Court affirms managing partner’s liability while dismissing charges against dormant partner in high-profile income tax evasion case.
In a significant ruling, the Madras High Court has set aside the charges of vicarious liability against R. Kalaivani, a dormant partner in a partnership firm implicated in a high-stakes income tax evasion case involving alleged benami transactions. The case revolves around an enormous post-demonetisation cash deposit of Rs. 68.71 Crores made by the partnership firm in question, raising suspicions of illicit financial activities.
The court, presided over by Justice Sunder Mohan, scrutinized the charges under the Prohibition of Benami Property Transactions Act, 1988, particularly focusing on Section 62, which addresses vicarious liability. The judgment underscored that vicarious liability cannot be imposed on a partner without specific averments and substantial evidence proving their active involvement in the firm's business operations.
The case was brought to the court's attention following the dismissal of discharge petitions by the trial court. The petitions were filed by the accused, including the managing partner and the dormant partner, who contended that the charges lacked foundational evidence.
Justice Mohan, in his order, emphasized that while the managing partner, who had signed financial documents and managed the firm's affairs, could not be absolved of liability, the dormant partner, R. Kalaivani, could not be held vicariously liable. The court found that the necessary averments to establish her role in the firm's business were conspicuously absent in the prosecution's complaint.
The court also addressed the possibility of invoking Section 319 of the Criminal Procedure Code should new evidence surface implicating R. Kalaivani in the alleged transactions. This provision allows for the inclusion of additional accused if substantive evidence emerges during the trial.
The judgment cited key precedents, including the Supreme Court's ruling in Dilip Hariramani v. Bank of Baroda, reinforcing that vicarious liability in criminal law requires explicit evidence of a person's control over the business's day-to-day operations. The court noted that mere partnership status does not suffice for establishing such liability.
The ruling carries substantial implications for the interpretation of vicarious liability under the Prohibition of Benami Property Transactions Act, stressing the necessity for precise allegations and evidence. It also delineates the boundaries of liability for dormant partners in partnership firms, potentially influencing future cases of similar nature.
The case has garnered attention due to its high-profile nature and the significant financial stakes involved. The judgment is a critical reminder of the judiciary's role in safeguarding legal principles and ensuring that liability is accurately ascribed based on concrete evidence.
Bottom Line:
Prosecution under the Prohibition of Benami Property Transactions Act, 1988 - Vicarious liability under Section 62 - Specific averments and evidence are required to establish that an individual partner was in charge of and responsible for the conduct of the firm's business to hold them vicariously liable.
Statutory provision(s): Prohibition of Benami Property Transactions Act, 1988 - Sections 62, 53; Criminal Procedure Code, 1973 - Section 319
R.Kalaivani v. Deputy Commissioner of Income Tax, (Madras) : Law Finder Doc id # 2841048
