market. This scam not only led to a market crash but also exposed significant vulnerabilities in India’s financial system.

  1. CRB Scam (1996)

Chain Roop Bhansali, through his CRB Capital Markets, defrauded investors of approximately 1,200 crore rupees. Bhansali raised funds through various financial instruments and channelled them into the stock market for personal gains. This scam highlighted the risks associated with unregulated non-banking financial companies (NBFCs).

  1. Ketan Parekh Scam (2001)

Following in Mehta’s footsteps, Ketan Parekh manipulated stock prices through circular trading and risky borrowing, causing losses estimated at 800 crore rupees. The scam involved the infamous “K-10” stocks and revealed the dangers of excessive speculation and market manipulation.

  1. Satyam Scam (2009)

Often called “India’s Enron,” the Satyam scandal involved the falsification of accounts to inflate profits and assets, amounting to 14,162 crore rupees. This corporate fraud shook investor confidence in Indian companies and led to significant reforms in corporate governance.

  1. Sahara Housing Bonds (2010)

The Sahara Group raised an estimated 24,029 crore rupees through illegal bond issuances to millions of small investors. This case pointed out the challenges in regulating para-banking activities and protecting small investors.

  1. Speak Asia Scam (2012)

This online survey scam defrauded investors of approximately 2,200 crore rupees. It exemplified how technology could be misused to create sophisticated Ponzi schemes targeting a wide range of investors.

  1. Saradha Scam (2013)

The collapse of the Saradha Group’s Ponzi schemes led to losses estimated at 10,000 crore rupees. This scam exposed the vulnerabilities of small investors in less regulated financial products and the political nexus in financial frauds.

  1. NSEL Scam (2013)

The National Spot Exchange Limited (NSEL) scam, involving fake commodity contracts, resulted in losses of about 5,600 crore rupees. It revealed the risks in commodity trading and the need for better oversight of exchanges.

Regulatory Framework and Responses:

The Securities and Exchange Board of India (SEBI), established in 1992, has been at the forefront of regulating the Indian securities market. Over the years, SEBI has introduced various measures to combat fraud. SEBI has strengthened its market surveillance capabilities, using advanced technologies to detect unusual trading patterns and potential market manipulation. Companies are now required to provide more comprehensive and timely disclosures, enhancing transparency in the market.

SEBI has tightened rules against insider trading, imposing severe penalties on violators. The regulator has refined the takeover code to ensure compliance and fair practices in corporate acquisitions and protect minority shareholders. SEBI has launched various initiatives to improve financial literacy among investors.

Despite these efforts, challenges persist. The regulatory framework often struggles to keep pace with evolving fraud techniques. Moreover, the coordination between different regulatory bodies like SEBI, RBI, and the Ministry of Corporate Affairs sometimes needs more efficiency, creating regulatory gaps that can be exploited.

Factors Contributing to Persistent Frauds:

According to surveys cited in the article, over 70% of Indians perform poorly on financial literacy measures. This widespread lack of financial awareness creates a vulnerable environment where many investors are susceptible to fraudulent schemes and manipulative practices through various platforms like social media and other applications. With a solid understanding of economic concepts, risk management, and investment strategies, individuals may fall prey to promises of unrealistic returns or become involved in schemes they do not fully comprehend.

The regulatory framework in India faces several obstacles that hinder its effectiveness in protecting investors and maintaining market integrity. Corruption, bureaucratic hurdles, and political interference often impede the smooth functioning of regulatory bodies and enforcement agencies. These issues can lead to delayed action against fraudulent activities, inconsistent application of rules, and, in some cases, the exploitation of the system by well-connected individuals or entities. Additionally, the overburdened judicial system in India frequently results in prolonged delays in resolving financial fraud cases. This sluggish legal process can sometimes allow perpetrators to evade justice or continue their illicit activities while cases remain pending.

The technological advancements have brought both benefits and challenges to India’s financial markets. While technology has enhanced market efficiency and accessibility, it has also opened up new avenues for fraud. Cybercrime, algorithm-based market manipulation, and sophisticated online frauds are emerging threats that regulators often struggle to address effectively. The rapid pace of technological innovation frequently needs to improve the ability of regulatory bodies to develop and implement appropriate oversight mechanisms, leaving gaps that fraudsters can exploit.

Corporate governance remains a critical area of concern in the Indian business landscape. Despite improvements in recent years, many Indian companies still lack robust corporate governance structures. This deficiency makes them more susceptible to internal fraud, mismanagement, and manipulation of financial statements. Weak governance practices can lead to a lack of transparency, inadequate risk management, and insufficient protection of minority shareholders’ interests, all of which contribute to an environment where financial misconduct can thrive.

Fraudsters often exploit gaps between different regulatory jurisdictions or find loopholes in existing regulations to conduct their activities. The overlap of responsibilities between various regulatory bodies, such as the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and other sector-specific regulators, can sometimes lead to coordination issues and regulatory arbitrage. This fragmented regulatory landscape can create opportunities for sophisticated fraudsters to operate in grey areas or exploit inconsistencies in enforcement.

