If company is offender, vicarious liability of Directors can’t be imputed automatically, in absence of any specific allegations & role attributed to them:SC

Read Judgment: Ravindranatha Bajpe vs. Mangalore Special Economic Zone Ltd. & Others

Pankaj Bajpai

New Delhi, September  28, 2021: The Supreme Court has recently held that the Chairman, Managing Director/Executive Director and/or Deputy General Manager and/or Planner/Supervisor of a company cannot be arrayed as an accused, in absence of any specific allegations & role attributed to them.

The Division Bench of Justice M.R. Shah and Justice A.S. Bopanna observed that merely because accused are the Chairman/Managing Director/Executive Director/Deputy General Manager/Planner & Executor, automatically they cannot be held vicariously liable, unless there are specific allegations and averments against them with respect to their individual role.

The background of the case was that a private complaint was lodged by a person against a company, its director and other functionaries alleging offences punishable u/s 406, 418, 420, 427, 447, 506 and 120B r/w/s 34 of IPC.

The Magistrate issued the process against the accused. Later, the Sessions Court set aside this order, and the same was upheld by the High Court, by dismissing the revision petition filed by the complainant.

On appeal, the complainant contended that at the stage of summoning the accused, what is required to be considered is whether a prima facie case is made out on the basis of the statement of the complainant on oath and the material produced at this stage and the detailed examination on merits is not required.

On the other hand, on behalf of the accused, it was contended 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 more than the bald statement, the Magistrate ought not to have issued the process.

After hearing the arguments, the Supreme Court observed that it was not even the case on behalf of the complainant that at the time when the compound wall was demolished and trees were cut, accused nos. 2 to 5 and 7 & 8 were present.

“Except the bald statement that accused nos. 2 to 5 and 7 & 8 have conspired with common intention to lay the pipeline within the schedule properties belonging to the complainant, without any lawful authority and right whatsoever and in furtherance they have committed to trespass into the schedule properties of the complainant and demolished the compound wall, there are no other allegations that at that time they were present”, observed the Court.

Therefore, while stating that in absence of any specific allegations and the specific role attributed to them, the Magistrate was not justified in issuing process against accused nos. 1 to 8 for the offences punishable u/s 427, 447, 506 and 120B r/w/s 34 IPC, the Division Bench opined that Accused nos. 2 to 5 and 7 & 8 are stationed at Hyderabad and there are no further allegations that at the command of the aforementioned accused, the demolition of the compound wall has taken place.

The Top Court 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.

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, added the Court.

The Bench further elaborated 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.

The Apex Court therefore concluded that the High Court has rightly confirmed the order passed by the Sessions Court quashing and setting aside the order passed by the Magistrate issuing process against respondent for the offences punishable u/s 427, 447, 506 and 120B read with Section 34 IPC.