Sunday, September 23, 2012

Erroneous Legal Opinions and Criminal Liability

The Supreme Court has recently decided on the nature and extent of criminal liability that may be imposed on a lawyer who issues a legal opinion that is found to be erroneous. In what might be a matter of some relief to the legal fraternity, the court has set very high standards to be satisfied by the prosecution to charge a lawyer for the crime of conspiracy in defrauding a bank.
In Central Bureau of Investigation,Hyderabad v. K. Narayana Rao, the lawyer concerned, being a panel advocate representing a bank, delivered a series of legal opinions relating to the title to several properties. The bank lent monies on the strength of the legal opinions, which were found to be erroneous. The lending transaction was found to be part of a larger scheme by several persons to defraud the bank by inducing it to lend monies that caused wrongful loss to the bank. The Central Bureau of Investigation (CBI), after investigation, filed charges against the lawyer. These charges were quashed by the Andhra Pradesh High Court, against which the CBI appealed to the Supreme Court.
In its judgment, the Supreme Court considered the legal position on two counts. First, it determined whether the High Court has the requisite powers to quash charges under section 482 of the Criminal Procedure Code, a matter that falls squarely within the domain of criminal law and procedure. Second, the court also considered the role of a lawyer issuing a title opinion on behalf of the bank, and the responsibility of such lawyer, particularly under criminal law. It is with the second aspect that we are concerned.
In the present case, the lawyer issued a customary title opinion after considering all the documents provided by the parties. The opinion provided conclusions on whether the owner possessed the necessary title to the property to be able to convey the same to the purchaser. It was specifically found that a substantial part of the opinion was based on photocopies of documents, and few originals were provided. After considering the available evidence, the court concluded that there was insufficient material to conclude that the lawyer was acting as a conspirator so as to be charged for the offence to defraud the bank.
The Supreme Court sought to lay down the standards of lawyers in such circumstances:
22. ... In the banking sector in particular, rendering of legal opinion for granting of loans has become an important component of an advocate’s work. In the law of negligence, professionals such as lawyers, doctors, architects and others are included in the category of persons professing some special skills.
23. ... The only assurance which such a professional can give or can be given by implication is that he is possessed of the requisite skill in that branch of professional which he is practising and while undertaking the performance of the task entrusted to him, he would be exercising his skill with reasonable competence. This is what the person approaching the professional can expect. Judged by this standard, a professional may be held liable for negligence on one of the two findings, viz., either he was not possessed of the requisite skill which he professed to have possessed, or, he did not exercise, with reasonable competence in the given case, the skill which he did possess.
25. ... Mere negligence unaccompanied by any moral delinquency on the part of a legal practitioner in the exercise of his profession does not amount to professional misconduct.
26. Therefore, the liability against an opining advocate arises only when the lawyer was an active participant in a plan to defraud the Bank. In the given case, there is no evidence to prove that [the lawyer] was abetting or aiding the original conspirators.
27. However, it is beyond doubt that a lawyer owes an “unremitting loyalty” to the interests of the client and it is the lawyer’s responsibility to act in a manner that would best advance the interest of the client. Merely because his opinion may not be acceptable, he cannot be mulcted with the criminal prosecution, particularly, in the absence of tangible evidence that he associated with other conspirators. At the most,  he may be liable for gross negligence or professional misconduct if it is established by acceptable evidence ...
While this may seem to exonerate lawyers from criminal liability for erroneous opinions, the ruling must be read in its specific context. What was in question in that case was the charge of criminal conspiracy, which now seems to be difficult to establish against erring lawyers. To that extent, it may stated that the risk to lawyers is somewhat contained. However, this decision does not deal with the specific issue of liability for gross negligence or professional misconduct, on which the court has left the door open. Moreover, this decision is specifically in the context of criminal liability for conspiracy to defraud, and does not touch upon the issues if civil liability for professional negligence or misconduct, which might continue to operate if circumstances so justify.
Although not directly addressed by the court, the context of this decision also underscores the difficulties in the real estate sector in India where the determination of title to property with any level of certainty is a daunting task. 


vswami said...

The penultimate para. of the write-up sums up rightly the crux of the SC opinion for looking at it in proper light.
The tests or norms as laid down for fixing lawyer with liability under the country's law of crimes, if analysed, may have to be regarded as hyper technical, and in the nature of things, well nigh impossible to apply objectively; hence may have the necessary potential of letting off the accused scot free in almost every conceivable case.
A point for useful debate is, -is not any provision in the code of ethics or conduct applicable to lawyers' profession where under , if on the facts of a given case, any wrong opinion given without exercise of 'due diligence' be considered an 'offence' so as to attract 'criminal' liability (though not on the ground of 'criminal conspiracy').
One’s impression that the CBI's accusation / prosecution was on a narrow ground that it was the bank, if at all the one, who had been the victim of the entire episode. A doubt of a grievous nature that arises is,- does not the matter call for consideration also from the view point of all other stakeholders- such as the shareholders, the bank's customers, so on, whose interests come to be impaired as a direct or indirect consequence.
From a different perspective, however, may be, left in a situation such as herein of dismay but utter helplessness, following line of thinking could provide a feeling of comfort or solace:
The reported episode, to some if not all, may make for an unsavoury reading, leaving a taste of bitterness in mind, like any doctor’s prescription in tongue. Albeit, cannot be faulted; as seemingly well suited to the ultra modern times /mindsets, in / amongst which ‘the people’ is destined to live as “boneless wonders” (echoing, - Palkhivala). For an appreciation, one may look for and identify the true purport or import of certain words and expressions in the report, such as these: “bona fide as all legal practitioners..” “unremitting loyalty”, “possessed of the requisite skill”, “possessed of the requisite skill”, "mere negligence unaccompanied by any moral delinquency on the part of a legal practitioner in the exercise of his profession does not amount to professional misconduct". But, all the same, not to forget to read in between lines.

vswami said...

RE. the point suggested for a useful debate, since happened to cursorily go through several posts in public domain on the related aspects.
Here is one (source link- UK)which looks worth sharing with anyone interested in making a further research /study>