Impact on Investors and Market Integrity:

The recurring nature of these frauds has impacted the investor sentiment and market integrity. Repeated frauds have made many small investors wary of the stock market, potentially hampering the growth of retail participation in the financial markets. These frauds have resulted in significant economic losses, not just for individual investors but for the economy as a whole. The frequency of these frauds has damaged India’s reputation in global financial markets, potentially deterring foreign investment.

In response to these frauds, regulators have imposed stricter compliance requirements, increasing the cost of doing business for legitimate enterprises. SEBI’s efforts have led to improvements in the institutional framework for securities trading in India. Every actor directly connected with securities trade has been brought under SEBI’s regulatory ambit. A combination of registration, licensing, eligibility conditions, and incentives allows SEBI to rein in non-compliant behaviour that could affect the functioning of the securities market adversely.

While SEBI has made progress in detecting and disposing of instances of non-compliance or infractions, concerns still need to be addressed about the timeliness and scale of penalties awarded. SEBI is said to have had a poor record in carrying its awards through the appellate and judicial systems. The absence of specialized courts with the capacity to deal with matters involving financial markets is cited as a reason for SEBI’s lack of success in securing prosecution against various offenses.

The Way Forward:

As India continues to develop its financial markets, there is an ongoing need to address systemic vulnerabilities, improve regulatory measures, and enhance investor protection. The persistent challenge of investment fraud indicates the importance of continuous improvement in market regulation, corporate governance, and financial literacy to build a trustworthy financial ecosystem in India.

This involves enhancing coordination between various regulatory bodies, such as the Securities and Exchange Board of India (SEBI), Reserve Bank of India (RBI), and the Insurance Regulatory and Development Authority (IRDA), to identify and close potential loopholes that fraudsters might exploit. Implementing more stringent penalties for financial crimes can serve as a stronger deterrent, discouraging potential wrongdoers. This could include higher fines, longer prison sentences, and restrictions on future participation in financial markets. Additionally, developing early warning systems is crucial to detect and avoid such mishaps. These systems should leverage advanced analytics to detect unusual patterns or suspicious activities in the market, allowing regulators to intervene proactively before significant damage occurs.

A critical defence against investment fraud is an informed public. Integrating a comprehensive financial education into school and college curricula can help create a generation of financially savvy individuals who are less likely to fall prey to fraudulent schemes. This education should cover the basics of personal finance, investment principles, and how to identify potential frauds. Launching widespread public awareness campaigns through various media channels can help reach a broader audience, including those who are no longer in formal education systems. These campaigns should focus on safe investing practices, the importance of due diligence, and how to spot red flags in investment opportunities. Additionally, encouraging responsible financial journalism helps to create an educated population. Media outlets should be incentivized to provide accurate, unbiased financial information and analysis, helping to educate the public and counteract misinformation that might lead to poor investment decisions.

Technology can play a pivotal role in combating investment fraud. Investing in advanced data analytics and artificial intelligence can significantly enhance fraud detection capabilities. These technologies can process vast amounts of data to identify patterns and anomalies that might indicate fraudulent activities, often faster and more accurately than human analysts. Implementing blockchain technology in financial transactions can increase transparency and traceability, making it more difficult for fraudsters to manipulate records or hide illicit activities. Other emerging technologies, such as machine learning algorithms for predictive analysis and natural language processing for monitoring communication channels, can also be employed to strengthen the overall fraud prevention ecosystem.

Strong corporate governance is essential in preventing and detecting fraud within companies. Strengthening the role and independence of company boards and audit committees can provide better oversight and reduce the risk of internal fraud. This could involve stricter criteria for board member selection, mandatory training on fraud detection, and more precise definitions of board responsibilities. Implementing norms more stringent for auditor rotation and independence can help prevent collusion and ensure fresh perspectives in financial audits. Additionally, fostering a culture of whistleblowing by implementing robust protection mechanisms for whistleblowers can encourage employees to report suspicious activities without fear of retaliation, thereby increasing the chances of early fraud detection.

The effectiveness of anti-fraud measures depends on their enforcement. Establishing fast-tracks courts specifically for financial crimes can ensure speedier justice, reducing the backlog of cases and providing timely resolution. This not only serves as a deterrent but also helps in the quicker recovery of defrauded funds. Enhancing the capacity of the judicial system to handle complex financial cases is equally important. This could involve specialized training for judges and prosecutors in economic matters, the use of technology in court proceedings, and the engagement of financial experts to assist in complex cases.

