HUF Cannot Be Prosecuted After Death Of Karta: Telangana High Court Abates Proceedings Against Late Ramoji Rao In RBI Act Violation Case

The Telangana High Court has quashed criminal proceedings against late Ch. Ramoji Rao (petitioner 2) on the grounds that criminal proceedings— which involved allegations of receiving deposits from the public in violation of Section 45S of the Reserve Bank of India Act and failure to repay them within the prescribed period, stood abated following his death, as he was the sole Karta of the Hindu Undivided Family (Petitioner 1).For reference, Section 45S prohibits certain entities from accepting public deposits.Underscoring the personal nature of criminal liability, which envisages that criminal proceedings cease when the accused dies, a Division Bench comprising Justice P. Sam Koshy and Justice K. Sujana observed,”…the accused was the sole proprietor of the propriety concern, and according to accused, he is the Karta of the HUF (Hindu Undivided Family). In both scenarios, the criminal proceedings naturally abate upon the death of the accused during the pendency of the trial. It was contended that criminal proceeding initiated against the sole accused cannot transfer criminal liability to the next kin. This is particularly clear since from the beginning until his death, he remained the sole proprietor of the proprietary concern and none of his family members were involved in the business. From the contents of the complaint also it is not reflected, nor were any names added to the proceedings at any point of time. However, any financial obligations which remained unfulfilled would be subject to civil proceedings, leaving the case open for recovery of dues through civil legal mechanisms.”Noting that continuation of proceedings would be an “exercise in futility”, it explained,“Criminal liability does not transfer to the next of kin or any member of the family. Unlike civil cases, where property or financial liability may be inherited, criminal proceedings are directed only at the person accused of committing the offense.”The Court also emphasised that when an individual operates a proprietorship, they alone are responsible for its affairs, as it has no separate legal identity beyond its proprietor.Facts:The Court was hearing criminal petitions seeking quashing of a 2008 case filed by the then unified Andhra Pradesh Government, where it was alleged that Margadarsi Financiers– the HUF led by Petitioner 2, had accepted public deposits in contravention of Section 45S of RBI Act and failed to repay them within the statutory period.Notably, out of the outstanding deposit liability of Rs.2,541.59 crores, the petitioners had processed repayment of Rs.2,596.98 crores (including interest) and only Rs.5.33 crores was arrears.The petitioners' initial plea to quash proceedings was dismissed by the Trial Court. Aggrieved, they filed criminal petitions, which were allowed by a Single Judge of the High Court who quashed the criminal proceedings. Upon appeal, the Supreme Court set aside that order and remitted the case back to the High Court to address claims from bona fide investors. However, during the hearing in the High Court, petitioner 2 passed away, leading to an Interlocutory Application to drop the criminal cases.Submissions:It was submitted that petitioner 2 was Karta of the HUF— which lacks legal identity under RBI Act, and it was he alone who had accepted deposits in violation of provisions of RBI and post his death, there were no accused left against whom the criminal case could survive. Against this backdrop, it was argued that criminal proceedings should automatically be dropped upon his death. It was further contended that legal heirs of petitioner 2 cannot be prosecuted in the proceedings as criminal liability cannot be passed onto the next generation.On the contrary, RBI (Respondent 2) submitted that HUF assumes legal status under Income Tax Act and even otherwise, HUF can be brought under purview of un-incorporated association of individuals under 45S(1). It was further argued that petitioner 2's status passed to CH. Kiran in context of the HUF, which continues to exist, and therefore the criminal case should not be quashed.Thus, the Court had to determine two pertinent questions- (i) whether criminal proceedings would survive in light of death of petitioner 2, and (ii) can anyone else be substituted in place of petitioner 2 in the criminal case?Court's Findings:At the outset, the Court noted that neither the complainant, nor the State Government had taken any steps to replace petitioner 2 in the criminal case. Thus, it was stated,“… if the Government, on one hand or the complainant on the other hand having not taken any steps for substitution and if the concerned Court proceeds with the criminal case it would be as if the criminal case is being proceeded against a dead person.”Thus, the Court observed that in the absence allegations against any family members of petitioner 2, in spite of them also being involved in the violations under RBI Act, and also in the light of the stand taken by the Government of...

HUF Cannot Be Prosecuted After Death Of Karta: Telangana High Court Abates Proceedings Against Late Ramoji Rao In RBI Act Violation Case

Saahas Arora

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HUF Cannot Be Prosecuted After Death Of Karta: Telangana High Court Abates Proceedings Against Late Ramoji Rao In RBI Act Violation Case

Saahas Arora

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