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Between the Lines | Supreme Court: Chairman, directors, and other key managerial personnel of a company cannot be automatically held vicariously liable for the offences committed by a company November 22, 2021
Published in: Between The Lines
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The Hon’ble Supreme Court (“SC”) in Ravindranatha Bajpe v. Mangalore Special Economic Zone Limited and Others (decided on September 27, 2021), 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.
Facts
Ravindranatha Bajpe (“Appellant/Complainant”), the original complainant, filed a private complaint against thirteen accused (accused nos. 1 to 13) in the Court of the learned Judicial Magistrate, First Class, Mangalore (“Magistrate”). The Complainant was the absolute owner and in possession and enjoyment of the certain immovable property (“Schedule Properties”).
Accused nos. 1 and 6 were companies incorporated under the Companies Act and accused nos. 2, 3 and 4 were the Chairman, Managing Director and Deputy General Manager (Civil & Env.) of accused no. 1, respectively. Accused no. 5 was the planner and executor of the project work. Accused nos. 7, 8 and 9 were the Chairman, Executive Director and Site Supervisor of accused no. 6. Accused no. 10 was the sub-contractor under accused no. 6 and accused nos. 11 to 13 were the employees of accused no. 10.
It was contended by the Complainant that accused no. 1 intended to lay water pipeline by the side of Mangalore-Bajpe Old Airport Road abutting the Schedule Properties, and for the said purpose, it had obtained permission from the Department of Public Works, Mangalore. Accused no. 2 on behalf of accused no. 1 appointed accused no. 6 as a contractor for execution of the said project of laying the water pipe line. They in turn had appointed accused no. 9 as Site Supervisor and the accused no. 10 being the sub-contractor engaged accused nos. 11 to 13 as labourers.
It was contended that accused nos. 2 to 5 and 7 to 13 had conspired with common intention to lay the pipeline beneath the Schedule Properties belonging to the Complainant without any lawful authority and right whatsoever. In furtherance thereof, they had trespassed over the Schedule Properties and demolished the compound wall. Further, they had cut and destroyed valuable trees and laid pipeline beneath the Schedule Properties. It was contended that when this high-handed act was committed by the accused, the Complainant was out of station and that he came back and noticed the destructive activities.
It was contended that the accused were having no right to commit trespass over the Schedule Properties, and each of the accused had common intention to lay the pipeline by damaging the property of the Complainant. With that intention, they committed criminal trespass and caused damages. It was contended that all the accused are jointly and severally liable to make good the loss to the Complainant.
The learned Magistrate by order dated September 24, 2013 (“Order”) directed to register the case against all the accused. Aggrieved, the accused preferred Criminal Revision Petition before the learned Sessions Court. The learned Sessions Court allowed the Criminal Revision Petition and quashed and set aside the Order passed by the learned Magistrate. The Complainant preferred revision applications before the High Court of Karnataka and by the impugned judgment and order, the High Court of Karnataka dismissed the said revision applications. Hence, the Complainant approached the SC.
Issue
Whether the accused, being officials of a company, can be held liable for the actions of a company in the absence of specific allegations on the role played by them.
Arguments
Contentions raised by the Appellant/ Complainant:
It was submitted that the accused have conspired with common intention to lay the pipeline beneath the Schedule Properties belonging to the Complainant, without any lawful authority and right whatsoever. In furtherance thereof, they committed trespass and demolished the stone compound wall and valuable trees of the Complainant.
It was further submitted that, even otherwise there was a specific allegation in the complaint that accused nos. 1 to 8 conspired with the co-accused to lay the pipeline under the Schedule Properties of the Complainant and, therefore, at the stage of issuing process/summons, the revisional court could not have interfered with the Order passed by the learned Magistrate summoning the accused. It was submitted that, being the administrators of the companies, all the executives are vicariously liable.
Contentions raised by the accused:
It was submitted that in the facts and circumstances of the case, and more particularly when it was found that there are no specific allegations and role attributed to the accused, except the bald statement that all of them have connived with each other, the learned Sessions Court was absolutely justified in setting aside the Order passed by the learned Magistrate issuing the process/summons against the accused. Further, it was submitted that, the SC in catena of decisions has held that issuing summons/process by the Court is a very serious matter and, therefore, unless there are specific allegations and the role attributed to each accused, the Magistrate ought not to have issued the process. It was further submitted that accused nos. 2 to 5 were arrayed as accused merely in their capacity as Chairman, Managing Director, Deputy General Manager (Civil & Env.) of accused no. 1. Accused no. 5 was the planner and executor of the project work and accused nos. 7 and 8 were arrayed merely in their capacity as being Chairman and Executive Director of accused no. 6. All of them were stationed at Hyderabad at the time of the commission of the alleged offence. Further, there are no allegations that at the time of commission of the alleged offence, they were present.
Observations of the Supreme Court:
The SC noted the reliance placed by the accused on the case of Sunil Bharti Mittal v. Central Bureau of Investigation [(2015) 4 SCC 609] wherein it was observed 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. The 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.
Further, as observed by the SC in the case of GHCL Employees Stock Option Trust v. India Infoline Limited [(2013) 4 SCC 505] the Court held that the learned Magistrate has to record his satisfaction about a prima facie case against the accused who are Managing Director, 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. Looking to the averments and the allegations in the complaint, there were 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 nos. 1 and 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 nos. 1 and 6.
Decision of the Supreme Court:
In absence of any specific allegations and the specific role attributed to the accused as Chairman, Managing Director, Deputy General Manager (Civil & Env.), Planner & Executor, Chairman and Executive Director, the learned Magistrate was not justified in issuing process against accused nos. 1 to 8 for the offences punishable under the Indian Penal Code, 1860.
In view of the above, the SC dismissed the present appeals.
VA View:
The instant judgment reinforces the jurisprudence on the criminal liability of chairman, managing director and other key managerial personnel when a company is made the accused. Vicarious liability of directors would arise only when the statute provides for the same.
The judgment passed by the SC along with the observations made, clarifies the position of accountability of directors and key managerial personnel of a company. In the absence of specific allegations proving culpability and the role played in the crime, the directors and key managerial personnel cannot be held accountable and proceeded against. This judgment would prevent key managerial personnel not being involved in the offence from being maliciously arrayed as an accused and being held accountable for the actions of the company.
For more information please write to Mr. Bomi Daruwala at [email protected]