In an increasingly globalized financial world, many frauds have cross-border implications. Strengthening cooperation with international regulators is crucial to tackle such crimes effectively. This could involve information-sharing agreements, joint investigations, and mutual legal assistance treaties. Aligning Indian financial regulations with global best practices can also help in creating a more robust system. This alignment would not only make it easier to cooperate with international partners but also ensure that India’s financial markets meet global standards, potentially attracting more foreign investment while simultaneously making it harder for fraudsters to exploit regulatory differences across jurisdictions.

Conclusion

The persistent challenge of investment and stock market frauds in India reflects deeper systemic issues within the country’s financial ecosystem. While regulatory bodies like SEBI have made significant strides in enhancing market integrity, the evolving nature of economic crimes demands constant vigilance and adaptation.

The stark reality that small investors have “almost zero percent protection” due to systemic issues indicates the urgency of the situation. It is clear that merely tightening regulations is not enough but there needs to be a fundamental shift in how India approaches financial market. An informed investor base not only protects itself better but also serves as an additional layer of market surveillance. However, this needs to be coupled with addressing the root causes of corruption, improving the efficiency of the judicial system, and fostering a culture of ethical business practices.

As India continues its journey towards becoming a global economic powerhouse, ensuring the integrity of its financial markets is essential. This requires a joint effort from regulators, market participants, educational institutions, and the government.

 

Article by Maria Therese Syriac.

PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.

Works Cited

  • Dhanaiah, Gangineni, et al. “IMPACT FACTOR 4.173 (ISI) 3.860 (COSMOS) Mehta (1992).” Saradha Group Financial Scandal, vol. XI, no. 2, 2016.
  • Kaushik, Nikhil. “Corporate Governance and Indian Stock Market: A Study with Asymmetric Conditional Volatility Models.” Asian Journal of Management, vol. 9, no. 1, 2018, p. 80, https://doi.org/10.5958/2321-5763.2018.00012.4.
  • Rajyalakshmi Kandukuri. “An Analysis of Stockbroking Frauds and Regulatory Action in India.” Journal of Financial Crime, vol. 31, no. 4, 8 June 2023, pp. 1037–1046, https://doi.org/10.1108/jfc-04-2023-0076.
  • Sabarinathan, G. “SEBI’s Regulation of the Indian Securities Market: A Critical Review of the Major Developments.Vikalpa: The Journal for Decision Makers, vol. 35, no. 4, Oct. 2010, pp. 13–26, https://doi.org/10.1177/0256090920100402.
  • Sharma, Nirmal, et al. “History of Scams, Corruptions, and Low Financial Literacy in Indian Stock, Capital, and Money Markets.” The Pacific Journal of Science and Technology -170, vol. 21, no. 1, 2020.
  • Van Driel, Hugo. “Financial Fraud, Scandals, and Regulation: A Conceptual Framework and Literature Review.” Business History, vol. 61, no. 8, 5 Oct. 2018, pp. 1259–1299, https://doi.org/10.1080/00076791.2018.1519026.
  • Zhang, Yun, et al. “Vulnerability and Fraud: Evidence from the COVID-19 Pandemic.” Humanities and Social Sciences Communications, vol. 9, no. 1, 28 Nov. 2022, https://doi.org/10.1057/s41599-022-01445-5.
  • https://www.forbes.com/advisor/in/personal-finance/financial-scams-in-india/

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Mere Mention in Suicide Note Insufficient for Abetment Charge: Supreme Court.

Vikas Chandra v. State of Uttar Pradesh & Anr.

Case No.: Criminal Appeal No.__________ of 2024 (Arising out of SLP (Crl.) No.1196/2018).

Date: February 22, 2024.

Court: Supreme Court of India.

Quorum: Hon’ble J. C.T. Ravikumar, J. Rajesh Bindal.

Facts of the Case:

The case concerns the death by suicide of Brijesh Chandra, father of the appellant Vikas Chandra. Brijesh Chandra was a retired military man working as a security guard at Mandi Samiti, Puwaya. The respondent Ram Babu Sharma was the Secretary of the Mandi Samiti at the time.

According to the complaint filed by Vikas Chandra, his father’s salary from March 2004 to August 2004 and September 2004 onwards was not paid. On October 12, 2004, when Brijesh Chandra requested the release of his salary, Ram Babu Sharma allegedly told him: “I will see that how will you get your salary and who will help you in getting your salary, I will bring out your military-man-ship and either you die or your children, but I do not care, get out of here, why you do not take poison”.

On October 23, 2004, Brijesh Chandra committed suicide by consuming poison in the office of Sub-Mandi, Alhaganj, where he was working at the time. He left a suicide note allegedly attributing responsibility for his suicide to Ram Babu Sharma.

Initially, the complainant approached the court of the Judicial Magistrate, but the complaint was not forwarded for investigation under Section 156(3) of the Criminal Procedure Code (CrPC). The matter was taken up in revision and eventually to the High Court. Based on the High Court’s orders, an FIR was registered under Section 306 of the Indian Penal Code (IPC) for abetment of suicide.

