VICARIOUS LIABILITY OF DIRECTOR OF A COMPANY IS NOT AUTOMATIC IN A CRIMINAL OFFENCE

[Mr. M. GOVINDARAJAN]

Vicarious liability

A corporate entity is an artificial person which acts through its Board of Directors and its officers.  If a company commits an offence involving mens rea it would be the intent of the individuals who act on behalf of the company.  In SUNIL BHARTI MITTAL VERSUS CENTRAL BUREAU OF INVESTIGATION [2015 (9) TMI 1339 - SUPREME COURT] the Supreme Court held that it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so.  If an individual who has perpetrated the commission of an offence on behalf of a company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Second situation in which he can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision.

In MAKSUD SAIYED VERSUS STATE OF GUJARAT [2007 (9) TMI 400 - SUPREME COURT], the Supreme Court held that the Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute.  Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability.

In RAVINDRANATHA BAJPE VERSUS MANGALORE SPECIAL ECONOMIC ZONE LTD. & OTHERS ETC. [2021 (10) TMI 49 - SUPREME COURT] the appellant in the present appeal, filed a private complaint against the 13 accused before the Judicial Magistrate I Class, Mangalore for the offences punishable under Section 406, Section 418,  Section 420,  Section 427, Section 447, Section 506  and Section 120 B read with Section 34 of Indian Penal Code.

The details of the respondents are shown in the below table-

• Accused No. 1 – Company incorporated under the Companies Act (‘Company I’ for reference)-

• Accused No.2 – Chairman of Company I;
• Accused No. 3 – Managing Director of Company I;
• Accused No. 4 – Deputy General Manager (Civil & Envi) of Company I;
• Accused No. 5 – The planner and executor of project of Company I;

• Accused No. 6 – Company incorporated under the Companies Act (‘Company II’ for reference)-

• Accused No. 7 – Chairman of Company II;
• Accused No. 8 – Executive Director of Company II;
• Accused No. 9 – Site Supervisor;
• Accused No. 10 – Sub contractor for Company II;
• Accused Nos. 11 – 13 – Employees of Accused No. 10.

The appellant was the owner of the property described in the Schedule contained in the complaint.  The said property was surrounded by a stone wall as a boundary.   The said properties are abutting Mangalore-Bajpe Old Airport Road. Valuable trees are in the schedule property.

The Company I intended to lay water pipeline by the side of Mangalore-Bajpe Old Airport Road abutting the schedule properties of the appellant.  The Company I granted contract to Company II for the above said purposes.  The Company II authorized accused Nos. 6 7 and 8 to execute and oversee the said work.  They, in turn, appointed accused No. 9 as site supervisor.  The accused No.9 engaged accused 10 as sub contractor.  Accused Nos. 11 to 13 are the employees of accused No. 10.

In the complaint, the appellant alleged that all the accused had conspired with the common intention to lay the pipeline beneath the properties of the appellant without any lawful authority and right.  They had trespassed over the property and demolished the compound wall of 7 feet and foundation 2 feet to a distance of 500 meters.  They had cut all the trees and laid the pipeline.  At that time the appellant was out of station and on his return he found the mischief caused by all the accused.  Due to their act the appellant experienced a damage of ₹ 27 lakhs.  The appellant questioned the accused about their high handed acts.  But they were indulged in criminal intimidation by threatening the appellant of taking away his life if he insists for making good the loss. 

On 21.04.2012 the appellant filed a complaint before the Bajpe Police Station.  No proper inquiry was conducted by the police.  The accused No. 5 gave a statement admitting the guilt and also undertaking to pay adequate compensation to the appellant towards the damages caused to the property.  But they have not come forwarded to pay the compensation.  The appellant alleged that they have committed an act of breach of trust and cheating.  The appellant prayed before the Trial Court to take cognizance of the matter and to issue process against the accused. 

The Judicial Magistrate directed to register the case against all 13 accused for the offences punishable under sections 427, 447, 506 and 120B read with section 34 of Indian Penal Code.  Dissatisfied with the order of Judicial Magistrate the accused Nos. 1 to 5 and accused Nos. 6 to 9 filed revision petition before the Sessions Court vide No 244/2013 and 245/2013 respectively.  The Sessions Court allowed the criminal revision Petition No.244/2013 and partly allowed the criminal revision petition No. 245/2013 and set aside the order of the Judicial Magistrate but confirmed the order of the Judicial Magistrate against the accused No. 9.

The appellant, being aggrieved by the order of Sessions Court filed revision petition before the High Court which also dismissed the revision petition.  Hence the appellant filed the present appeal before the Supreme Court.  The appellant submitted the following before the Supreme Court-

• The Sessions Court was not justified in setting aside the order passed by the Judicial Magistrate summoning the accused.
• The Revisional Court could not have interfered with the order passed by the Judicial Magistrate.
• Being the administrators of the companies all the executives are vicariously liable.

The appellant prayed to allow the appeal filed by him and set aside the orders passed by the High Court and the Sessions Court and restore the orders passed by the Judicial Magistrate.

The accused submitted the following before the Supreme Court-

• There is no specific allegation and the role attributed to the accused except the bald statement that all of them have connived with each other, the Sessions Court was justified in setting aside the order passed by the Judicial Magistrate.
• Issuing of summons/process is a very serious matter. 
• Therefore unless there are specific allegations and role attributed to each accused more than the bald statement, the Magistrate ought not to have issued to process.
• The accused No. 5, 7 and 8 were stationed at Hyderabad at the alleged time of happening the incident.
• Accused No. 7 is 82 years.

The accused contended that the order passed by the Sessions Court is correct and confirmed.

The Supreme Court considered the submissions put forth by the parties to the appeal.  The Supreme Court perused the complaint filed by the appellant.  The appellant alleged that the accused trespassed the properties of the appellant and demolished the compound wall.  Except this complaint there are no further allegations in the complaint.  Even the appellant could not prove that the accused 2 to 5 and 7 to 8 were present at the time of alleged trespass and demolition of the compound wall.  In the absence of any specific allegations and the role attributed to them the Judicial Magistrate was not justified in issuing the process.

The Supreme Court relied on some of the judgments of its own.  The Supreme Court observed that summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course.  The Magistrate has to apply his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused.

In the order issuing summons, the learned Magistrate has to record his satisfaction about a prima facie case against the accused who are Managing Director, the Company Secretary and the Directors of the Company and the role played by them in their respective capacities which is sine qua non for initiating criminal proceedings against them.  The Supreme Court observed that there are no specific allegations and/or averments with respect to role played by them in their capacity as Chairman, Managing Director, Executive Director, Deputy General Manager and Planner & Executor.   Merely because they are Chairman, Managing Director/Executive Director and/or Deputy General Manager and/or Planner/Supervisor of accused and accused 6, without any specific role attributed and the role played by them in their capacity, they cannot be arrayed as an accused, more particularly they cannot be held vicariously liable for the offences committed by accused No. 1 and accused No. 6.  The Magistrate has not recorded his satisfaction about a prima facie case against respondent nos. 2 to 5 and 7 & 8.

The Supreme Court held that the High Court has rightly dismissed the revision applications and confirmed the orders passed by the Sessions Court and set aside the order passed by the Judicial Magistrate.  The Supreme Court dismissed the appeal and directed the Judicial Magistrate to proceed with the complaint against the original accused Nos. 9 to 13 on its own merits and in accordance with the law.

Conclusion

When the company is the offender, vicarious liability of the Directors cannot be imputed automatically, in the absence of any statutory provision to this effect.  The above said case laws confirmed the said fact.