Introduction

The Supreme Court of India, in its decision in Ravindranatha Bajpe v. Mangalore Special Economic Zone Ltd. & Others, Criminal Appeal Nos. 1047-1048/2021, held that company officials such as chairman, managing director, executive director, etc. cannot be held vicariously liable under criminal law for offences committed by the company unless there are specific allegations and averments against them with respect to their individual role in the offense committed.

Factual Backdrop

The facts leading up to the present case are as under:

Mr. Ravindranatha Bajpe (the "Appellant") had filed a private complaint before the Judicial Magistrate, First Class, Mangalore ("Judicial Magistrate") for offences punishable under Sections 406, 418, 420, 427, 447, 506 and 120B read with Section 34 of the Indian Penal Code, 1860 ("IPC") against thirteen accused (Accused Nos 1. and 6 were companies while the Accused Nos. 2 to 5 and 7 to 13 were top officials or employees in these companies) alleging that the Accused No. 1 to 13 had conspired together with common intention to lay down pipeline beneath the schedule properties of the Appellant without any lawful authority and legal right. In furtherance of the same, the accused had trespassed over the schedule properties of the Appellant and had demolished the compound wall and also cut and demolished trees in the schedule properties. The Judicial Magistrate examined all the documents put on record and passed an order directing to register case against all the thirteen accused, i.e., Accused No. 1 to 13, for offences punishable under Sections 427 (Mischief causing damage), 447 (Criminal trespass), 506 (Criminal intimidation) and 120B (Criminal conspiracy) read with Section 34 of IPC. Accused No. 1 to 9 preferred criminal revision petition before the learned Sessions Court which allowed the same and quashed and set aside the order passed by the Judicial Magistrate with respect to Accused No. 1 to 8 but confirmed the order passed with respect to the Accused No. 9.

The Appellant filed revision applications before the Karnataka High Court ("High Court"), which were dismissed by the High Court. The Appellant preferred filing criminal appeals against the impugned judgment passed by the High Court before the Supreme Court of India ("Supreme Court").

Judgement

The learned judges of the Supreme Court after hearing the counsels for the respective parties and after going through the allegations in the complaint of the Appellant noticed that except for the statement that Accused Nos. 2 to 5 and 7 & 8 have conspired with the common intention to lay the pipeline, without any lawful authority and right, within the schedule properties belonging to the Appellant, there were no specific allegations or role attributed to the accused in the present case. There were no further allegations on behalf of the Appellant that on the command of the Accused Nos. 2 to 5 and 7 & 8, the demolition of the compound wall of the schedule properties had taken place. The judges of the Supreme Court further observed that all of the accused in present case were merely arrayed as an accused as Chairman, Managing Director, Deputy General Manager (Civil & Env.), Planner & Executor, Chairman and Executive Director respectively and all of them were stationed at Hyderabad, Telangana at the time of the commission of the alleged offence.

The Supreme Court while deciding the case, placed reliance on the following observations made by the Court in its own earlier judgments:

I. Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 SCC 609

The Supreme Court had, in the said case, observed that:

  1. 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;
  2. 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.

II. Pepsi Foods Limited v. Special Judicial Magistrate, (1998) 5 SCC 749

The Supreme Court took into consideration its judgement in the case of Pepsi Foods Limited v. Special Judicial Magistrate, (1998) 5 SCC 749 where it was held that summoning of an accused in a criminal case is a serious matter and criminal law cannot be set into motion as a matter of course.

III. Pepsi Foods Limited v. Special Judicial Magistrate, (1998) 5 SCC 749

The Supreme Court further took into consideration its judgment in the case of GHCL Employees Stock Option Trust v. India Infoline Limited, (2013) 4 SCC 505 that in the order issuing summons, the 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.

IV. Key observation

The key observation of the Supreme Court was that merely because the Accused Nos. 2 to 5 and 7 & 8 are the Chairman/ Managing Director/Executive Director/Deputy General Manager/Planner & Executor, they cannot automatically be held vicariously liable, unless, there are specific allegations and averments against them with respect to their individual role in the alleged offence. Further, the Supreme Court also observed that criminal proceedings cannot be set in motion on its own and that a magistrate granting summons must record his satisfaction about a prima facie case against the accused Accordingly, the Supreme Court held that the High Court had rightly dismissed the revision applications filed by the Appellant and had rightly confirmed the order passed by the Sessions Court quashing and setting aside the order passed by the Judicial Magistrate issuing process against Accused Nos. 1 to 8 for the offences punishable under Sections 427, 447, 506 and 120B read with Section 34 of the IPC.

The Supreme Court, basis the reasons stated above, dismissed the appeals filed by the Appellant and directed the Judicial Magistrate to proceed with the complaint only against the original Accused Nos. 9 to 13 on its own merits, in accordance with law.

Implications

It is a progressive judgment as it settles the law in India that employees cannot be held criminally liable for offenses committed by the company, unless specific role is attributed to such employees for the offense.

However, this judgement does not affect liability of employees qualifying as 'officer who is in default' under the Companies Act, 2013 as well as vicarious liability of directors under other Indian laws such as labour law, taxation laws, foreign exchange control regulations, environmental laws, etc.

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