After investigation, the police filed a closure report. The Magistrate did not accept this report and conducted an inquiry under Section 202 CrPC based on a protest petition filed by the complainant. Subsequently, the Magistrate issued summons to Ram Babu Sharma to face trial for the offense under Section 306 IPC.

Ram Babu Sharma challenged this summons order in the High Court under Section 482 CrPC. The High Court quashed the summons order, leading to the present appeal before the Supreme Court.

Legal Issues:

Whether the High Court erred in quashing the summons issued against the respondent?

Whether the High Court exceeded the settled guidelines and parameters for exercising power under Section 482 CrPC?

Whether there was sufficient prima facie evidence to issue summons for the offense of abetment of suicide under Section 306 IPC?

Legal Provisions:

  1. Indian Penal Code:
  • Section 306 IPC – Abetment of suicide.
  • Section 107 IPC – Abetment.

  1. Code of Criminal Procedure:
  • Section 156(3) CrPC – Police officer’s power to investigate cognizable case.
  • Section 173(2) CrPC – Report of police officer on completion of investigation.
  • Section 190 CrPC – Cognizance of offences by Magistrates.
  • Section 202 CrPC – Postponement of issue of process.
  • Section 204 CrPC – Issue of process.
  • Section 482 CrPC – Saving of inherent powers of High Court.

Contentions of petitioners:

The appellant strongly argued that the High Court had committed a grave error in law by quashing the summons issued against the respondent. They contended that the Magistrate’s decision to issue summons was based on sufficient prima facie evidence and should not have been interfered with by the High Court. The appellant asserted that the High Court had exceeded the settled guidelines and parameters for exercising power under Section 482 CrPC. They argued that the High Court’s power to quash proceedings should be exercised sparingly and only in cases where there is a clear abuse of the process of law.

The appellant maintained that there was ample prima facie evidence to justify the issuance of summons for the offense of abetment of suicide under Section 306 IPC.

They pointed to the following elements:

  • The alleged threatening and instigative remarks made by the respondent on October 12, 2004.
  • The non-payment of salary, which they argued created circumstances that led to the suicide.
  • The suicide notes mentioning the respondent’s name and attributing responsibility to him.

The appellant argued that given the serious nature of the allegations and the existence of prima facie evidence, the matter deserved a full trial. They contended that quashing the summons at this stage would prevent a proper investigation into the circumstances of Brijesh Chandra’s death.

The appellant argued for a broader interpretation of the suicide note, suggesting that even if it didn’t explicitly mention the October 12 incident, the overall content implied abetment by the respondent.

Contentions of the Respondents:

The respondents argued that the summoning order was issued without satisfying the grounds required under law. They contended that mere mention of a name in a suicide note does not automatically amount to abetment of suicide. They argued that the Magistrate’s order did not reflect proper application of mind to form an opinion regarding sufficient basis for proceeding against the respondent. They pointed out that the order lacked detailed reasoning for issuing the summons. The respondents emphasized that there was no material suggesting instigation by the respondent in the suicide note. They argued that for abetment under Section 306 IPC, there must be clear evidence of instigation or creation of circumstances that left no option but suicide. They pointed out the significant time gap (11 days) between the alleged instigation and the suicide, arguing that this weakened any case for abetment. They also contended that there was no evidence of a continued course of conduct that could be seen as abetment.

The respondents highlighted that the alleged incident of October 12, 2004, which formed the basis of the complaint, was not mentioned in the suicide note. They argued that if this incident was indeed the trigger for the suicide, it would have been mentioned. They further argued that allowing the case to proceed based on such flimsy evidence would amount to misuse of the criminal process and cause undue harassment to the respondent. They contended that the High Court’s use of power under Section 482 CrPC was justified to prevent abuse of the process of law and to secure the ends of justice.

Analysis of the judgement:

In its judgment, the Supreme Court dismissed the appeal and upheld the High Court’s decision to quash the summons order. The Court reaffirmed that while a Magistrate has the power to issue summons even after a closure report is filed by the police, this power must be exercised judiciously. It emphasized that issuing summons is a serious matter that affects an individual’s dignity and reputation, and therefore should not be done mechanically but only upon satisfaction of sufficient grounds for proceeding.

The Court clarified that for an offense under Section 306 IPC (abetment of suicide), there must be specific abetment as contemplated by Section 107 IPC, with an intention to bring about the suicide of the person concerned. In this case, the Court found no explicit or implicit reference in the suicide note to the alleged incident of October 12, 2004, or any instigation by the respondent. The significant time gap of 11 days between the alleged instigation and the suicide further weakened the case for abetment. The Court held that the mere statement in the suicide note that the respondent would be responsible for the suicide was not sufficient ground to issue summons for an offense under Section 306 IPC.

The judgement emphasized the need for careful judicial scrutiny before issuing summons in criminal cases, serving as a safeguard against arbitrary or mechanical issuance of summons. The Court’s clarification on the ingredients of abetment of suicide is vital, stressing that specific abetment with the intention to bring about the suicide is necessary, and mere attribution of responsibility in a suicide note is not sufficient.

