IN THE ABSENCE OF ANY AVERMENT IN THE COMPLAINT PETITION AS ALSO IN THE ABSENCE OF ANY EVIDENCE BROUGHT ON RECORD BY A COMPLAINANT THE DIRECTOR CANNOT BE PROSECUTED FOR THE OFFENCE COMMITTED BY THE COMPANY

[Mr. M. GOVINDARAJAN]

                       For the offences by the company, a company as well as the Officer who is in default is liable for prosecution. The terms 'Officer who is in default' is defined by Sec. 5 of the Companies Act. Sec.5 provides that for the purpose of any provision in the Companies Act which enacts that an Officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression 'Officer who is in default' means all the following officers of the company, namely-

1.      The Managing Director or Managing Directors;

2.      The Whole Time Director or Whole Time Directors;

3.      The Manager;

4.      The Secretary;

5.      Any person in accordance with whose directions or instructions the Board of Directors of the company is accustomed to act;

6.      Any person charged by the Board with the responsibility of complying with that provision - provided that the person so charged has given his consent in this behalf to the Board;

7.      Where any company does not having of the Officers 1, 2, 3 above any director or directors who may be specified by the Board in this behalf or where no director is so specified all directors;

Whether the directors can be made liable for the offences made by the company and if so what the conditions precedent to such prosecution.  The case law - 'Tamil Nadu State Electricity Board V. Rasipuram Textile (P) Limited and others' - (2009) 88 CLA 251 (SC) gives answer for the same.

                        In the said case one Executive Engineer of the Tamil Nadu State Electricity Board made a surprise inspection of the premises of the respondent, M/s Rasipuram Textiles Mills.   The theft of electrical energy was detected. A criminal prosecution was lodged only against the company but also against its Managing Director and other Directors purported to under Sec. 39(1) and 44(1)© of the Indian Electricity Act, 1910.

                        The provisions of Sec. 39 and Sec. 44 of the Act are furnished as below:

Sec.39. Theft of energy: Whoever dishonestly abstracts, consumes or uses any energy shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than one thousand rupees, or with both: and if it is proved that any artificial means or means not authorized by the licensee exist for the abstraction, consumption or use of energy by the consumer, it shall be presumed, until the contrary is proved, that any abstraction, consumption or use of energy has been dishonestly caused by such consumer.

Sec. 44. Penalty for interference with meters or licensee's works and for improper use of energy- Whoever-

(a)    Connects any meter referred to in Sec. 26(1), of any meter, indicator or apparatus referred to in Sec. 26(7) with any electric supply line through which energy is supplied by a licensee, or disconnects the same from any such electric supply-line; or

(aa) unauthorisedly reconnects any meter referred to in Sec. 26(1), or any meter, indicator or apparatus referred to in Sec. 26(7) with any electric supply line or other work being the property of the licensee, through which energy may be supplied, when the said electric supply line or other works has or have been cut or disconnected under such Sec. 24(1); or

(b)   Lays, or causes to be laid, or connects, up any works for the purpose of communicating with any other works belonging to the licensee; or

(c)    Maliciously injures any meter referred to in Sec. 26(1) or any meter, indicator or apparatus referred to in Sec. 26(7) or willfully or fraudulently alters the index of any such meter, indicator or apparatus, or prevents any such meter, indicator or apparatus from duly registering; or

(d)   Improperly uses the energy of a licensee,

shall be punishable with imprisonment for a term which may extend to three years, or with fine which may extend to five thousand rupees, or with both, and, in the case of a continuing offence, with a daily fine which may extend to fifty rupees and, if it is proved that any artificial means exists for making such connection as is referred to in clause (a) or such connection as is referred to in clause (b) or for causing such alteration or prevention as in referred to in clause (c) or for facilitating such improper use as is referred to in clause (d) (and that) the meter, indicator or apparatus is under the custody or control of the consumer, whether it is properly or not it shall be presumed, until the contrary is proved that such connection, reconnection, communication, alteration, prevention or improper use, as the case may be, has been knowingly and willfully caused by such consumer.

                        During the pendency of the proceedings the Managing Director and another director expired. The trial judge convicted the directors of the company. The Additional District and Sessions Judge set aside the order of the trial court. It was held that the petitioners 2 to 8 only directors of the Mill and the prosecution has not alleged that the petitioner is in charge of and was responsible to the company for the conduct of the business and the records of the investigation also did not show that the petitioner was or had been participating the day-to-day activities of the mill and the mere fact that the petitioner was the director of the company and would be sufficient to fasten criminal liability on him.

                        The High Court dismissed the revision application. Before the Supreme Court the appellant contended the following:

Ø      In terms of Sec. 49A of the Indian Electricity Act, 1910, the burden of proof was on the accused to show that despite the fact that they were the directors of the company, they had no knowledge about the commission of the offence;

Ø      The directors had made no effort far less any sincere effort to show that they were not aware of the commission of the offence by another person;

Ø      The Additional Sessions Judge and High Court have not considered the merit of the matter for the purposes of finding out as to whether the private respondents and/or any of them was in charge and/or responsible for the conduct of the business of the company or not.

The Supreme Court analyzed the provisions of Electricity Act. It held that it was obligatory on the part of the complainant not only to make requisite averments in the complaint petition but also to prove that any of the directors who had been prosecuted for alleged commission of the aforementioned offence was in charge of and was otherwise responsible for the conduct or the affairs of the company. In the event it is proved that a director or a group of directors of the company, the burden would shift on the accused to establish the ingredients contained in the proviso appended to Sec. 49A of the Act. The Supreme Court held that the Additional Sessions Judge as well as the High Court were right in holding that in the absence of any averment made in the complaint petition as also in the absence of any evidence brought on record by the complainant to satisfy the requirements of Section 49A of the Act, the respondents directions could not have been convicted.

                        In 'K. Srikanth Singh V. North East Securities Limited' - (2007) 12 SCC 788 the Supreme Court held that it is not in dispute that for showing a vicarious liability of a director of a company upon the complaint it is incumbent to plead that the accused was responsible to the company for the conduct of the business of the company. No such allegation having been made in the complaint petition. The allegation contained in the complaint petition was that all the accused directors participated in the negotiations for obtaining financial help for accused No.1, which would not give rise to an inference that the appellant director was responsible for day-to-day affairs of the company.