Dayle De’Souza v. Government of India

1947.

13. This exposition on the meaning of the term ‘in-charge and responsible for’ was referred to with approval in State of Karnataka v. Pratap Chand and Others.[4] This decision relates to the prosecution of the partner of a firm under the Drugs and Cosmetics Act, 1940. The judgment referred to the explanation to Section 34 in the said Act (which is pari materia with the explanation in Section 22C of the Minimum Wages Act, 1948) to observe that for the purpose of imposing liability on the company under the said Section, a company includes a body corporate, a firm or an association of individuals. A director in relation to a firm means a partner in that firm. Therefore, even in the case of partners, when a firm commits an offence, the requirement of either sub-section (1) or sub-section (2) to Section 22C must be satisfied. This means that in terms of sub-section (1), the partner should be “in-charge of” and “responsible to” the firm for the conduct of its business as per the dictum in Girdhari Lal Gupta (supra). Further, as per sub-section (2), a partner may also be liable, just as a director is liable for the conduct of the business of a company, if the offence is committed with the consent or connivance of, or is attributable to any neglect on the part of the partner concerned.

14. Way back in 1982, in Municipal Corporation of Delhi v. Ram Kishan Rohtagi and Others,[5] this Court had quashed criminal proceedings under the Prevention of Food Adulteration Act, 1954 against the directors of a manufacturing company at the summoning stage, observing that the presumptive assertion made in the complaint that the directors of the accused company ‘as such’ were in-charge of and responsible for the conduct of the business of the company at the time of sampling was vague. The use of the words “as such” in the complaint indicated that the complainant had merely presumed that the directors must be guilty because they held the office of the director. The Court opined that such presumptive accusations against the directors without any specific averment or criminal attribution being made in the complaint would be insufficient. Thereafter, reference was made to Section 319 of the Code of Criminal Procedure, 1973 which empowers the Court to take cognisance of and proceed against a person who is not an accused before it and try him along with others. Upholding the reasoning of the High Court quashing the proceedings against the directors, it was highlighted: “12.......The main clause of the complaint which is the subject-matter of the dispute is clause 5 which may be extracted thus:

5. That accused 3 is the Manager, of accused 2 and accused 4 to 7 are the Directors of accused 2 and as such they were incharge of and responsible for the conduct of business of accused 2 at the time of sampling. xx xx xx

14. Reliance has been placed on the words “as such” in order to argue that because (sic) the complaint does not attribute any criminal responsibility to Accused 4 to 7 except that they were incharge of and responsible for the conduct of the business of the Company. It is true that there is no clear averment of the fact that the Directors were really incharge of the manufacture and responsible for the conduct of business but the words “as such” indicate that the complainant has merely presumed that the Directors of the Company must be guilty because they are holding a particular office. This argument found favour with the High Court which quashed the proceedings against the Directors as also against the Manager, Respondent 1.” However, the initiation of a prosecution and the summoning order against the manager in the factual context was held to be proper.

15. In another decision by the same Bench titled Municipal Corporation of Delhi v. Purshotam Dass Jhunjunwala and Others, the assertions were that the individual accused, namely the chairman, managing director and directors of the company, were “in-charge of and responsible to it for the conduct of its business at the time of commission of the offence”. The words “as such” were missing. This Court, therefore, concluded that the directors of the company were not being prosecuted merely because of their official position but because of the assertion that they were “in-charge of and responsible for the conduct of the business at the time of commission of the offence”. There was a clear averment regarding the active role played by the accused and the extent of their liability. Accordingly, restoring the order passed by the Metropolitan Magistrate by which the directors etc. were summoned for trial in accordance with the law and setting aside the order of the High Court quashing the prosecution against them, this Court has held: “3.....The relevant allegations against the accusedrespondents are to be found in para 5 of the complaint which may be extracted thus:

5. That accused Ram Kishan Bajaj is the Chairman, accused R.P. Neyatia is the Managing Director and Accused 7 to 12 are the Directors of the Hindustan Sugar Mills Ltd. and were incharge of and responsible to it for the conduct of its business at the time of commission of offence. xx xx xx

5. In the instant case, a clear averment has been made regarding the active role played by the respondents and the extent of their liability. In this view of the matter, it cannot be said that para 5 of the complaint is vague and does not implicate Respondents 1 to 11. As to what would be the evidence against the respondents is not a matter to be considered at this stage and would have to be proved at the trial. We have already held that for the purpose of quashing the proceedings only the allegations set forth in the complaint have to be seen and nothing further.”

16. The legal position has undergone further elucidation in a number of judgments.[7] However, for the present decision, we would refer to the summarisation in National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another,[8] to the following effect:

7 See, Pooja Ravinder Devidasani v. State of Maharashtra and another, (2014) 16 SCC 1; Gunmala Sales Private Ltd. v. Anu Mehta and Others, (2015) 1 SCC 103; Shailendra Swarup v. Deputy Director, Enforcement Directorate, (2020) 16 SCC 561.

(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the criminal liability, there is no presumption that every Director knows about the transaction.

(ii) Section 141 does not make all the Directors liable for the offence. The criminal liability can be fastened only on those who, at the time of the commission of the offence, were in charge of and were responsible for the conduct of the business of the company.

(iii) Vicarious liability can be inferred against a company registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that the accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with.

(iv) Vicarious liability on the part of a person must be pleaded and proved and not inferred.

(v) If the accused is a Managing Director or a Joint

Managing Director then it is not necessary to make specific averment in the complaint and by virtue of their position they are liable to be proceeded with.