The Court’s consideration of the lack of proximity between the alleged instigation and the suicide, as well as the absence of a continued course of conduct, as factors weakening the case for abetment, provides valuable guidance for similar cases. The judgment also offers insights into how suicide notes should be appreciated in the context of abetment charges, suggesting that courts should look for specific allegations and material of a definite nature, not merely inferences.

Conclusion

The decision serves as a reminder to lower courts to exercise their powers judiciously, especially in cases involving serious charges like abetment of suicide. It also provides guidance on how to appreciate evidence, particularly suicide notes, in such cases.

 

Reviewed by Maria Therese Syriac.


Click here to read the Judgement.

PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.

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Supreme Court Sets Deadline for Jet Airways Funding; NCLAT to Decide Fate.

CASE TITLE – State Bank of India and Ors. v. The Consortium of Mr Murari Lal Jalan and Mr Florian Fritsch and Anr.

CASE NUMBER – 2024 INSC 51 (Neutral Citation)

DATED ON – 18.01.2024

QUORUM CJI Dr. Dhananjaya Y. Chandrachud, Justice J.B. Pardiwala & Justice Manoj Misra

FACTS OF THE CASE

A Resolution Plan was submitted under the Insolvency and Bankruptcy Code, 2016 by a consortium of Murari Lal Jalan and Florian Fristch in respect of the Corporate Debtor (Jet Airways Limited). The Plan was voted upon and approved by the Committee of Creditors on 17 October 2020. In terms of Clause 7.6.1 of the Resolution Plan, the SRA is obligated to re-commence operations as an aviation company subject to the fulfilment of five conditions precedent, namely- (i) Validation of Airline Operator Permit of the Corporate Debtor by the Director General of Civil Aviation (DGCA) and Ministry of Civil Aviation (MoCA); (ii) Submission and Approval of Business Plan by DGCA and MoCA, (iii) Slot Allotment Approval, (iv) International Traffic Rights’ Clearance; and (v) Approval of Demerger of ground handling business into a company, namely AGSL. The date of completion of the Conditions Precedent was defined as the ‘Effective Date’. Given the uncertainty surrounding the Effective Date, the NCLT, in its Plan Approval Order, mandated the completion of Conditions Precedent and the attainment of the Effective Date within the first 90 days from the Approval Date. The Order also granted the flexibility to request an extension of the 180-day timeline, allowing for an outer limit of 270 days, in accordance with the provisions outlined in the Resolution Plan. Following the Effective Date, the SRA is then required to infuse funds and fulfil specified payments to stakeholders, including disbursements to Employees, Workmen, and other Operational Creditors, within 180 days from the Effective Date. The Successful Resolution Applicant and the consortium of lenders represented by the State Bank of India were not ad idem on whether the conditions precedent were fulfilled. The SRA took the position that all conditions precedent had been duly fulfilled. Consequently, on May 20 2022, the DGCA reissued an Air Operation Certificate, confirming the authorization for the Corporate Debtor to engage in commercial air operations. The SRA communicated via email to the Lenders, affirming compliance with all prerequisites and proposing that May 20 2022, should be recognized as the effective date under the Resolution Plan. However, the lenders took a position to the contrary. By an order dated 13 January 2023, the NCLT came to the conclusion that the SRA was compliant with the conditions precedent. It allowed the Implementation Application, thereby inter alia permitting the SRA to take control and management of the Corporate Debtor. The period of six months for implementation would commence from 16 November 2022. The order of the NCLT has been challenged by SBI in appeal, and on 3 March 2023, the NCLAT declined to stay the order of the NCLT, which has given rise to three sets of appeals.

ISSUE

Whether the conditions precedent to the Resolution Plan were fulfilled by the SRA.

CONTENTIONS BY THE APPELLANTS

The Additional Solicitor General appearing on behalf of SBI, submitted that by its affidavit dated 16 August 2023, SBI had clearly stipulated three conditions, among them being that the SRA must infuse Rs 350 crores by 31 August 2023, and that the plain meaning of the expression “infuse” is that the SRA was liable to pay three tranches of a total amount of Rs 350 crores and the NCLAT was not justified at the interim stage in permitting an adjustment of the PBG of Rs 150 crores against the obligation to deposit the last tranche. He also stated that the SRA had to undertake to comply with the other terms and conditions of the Resolution Plan besides complying with the liabilities relating to the payment to the employees. As regards the payment to the employees, an appeal filed by the SRA before the Supreme Court against the order of the NCLAT dated 21 October 2022 was dismissed on 30 January 2023, and yet there is no compliance towards the employees and staff. The SBI had stated that the lenders have been saddled with huge recurring expenditure every month to maintain the remaining airline assets of the Corporate Debtor, and that the lenders have been embroiled in litigation before the NCLT and NCLAT with little progress on this ground towards implementing the resolution plan. Such a state of affairs cannot be permitted to continue interminably as it defeats the very object and purpose of the provisions of and timelines under the IBC.

