The Hon'ble Supreme Court in a recent case in Ravindranatha Bajpe v. Mangalore Special Economic Zone Ltd. and Ors. Etc.1, held that the chairman, directors, and other key managerial personnel of a company cannot be automatically held vicariously liable for the offences committed by a company unless specific allegations and averments against them are made with respect to their individual role. In this article, we navigate through the facts and findings of the aforesaid judgment.
The appellant in the present matter is the original complainant who filed a private complaint against thirteen accused persons/ companies in the court of Ld. Judicial Magistrate, First Class, Mangalore for offences punishable under Sections 406, 418, 420, 427, 447, 506, and 120B read with Section 34 of the Indian Penal Code, 1860 (IPC). The appellant stated that he is the absolute owner and in possession and enjoyment of certain immovable properties which were adjoining the Mangalore-Bajpe Old Airport Road. The properties had valuable trees on it and was surrounded by a stone wall as a boundary. It was contended by the appellant that the accused No. 1 intended to lay water pipeline by the side of the Mangalore-Bajpe Old Airport Road abutting the appellant's properties. The appellant stated that accused No. 2 on behalf of accused No. 1 appointed accused No. 6 as a contractor for execution of the pipeline laying project. The accused No. 6, in turn, authorized the accused Nos. 7 and 8 to execute and oversee the said work. The accused Nos. 7 and 8 had then appointed accused No. 9 as site supervisor and the accused No. 10 being the sub-contractor engaged accused No. 11 to 13 as labourers. Lastly, accused Nos. 4 and 5 were entrusted with the work of supervision and overseeing the pipeline works carried out by the accused No. 6, 7, and 8 through accused No. 9 and 10 to 13.
The appellant contended that the accused Nos. 2 to 5 and 7 to 13 had conspired with common intention to lay the pipeline beneath the appellant's properties without any lawful authority and right whatsoever. In furtherance thereof, they had trespassed over the properties and demolished the compound wall. Further, the accused persons/ companies had destroyed 100 valuable trees and laid pipelines beneath the properties. The appellant stated that when these acts were committed by the accused, the complainant was out of station. It was alleged that the accused had caused a pecuniary loss of more than INR 2.7 million to the complainant. Accordingly, the appellant argued that all accused persons/ companies were jointly and severally liable to make good the loss of the complainant.
The Ld. Judicial Magistrate by order dated 24 September 2013 directed to register the case against all the accused Nos. 1 to 13 for the offences punishable under Sections 427, 447, 506, and 120B read with Section 34 IPC. Feeling aggrieved and dissatisfied with the summoning order passed by the Ld. Judicial Magistrate the accused Nos. 1 to 5 and accused Nos. 6 to 9 preferred separate criminal revision petitions before the Ld. Sessions Court. The Ld. Sessions Court by its order dated 7 April 2014 allowed the criminal revision petition of accused Nos. 1 to 5 and partly allowed the criminal revision petition of accused Nos. 6 to 9. Accordingly, the order passed by the Ld. Judicial Magistrate was set aside against accused Nos. 1 to 8. Feeling aggrieved and dissatisfied with the common judgment and order passed by the Ld. Sessions Court, the appellant preferred revision applications before the High Court and by the impugned judgment and order, the High Court dismissed the said revision applications. Hence, the matter reached the Hon'ble Supreme Court.
The Hon'ble Supreme Court noted that there were no specific allegations made against the directors and managerial personnel amongst the accused except the bald statement that accused Nos. 2 to 5, and 7 and 8 have conspired with the common intention to lay the pipeline within the appellant's properties without any authority. The Apex Court clarified that nowhere had the appellant made the allegation that at the command and directions of accused Nos. 2 to 5, and 7 and 8 had the demolition of the compound wall taken place. Therefore, in absence of any specific allegations and the specific role attributable to them, the Ld. Judicial Magistrate was not justified in 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 Apex Court referred to the decision in Sunil Bharti Mittal v. Central Bureau of Investigation2 for circumstances when a director/ person in charge of the affairs of the company can also be prosecuted when a company is an accused person. It was held that vicarious liability of the directors cannot be imputed automatically, in absence of any statutory provision to this effect. The IPC does not contain any provision for attaching vicarious liability on part of the managing director or the directors of the company when the accused is the company. Thus, an individual who has perpetrated the commission of an offence on behalf of a company could be made accused, along with company, only if there was sufficient evidence of his active role coupled with criminal intent.
The Hon'ble Supreme Court then referred to the decision in Pepsi Foods Ltd. v. Special Judicial Magistrate3 to reiterate that summoning an accused in a criminal case was a serious matter. Criminal law could not be set into motion as a matter of course. The Apex Court reiterated the position in GHCL Employees Stock Option Trust v. India Infoline Ltd.4 to observe that to initiate a criminal proceeding, a magistrate has to record his satisfaction about a prima facie case against the accused who are directors, or key managerial personnel of a company and the role played by them in their respective capabilities.
In the facts of the case, the Apex Court noted that the Ld. Judicial Magistrate had not recorded his reasons of satisfaction about a prima facie case against accused Nos. 2 to 5, and accused Nos. 7 and 8 in capacity of the directors or key managerial personnel. Under such circumstances, the Hon'ble Supreme Court concluded that the High Court rightly dismissed the revision applications and confirmed the order passed by the Ld. Sessions Court quashing and setting aside the order passed by the Ld. Judicial Magistrate issuing process against accused Nos. 1 to 8. Accordingly, the present appeals were dismissed.
The instant judgment strengthens the jurisprudence in Indian law on the criminal liability of chairman, directors, and other managerial personnel when a company is made the accused. The vicarious liability of the directors would arise only when a statutory provision exists on that behalf. The IPC does not contain an express provision on the vicarious liability of the directors when a company is accused of criminal offences. Therefore, only when there are specific averments on the role played by the directors in the commission of the crime can they be proceeded against under the law. The decision would bring a sigh of relief to the management of many corporates in India dealing with criminal matters. The harassment of directors and other managerial personnel for criminal offences registered against the company is a recurring motif in India. We believe that the instant judgment would aid in preventing innocent directors of a company from being cornered for offences committed by the company.
1. Ravindranatha Bajpe v. Mangalore Special Economic Zone Ltd. and Ors. Etc., Criminal Appeal Nos. 1047 and 1048 of 2021
2. Sunil Bharti Mittal v. Central Bureau of Investigation, 2015 4 SCC 609.
3. Pepsi Foods Ltd. v. Special Judicial Magistrate, 1998 5 SCC 749.
4. GHCL Employees Stock Option Trust v. India Infoline Ltd., 2013 4 SCC 505.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.