Director Of Company Can Be Made An Accused Along With It Only If There Is Sufficient Material To Prove His Active Role And Criminal Intent: SC [Read Judgment]

The Supreme Court has held that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent which has direct nexus with the accused.The bench comprising Justice Abhay Manohar Sapre and Justice R. Subhash Reddy observed thus while quashing the criminal proceedings against Managing Director of a company. In Shiv Kumar Jatia vs. State of NCT of Delhi, criminal cases were filed alleging negligence on the part of hotel, against the company, its managing director and its officers who are incharge of day to day affairs of the hotel. The petition seeking to quash FIR against the managing director was turned down by the High Court.In Appeal, taking note of the Final Report, the bench observed that there is no reason and justification to proceed against the accused only on ground that he was the Managing Director of M/s Asian Hotels (North) Limited, which runs Hotel Hyatt Regency. The mere fact that he was chairing the meetings of the company and taking, by itself cannot directly link the allegation of negligence with the criminal intent, the court said. Examining the dictum laid down in earlier judgments including in Sunil Bharti Mittal vs. Central Bureau of Investigation, the bench observed:By applying the ratio laid down by this Court in the case of Sunil Bharti Mittal, it is clear that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent. Further the criminal intent alleged must have direct nexus with the accused. Further in the case of Maksud Saiyed vs. State of Gujarat & Ors. , this Court has examined the vicarious liability of Directors for the charges levelled against the Company. In the aforesaid judgment this Court has held that, the Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company, when the accused is a Company. It is held that vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the Statute. It is further held that Statutes indisputably must provide fixing such vicarious liability. It is also held that, even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability. While quashing the FIR against the Director, the bench observed:It is clear that principally the allegations are made only against the company and other staff members who are incharge of day to day affairs of the company. In absence of specific allegations against the Managing Director of the company and having regard to nature of allegations made which are vague in nature, we are of the view that it is a fit case for quashing the proceedings, so far as the Managing Director is concernedClick here to Read/Download Judgment

Director Of Company Can Be Made An Accused Along With It Only If There Is Sufficient Material To Prove His Active Role And Criminal Intent: SC [Read Judgment]

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