CONTENTIONS BY THE RESPONDENTS

The Senior Counsel on behalf of the SRA, has been submitted that The Resolution Plan specifically contemplates the adjustment of the PBG (originally of Rs 47.5 crores, subsequently enhanced to Rs 150 crores), and also supported this by placing reliance on the summary of payments and security package forming a part of clause 6.4.4 of the Resolution Plan. He also contended that no specific date for the release of the security in relation to the PBG had been mentioned and Moreover, in respect of the second tranche comprising of Rs 195 crores, there was no requirement to furnish any security in the form of a PBG.

The lenders have submitted that the admitted claim of the Financial Creditors is Rs 7800 crores, while the package offered by the SRA in the Resolution Plan is Rs 4783 crores payable in tranches in five years and instead of infusing Rs 350 crores, being the first tranche of payment, which was to be paid in 180 days, the SRA had infused a sum of Rs 187 crores after two years, in addition to Rs 13 crores paid by a third party. The lenders had argued in the appeals that there has been a failure on the part of the SRA to comply with the conditions precedent, and that If the SRA were to comply with the terms as envisaged in SBI’s affidavit dated 16 August 2023, evidently issues pertaining to compliance with the conditions precedent would not to be pressed thereafter.

COURT ANALYSIS AND JUDGEMENT

The Hon’ble Supreme Court stated that in the circumstances the NCLAT was not justified in holding, in its order dated 28 August 2023, that the last tranche of Rs 150 crores which was to be paid would be adjusted against the PBG, and the SRA having deposited the first two tranches each of Rs 100 crores must comply with the remaining obligation of depositing Rs 150 crores (to make up a total payment of Rs 350 crores). Having by its conduct accepted the terms set up by SBI it must be obligated to comply with the entirety of its obligations and it must do so in strict compliance with the time schedule set out hereafter. The Court in order to furnish the SRA a final opportunity to comply and consistent with the above position, issued the following directions: (i) The SRA shall peremptorily on or before 31 January 2024, deposit an amount of Rs 150 crores into the designated account of SBI, failing which the consequences under the Resolution Plan shall follow. (ii) The PBG of Rs 150 crores shall continue to remain in operation and effect, pending the final disposal of the appeal before NCLAT, and shall abide by the final outcome of the appeal and the directions that may be issued by NCLAT. The Hon’ble Supreme Court stated that the order dated 28 August 2023 of the NCLAT is to be modified in part in terms of the above directions and, hence, the permission which was granted to the SRA to adjust the last tranche of Rs 150 crores against the PBG shall stand substituted by the same, following which, all three of the appeals were disposed of, and requested that the NCLAT endeavour an expeditious disposal of the appeal by the end of March 2024.

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Judgement Reviewed by – Gnaneswarran Beemarao

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SC SET ASIDE THE IMPUGNED JUDGEMENT PASSED BY THE HIGH COURT IN RESPECT OF DYING DECLARATION

Case Name: NAEEM. Versus STATE OF UTTAR PRADESH.

Case Number: CRIMINAL APPEAL No. 1978 of 2024

Dated: March 05, 2024

Quorum: Honourable Justice B.R. Gavaskar & Justice Sandeep Mehta

FACTS OF THE CASE:

The appeals challenge the judgement and order dated December 17, 2019, passed by the Division Bench of the High Court of Judicature at Allahabad in Criminal Appeal Nos. 1589 of 2018 and 7393 of 2017. The appeals relate to the case of Shahin Parveen, who was admitted to the District Hospital with 80% deep thermal and facial burns on 1st December 2016. She claimed that she was set ablaze by the accused/appellants who pressured her into entering the profession of immoral trafficking and prostitution. A First Information Report was registered at Police Station Katghar, District Moradabad, and Shahin was admitted to Safdarjung Hospital, New Delhi, where she died at 7:55 pm. The case was altered to the offence punishable under Section 302 of the Indian Penal Code, 1860.

The prosecution case alleged that after the death of Shahin’s husband two years prior, the accused/appellants began pressuring her into entering the profession of immoral trafficking and prostitution. The accused/appellants caught hold of Shahin and poured kerosene on her, igniting a matchstick and throwing it at her. The accused/appellants surrounded her, and she was set ablaze. Her neighbours put out the fire, and her mother and brother, Islam @ Babli, took her to the hospital.

The deceased, who had been a victim of a dispute with her husband, was allegedly set on fire by two accused individuals. The incident occurred on December 1, 2016, and the deceased’s dying declaration revealed that the dispute was related to their shared residence. The accused poured kerosene on the deceased, who was later taken to a hospital in New Delhi. The accused pleaded not guilty and claimed to be tried. The prosecution examined eight witnesses, with Papi @ Mashkoor claiming he was absent at the time and the deceased committed suicide. The trial court convicted the accused and sentenced them to life imprisonment and a fine. The accused appealed to the High Court, which dismissed their appeal and affirmed the conviction and sentence.

