When Company Is An Offender, No Vicarious Liability Can Be Attached To Its Officers Unless Statute Specifically Provides So: Jammu & Kashmir High Court

The Jammu and Kashmir and Ladakh High Court recently quashed a criminal complaint filed under Essential Commodities Act, 1955 against the directors of a company on the ground that the complaint nowhere spells out as to how and in what manner the petitioners/accused were incharge of or were responsible to the accused company.

Justice Rajesh Sekhri agreed that when companies are changed with mens rea offences, it is the “human agency” in the accused companies who can be held responsible.  However, he added,

"The legal intendment is clear that when the company is an offender, vicarious liability of its directors can be imputed in terms of the provisions of a statue, making it a deeming fiction....There is no provision in the Penal Code to attach vicarious liability on Managing Director or Directors or employees of a Company."

The bench was hearing a plea under Section 482 (Saving Inherent Powers of the court) CrPC, seeking quashing of a complaint and the cognizance order passed by the court of Judcial Magistrate against the petitioner-directors.

The petitioner challenged the complaint on the ground that in the absence of company being an accused in the complaint, they cannot be prosecuted and held liable in their individual capacity in terms of Section 10 of Essential Commodities Act. The petitioners further submitted that they cannot be held responsible for the acts of the Company as there was nothing in the complaint to show that they were incharge and responsible for the conduct of the business of the company.

Dealing with the matter Justice Sekhri observed that one cannot draw a presumption that Managing Director of a Company or the Directors or officers or employees for that matter are responsible for all acts committed by or on behalf of the company as It all depends upon the respective roles assigned to the officers or employees of a company.

In order to explain the law on the subject the bench took recourse to principle reiterated by Lord Denning in Bolton (H.L) (Engg.) Co. Ltd. V. T. J. Graham & Sons, wherein it was recorded,

"The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in case where the law requires personal fault as a condition or liability in tort, the fault of the manager will be the personal fault of the company"

Expounding further the court said that if a group of persons, responsible for the business of the company, commit an offence, the criminal intent of the said group of persons is imputed to the company and Directors/Proprietors of the said company are “alter ego” of the company.

Observing that when the company is an offender, vicarious liability of its directors can be imputed in terms of the provisions of a statue, making it a deeming fiction, the court added that there is nothing in the complaint that would suggest that the petitioners/accused persons, at any point of time, were responsible for the acts committed on behalf of the Company but there is nothing in the instant case to indicate that petitioners are responsible for the business of the company.

"No doubt, the company being a corporate entity performs its functions through its officers including Chairman, Managing Director, Directors etc. However, it is trite position of criminal jurisprudence that no vicarious liability can be attached to said officers unless statute specifically provides so", the bench explained.

Deliberating on the contentions of the petitioners with regard to Section 10 of the Essential Commodities Act, Justice Sekhri observed that the said provision clearly postulates that when a company commits an offence, every person who, at the time contravention was committed was incharge for the conduct of the business is deemed to be guilty of contravention. However, the impugned complaint nowhere spells out as to how and in what manner the petitioners/accused were incharge of or were responsible to the accused company, the complaint filed in the trial court is nothing but an abuse of process of law, the bench maintained.

In view of the same the court found merit in the petition and quashed the complaint and discharged the petitioners.

Case Title: Reema Arora & Ors Vs Law Enforce Inspector (Fertilizer)

Citation: 2023 LiveLaw (JKL) 51

Coram: Justice Rajesh Sekhri.

Counsel For Petitioner: Mr. Areeb Kawoosa, Adv. with Mr. Aatir Kawoosa, Adv.

Counsel For Respondent: Mr. Faheem Nisar Shah, GA.

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