The Hon'ble Supreme Court in the case of National Small Industries Corp. Ltd. vs. Harmeet Singh Paintal and Ors., 010(2)AC R1221(SC )/ MANU/SC/0112/2010 (https://main.sci.gov.in/supremecourt/2020/17576/17576_2020_46_1501_30986_Judgement_29-Oct-2021.pdf ), has enumerated certain principles for arraigning director as an accused in a criminal complaint filed against the company, which are as under:
- The primary responsibility is on the complainant to make
specific averments as are required under the law in the complaint
so as to make the accused vicariously liable.
- For fastening the criminal liability, there is no presumption that every Director knows about the transaction.
- The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.
- Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make accused therein vicariously liable for offence committed by company along with averments in the petition containing that accused were in-charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.
- Vicarious liability on the part of a person
- must be pleaded and
- proved and
- not inferred.
- If accused is Managing Director or Joint Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.
- If accused is a Director or an Officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in complaint.
- The person sought to be made liable
- should be in- charge of and responsible for the conduct of the business of the company at the relevant time.
- This has to be averred as a fact as there is no deemed liability of a Director in such cases.
In the case of Confident Projects (India) Pvt. Ltd. and Ors. vs. The Income Tax Department, MANU/KA/0205/202, the Hon'ble High Court of Karnataka at Bengaluru, while dealing with the question of the liability of the directors in an income tax prosecution case, held as under:
"......that all the Directors of the Company cannot be automatically prosecuted for any violation of the Income Tax Act. There has to be specific allegations made against each of the Directors who is intended to be prosecuted and such allegation would have to amount to an offence and satisfy the requirement of that particular provision under which the prosecution is sought to be initiated, more so when the prosecution is initiated by the Income Tax department who has all the requisite material in its possession, and a preliminary investigation has been concluded by the Income Tax department before filing of the criminal complaint."
The Hon'ble Supreme Court of India has held that if there is no specific allegations about the role played by the Director sought to be held vicariously liable then prosecution of such Director is not maintainable being abuse of process of law.
In the case of Sunil Bharti Mittal v Central Bureau of Investigation (2015) 4 SCC 609 (https://main.sci.gov.in/judgment/judis/42239.pdf), the Hon'ble Supreme Court held that,
"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."
In the case of Sunil Bharti Mittal (supra), it is further observed by the Supreme Court in paragraphs 42 to 44 as under:
"42.
- No doubt, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. It would be more so, when the criminal act is that of conspiracy
- However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so.
43.
- Thus, 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.
44.
- 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. One such example is Section 141 of the Negotiable Instruments Act, 1881.
- In Aneeta Hada v. Godfather Travels & Tours (P) Ltd., (2012) 5 SCC 661, the Court noted that if a group of persons that guide the business of the company have the criminal intent, that would be imputed to the body corporate and it is in this backdrop, Section 141 of the Negotiable Instruments Act has to be understood. Such a position is, therefore, because of statutory intendment making it a deeming fiction. Here also, the principle of "alter ego", was applied only in one direction, namely, where a group of persons that guide the business had criminal intent, that is to be imputed to the body corporate and not the vice versa.
- Otherwise, there has to be a specific act attributed to the Director or any other person allegedly in control and management of the company, to the 13 effect that such a person was responsible for the acts committed by or on behalf of the company."
Recently, the Hon'ble Supreme Court in the case titled Ravindranatha Bajpe vs. Mangalore Special Economic Zone Ltd & Ors. 2021 SCC OnLine SC 806 (https://main.sci.gov.in/supremecourt/2016/6009/6009_2016_43_1501_30333_Judgement_27-Sep-2021.pdf ), held that 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.
In view of the above judgments, it can be concluded that
- the vicarious criminal liability can be fastened only on those directors who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company and not every director.
- Further, specific averments are required to be pleaded in a criminal complaint against such a director. In the absence of the specific averments or role attributed to a particular director in the criminal complaint, the criminal complaint cannot sustain against such a director.
However, the aforesaid principle is not applicable in the case of a Managing Director or Joint Managing Director as due to their position they are considered to be person responsible for the affair of the company.
By
Vijay Pal Dalmia, Advocate
Supreme Court of India & Delhi High Court
Email id: vpdalmia@vaishlaw.com
Mobile No.: +91 9810081079
Linkedin: https://www.linkedin.com/in/vpdalmia/
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Twitter: @vpdalmia
And
Rajat Jain, Advocate
Email id: rajatjain.11190@gmail.com
Mobile No. 9953887311
LinkedIn: https://www.linkedin.com/in/rajat-jain-75772398/
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