LEGAL PROVISIONS:

  1. INDIAN PENAL CODE, 1860;

Section-34 (Acts done by several persons in furtherance of common intention) When a criminal act is done by several persons in furtherance of the common intention of all, each of such persons is liable for that act in the same manner as if it were done by him alone.

Section 302 (Punishment for Murder): Whoever commits murder shall be punished with death, or imprisonment for life, and shall also be liable to a fine.

Section-307 (Attempt to murder): Whoever does any act with such intention or knowledge, and under such circumstances that, if he by that act caused death, he would be guilty of murder, shall be punished with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine; and, if hurt is caused to any person by such act, the offender shall be liable either to imprisonment for life, or to such punishment as is hereinbefore mentioned.

Attempts by Life Convicts: When any person offending under this section is under sentence of imprisonment for life, he may, if hurt is caused, be punished with death.

  1. INDIAN EVIDENCE ACT 1872;

Section 32(1) [ Dying Declaration]: This section states that when a statement is made by a person as to the cause of his death, or as to any of the circumstances of the transaction which resulted in his death, in cases in which the cause of that person’s death comes into question. Such statements are relevant whether the person who made them was or was not, at the time when they were made, under expectation of death, and whatever may be the nature of the proceeding in which the cause of his death comes into question.

ISSUES RAISED:

  1. Whether the dying declaration is cogent, trustworthy, and reliable to base the conviction on the accused or frivolous and vexatious.
  2. Whether the dying declaration can be considered as sole evidence for the conviction of the accused persons.
  3. whether the conviction of all three accused is tenable or not.

CONTENTION OF APPELLANT:

Shri Mohd. Siddiqui, the learned counsel for the appellants, submits that the conviction is based only on the dying declaration of the deceased. He submits that the dying declaration is not free from doubt. It is submitted that the discharge slip would show that the deceased was discharged from the District Hospital, Moradabad, on December 1, 2016 at 5:00 pm. It is therefore impossible that the dying declaration could have been recorded between 8:48 pm and 9:15 pm. The learned counsel therefore submits that the said dying declaration cannot be said to be trustworthy, reliable and cogent so as to base the conviction solely on the same.

CONTENTION OF RESPONDENTS:

Shri Thakur, counsel for the respondent, submits that both the trial court and the High Court, on the correct appreciation of evidence, rightly convicted the accused and appellants, and as such, no interference would be warranted with the concurrent findings of the trial court and the High Court. The learned AAG submits that Raj Kumar Bhaskar, the then Naib Tehsildar, has deposed about the dying declaration. Shri Thakur submits that the dying declaration also contains the certification by Dr. A.K. Singh, Emergency Medical Officer, District Hospital, Moradabad, regarding the medical fitness of the victim both prior to and after recording the dying declaration.

COURT ANALYSIS AND JUDGEMENT:

The conviction in this case is based solely on the dying declaration, as per the law outlined in the Atbir v. Government of NCT of Delhi case. The court has held that a dying declaration can be the sole basis of conviction if it inspires the full confidence of the court, and if the deceased was in a fit state of mind at the time of making the statement, it was not the result of tutoring, prompting, or imagination. If the court is satisfied about the dying declaration being true and voluntary, it can base its conviction without further corroboration. The court has observed that if the dying declaration is true, coherent, and free from any effort to induce the deceased to make a false statement, there is no legal impediment to make it the basis of conviction, even if there is no corroboration.

The testimony of Raj Kumar Bhaskar, the then Naib Tehsildar, reveals that he was directed by the Tehsildar to record the statement of the victim, Shahin Parveen, at the District Hospital, Moradabad. He deposed that he was in full sense and understood the questions, and that none of the relatives of the deceased were present during the recording.

 

The dying declaration is deemed true and coherent, making it a reliable basis for conviction without independent corroboration. The victim’s statement reveals that the deceased’s motive is attributed to accused No. 1 Pappi @ Mashkoor, who allegedly poured kerosene on her and set her ablaze. The statement of Naeema and her brother Naeem, the wife of accused No. 1 Pappi @ Mashkoor, also reveals their assistance to her devar Pappi @ Mashkoor.

 

However, no specific role for how they assisted was found in the dying declaration. The court finds that the dying declaration can be the sole basis for maintaining the conviction of accused No. 1 Pappi @ Mashkoor, but in the absence of any specific role attributed to accused No. 2 Naeema and accused No. 3 Naeem, they are entitled to the benefit of doubt.

As a result, the court passed the following order:

(i) The criminal appeals of Naeem and Naeema, quashed and set aside, are allowed. The trial court’s conviction and sentence from October 24, 2017, and the High Court’s judgement from December 17, 2019, are quashed and set aside. The appellants are acquitted of all charges and are directed to be released immediately, unless required in any other case.

