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2014 (7) TMI 1377 - HC - Indian LawsVicarious Liability of Chairman, Managing Director and Directors of the Company, in the offence of the company - Liable to be prosecuted in a Criminal Case, being the Director of M/s. Davangere Sugars Co. Ltd., and Chairman of M/s. Shamanur Sugars Co. Ltd. (by virtue of his position) - petitioner is having knowledge and has a specific role and active participation in the conduct and business of the Companies at the time of commission of the alleged offence by the companies or not - HELD THAT:- The normal rule in the case involving criminal liability is against vicarious liability, i.e., no one is to be held guilty of criminal liability for an act of another. This normal rule is however subject to exception on account of specific provision being made in the statute, extending liability to others. One such provision is Section 10 of the EC Act. Therefore, if an offence is committed by a company, it extends the criminal liability to other officers of the company if the requirements contemplated under the said provision are satisfied before the liability is fastened on such Officers. Since the provision creates criminal liability, the conditions have to be very strictly and meticulously complied with. With this background, now let me go through the decisions in this regard. In fact, this Court also had an occasion to deal with similar matters under the EC Act between Smt. Vidya Murkumbi and Others vs. India Sugars and Refineries Ltd., in Crl.P. No. 7563/2009 dated 4.11.2009, wherein, learned brother Judge Justice Jawad Rahim, evaluated the provisions under the EC Act as well as the NI Act - In the said decision, the learned Judge has observed the wordings used in sub-Section (2) of Sec. 10 of the EC Act - that "if proved" pre-supposes "sufficient material" that such person by his consent or connivance or attributable negligence indulged in the crime. If such prima facie proof is not available in the complaint, then such person cannot be fastened with liability. However, the learned Judge has observed that the liability of the Chairman and the Director stand on a different footing and come in the category of sub-Section (1) of Section 10 of the EC Act. Therefore, they could be termed as personnel being in charge of/or responsible to the Company and its business and an element of presumption is being available against them. Thus, it is crystal clear that there is almost unanimous judicial opinion that necessary averments ought to be contained in the complaint, particularly against a person who are not deemed to be persons in charge of a Company or looking after the day to day affairs of the Company and therefore, it is necessary to specifically aver the duties, role of each and every person to show his responsibility, his duties and functions assigned under the Memorandum of Articles of the Company. Whether by virtue of his position as a Chairman, ipso-facto liable for all the offences committed by the Company? - HELD THAT:- The term Chairman is not defined under the Companies Act, 1965. The Chairman is a necessary person in company meetings and is usually appointed by the articles of the Company. Generally, Chairman is the highest post in the Company, who represents the name and fame of the Company. Chairman's role is to attend the meetings and to act according to the byelaws of the Company and also exercise any defined or reserved rights or duties. Regulation 76(1) of table A to Schedule-I to the Companies Act 1956, provides that the Board may elect a Chairman and determine the period for which he has to hold the office. Generally, the Directors elect one of them to be the Chairman of the Board who continues to be as such until he seizes to be a Director or some other Director who is appointed as a Chairman. Normally, the Chairman is a Director who is authorised to preside over the Board and General Meetings - the Chairman of a Company presides over the meetings of the board and as a member on all the board committees and he presides over all the committee meetings. Therefore, the Chairman has the powers under the common law, such as (1) the power to preside over the meetings, (2) bring the discussion on any question and (3) the power to adjourn the meeting if necessary under the circumstances. Looking to the powers and duties of the Chairman, it goes without saying that the Chairman is as good as a Director, but as he is higher in position, he presides over the meetings of the Company. Therefore, unless a specific role is given to a Chairman by virtue of articles of the Company to represent the management and participate in the day to day business, conduct and affairs of the Company, he is not liable for all the offences committed by the Company. The Chairman also stands on the same footing as that of a Director. If any liability has to be fastened on the Chairman, in law, a specific role has to be given to him and what is the overt act committed by him to share the criminal liability of the Company. Therefore, in the absence of such allegations and specific averments in the complaint, even Chairman also, ipso-facto by virtue of his position, cannot be made as an accused in a criminal case for the offence committed by the Company. It is a well settled law that at the time of issuing of the process, the Magistrate is required to see the allegations in the complaint in order to ascertain whether the allegations made in the complaint constitute an offence against a person, then only the Magistrate can call upon the persons cited as accused to answer the charges. Otherwise, the complaint has to be dismissed by exercising powers u/s. 203 of the Code of Crl. Procedure - the cognizance taken by the Magistrate and the process issued against the petitioner who is a Director and Chairman of the respective companies is bad in law and the same is liable to be quashed. The petition is allowed.
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