(ii) Criminal Appeal No. 1979 of 2022, qua appellant Pappi @ Mashkoor, is dismissed.

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Judgement Reviewed by- Abhishek Singh

Click here to view the full judgement: NAEEM. Versus STATE OF UTTAR PRADESH.

 

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Supreme Court Upheld the Decision of Punjab & Haryana High Court on Registration of Sale Deed.

Case Name: Kanwar Raj Sing (D)TH.LRS vs. Gejo (D)TH.LRS
Case Number: CIVIL APPEAL NO. 9098 OF 2013
Dated: January 02, 2024
Quorum: Honourable Justice ABHAY S. OKA

FACTS OF THE CASE

The respondents are the legal representatives of the Plaintiff Gejo. There are total 8 defendants Plaintiff claimed a declaration of ownership over the land measuring 71 kanals 8 marlas (“suit property”) based on the sale deed executed on 6th June 1975 and registered on 23rd July 1975. According to the case of the original plaintiff – Smt. Gejo, before registration of the sale deed, an interpolation was made in the sale deed by the first defendant by adding that only 1/3rd share measuring 23 kanals and 8 marlas was being sold. The suit was contested by the first defendant, contending that what was sold was the area of 23 kanals and 8 marlas, which was his 1/3rd share in the suit property.

The Trial Court decreed the suit and held that what was sold to the original plaintiff was the entire land measuring 71 kanals 8 marlas. The first and eighth defendants preferred an appeal before the District Court. On 23rd August 1984, the Additional District Judge allowed the said appeal and held that the correction made in the sale deed was bona fide and was not fraudulently made. The plaintiff preferred a second appeal before the High Court. The plaintiff died during the pendency of the second appeal. High court passed a order in favour of plaintiff and then the unsuccessful defendant moved an appeal to the Hon’ble Supreme Court against the order of high court.

LEGAL PROVISIONS

  • Section 47 of The Registration Act, 1908

Time from which registered document operates —A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration.”

  • Section 54 of the Transfer of Property Act, 1984

“Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Sale how made. —Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument. In the case of tangible immoveable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.

  • Delivery of tangible immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property.
  • Contract for sale—A contract for the sale of immoveable property is a contract that a sale of such property shall take place on terms settled between the parties.

It does not, of itself, create any interest in or charge on such property.”

Issues raised:

  1. Whether the sale deed as originally executed will operate?
  2. The corrections unilaterally made by the first defendant after the execution of the sale deed without the knowledge and consent of the purchaser will have to be ignored?

Submissions:

Learned counsel appearing for the appellants submitted that as the price of the property subject matter of the sale deed was only Rs. 30,000/-, it is impossible that a vast area of 71 kanals 8 marlas was sold under the sale deed. Learned counsel submitted that the sale took effect from the date on which the sale deed was registered and not from the date on which it was executed. He submitted that what is conveyed by the sale deed is what is mentioned in the registered sale deed. He submitted that even the agreement for sale executed before the execution of the sale deed refers to the sale of 1/3rd share of the first defendant and not the entire property. He submitted that the entry of the name of the original plaintiff in the revenue records as the owner of the whole area would not confer any title as what is relevant is the description of the property in the registered sale deed.

Court Analysis and Judgment:

The Hon’ble court referred section 47 of Registration Act,1908 and also took precedence from Ram Saran Lall v. Domini Kuer and analyzed that Section 47 applies to a document only after it has been registered, and it has nothing to do with the completion of the sale when the instrument is one of sale. It was also held that once a document is registered, it will operate from an earlier date, as provided in Section 47 of the Registration Act.

After referring section 54 of Transfer of Property Act,1984 the Court has observed Every sale deed in respect of property worth more than Rs. 100/- is compulsorily registerable under Section 54 of the Transfer of Property Act. Thus, a sale deed executed by the vendor becomes an instrument of sale only after it is registered.

After considering the facts of this case the Hon’ble Supreme Court observed The first defendant admittedly made the said interpolation after it was executed but before it was registered. In terms of Section 47 of the Registration Act, a registered sale deed where entire consideration is paid would operate from the date of its execution. Thus, the sale deed as originally executed will operate. The corrections unilaterally made by the first defendant after the execution of the sale deed without the knowledge and consent of the purchaser will have to be ignored. Only if such changes would have been made with the consent of the original plaintiff, the same could relate back to the date of the execution. It is not even the first defendant’s case that the subsequent correction or interpolation was made before its registration with the consent of the original plaintiff.

Therefore, the Hon’ble Supreme Court upheld the decision of High Court and dismissed the appeal.

“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”

JUDEMENT REVIEWED BY: ABHISHEK SINGH

Click here to view full judgement: Kanwar Raj Sing (D)TH.LRS vs. Gejo (D)TH.LRS

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