(vi) If the accused is a Director or an officer of a company who signed the cheques on behalf of the company then also it is not necessary to make specific averment in the complaint.

(vii) The person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.”

17. The necessities of sub-section (2) to Section 22C of the Act are different from sub-section (1) to Section 22C of the Act. Vicarious liability under sub-section (2) to Section 22C can arise because of the director, manager, secretary, or other officer’s personal conduct, functional or transactional role, notwithstanding that the person was not in overall control of the day to day business of the company when the offence was committed. Vicarious liability is attracted when the offence is committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or other officer of the company.

18. In the factual context present before us it is crystal clear that the complaint does not satisfy the mandate of sub-section (1) to Section 22C of the Act as there are no assertions or averments that the appellant before this Court was in-charge of and responsible to the company M/s. Writer Safeguard Pvt. Ltd. in the manner as interpreted by this Court in the cases mentioned above. The proviso to sub-section (1) in the present case would not apply. It is an exception that would be applicable and come into operation only when the conditions of sub-section (1) to Section 22C are satisfied. Notably, in the absence of any specific averment, the prosecution in the present case does not and cannot rely on Section 22C(2) of the Act.

19. There is yet another difficulty for the prosecution in the present case as the Company has not been made an accused or even summoned to be tried for the offence. The position of law as propounded in State of Madras v. C.V. Parekh and Another:9, reads:

20. However, this proposition was later deviated from in Sheoratan Agarwal and Another v. State of Madhya Pradesh.10 This case pertained to the pari materia provision under Section 10 of the Essential Commodities Act, 1955. The court held that anyone among: the company itself; every person in-charge of and responsible to the company for the conduct of the business; or any director, manager, secretary or other officer of the company with whose consent or connivance or because of whose neglect offence had been committed, could be prosecuted alone. However, the person-in-charge or an officer of the company could be held guilty in that capacity only after it has been established that there has been a contravention by the company as well. However, this will not mean that the person-in-charge or an officer of the company must be arraigned simultaneously along with the company if he is to be found guilty and punished.

21. Relying upon the reasoning in Sheoratan Agarwal (supra) and limiting the interpretation of C.V. Parekh (supra), this Court in Anil Hada v. Indian Acrylic Ltd.11 had held that:

22. However, subsequent decisions of this Court have emphasised that the provision imposes vicarious liability by way of deeming fiction which presupposes and requires the commission of the offence by the company itself as it is a separate juristic entity. Therefore, unless the company as a principal accused has committed the offence, the persons mentioned in sub-section (1) would not be liable and cannot be prosecuted. Section 141(1) of the Negotiable Instruments Act, extends vicarious criminal liability to the officers of a company by deeming fiction, which arises only when the offence is committed by the company itself and not otherwise. Overruling Sheoratan Agarwal and Anil Hada, in Aneeta Hada v. Godfather Travels and Tours Private Limited,12 a 3-judge bench of this court expounding on the vicarious liability under Section 141 of the Negotiable Instruments Act, has held:

24. In Sharad Kumar Sanghi v. Sangita Rane,14 this Court observed that: “11. In the case at hand as the complainant's initial statement would reflect, the allegations are against the

Company, the Company has not been made a party and, therefore, the allegations are restricted to the Managing Director. As we have noted earlier, allegations are vague and in fact, principally the allegations are against the Company. There is no specific allegation against the Managing Director. When a company has not been arrayed as a party, no proceeding can be initiated against it even where vicarious liability is fastened under certain statutes. It has been so held by a three-Judge Bench in Aneeta Hada v. Godfather Travels and Tours (P) Ltd. in the context of the Negotiable Instruments Act, 1881. xx xx xx

13. When the company has not been arraigned as an accused, such an order could not have been passed. We have said so for the sake of completeness. In the ultimate analysis, we are of the considered opinion that the High Court should have been well advised to quash the criminal proceedings initiated against the appellant and that having not been done, the order is sensitively vulnerable and accordingly we set aside the same and quash the criminal proceedings initiated by the respondent against the appellant.”

25. This position was again clarified and reiterated by this Court in Himanshu v. B. Shivamurthy and Another.15 The relevant portion of the judgment reads thus:

In similar terms, the Court further held: (SCC p. 688, para 59) “59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself.” xx xx xx

12. The provisions of Section 141 postulate that if the person committing an offence under Section 138 is a company, every person, who at the time when the offence was committed was in charge of or was responsible to the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished.

13. In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to Section 138, the High Court was in error in holding that the company could now be arraigned as an accused.”

26. Applying the same proposition of law as laid down in Aneeta Hada (supra), this Court in Hindustan Unilever Limited v. State of Madhya Pradesh16 applying pari materia provision in Prevention of Food Adulteration Act, 1954, held that:

27. In terms of the ratio above, a company being a juristic person cannot be imprisoned, but it can be subjected to a fine, which in itself is a punishment. Every punishment has adverse consequences, and therefore, prosecution of the company is mandatory. The exception would possibly be when the company itself has ceased to exist or cannot be prosecuted due to a statutory bar. However, such exceptions are of no relevance in the present case. Thus, the present prosecution must fail for this reason as well.

28. There is also another aspect which requires our attention. We have noted in some detail the contents of the complaint, which refers to the violation as certain notices were not displayed and certain registers and forms were not kept at the ‘worksite’, namely, ATM of the SBI at AST, Komal Chand Petrol Pump, Civil Lines, Sagar, District Sagar. A response to the show-cause-cumcompliance notice in the form of a short reply by the authorised signatory of M/s. Writer Safeguard Pvt. Ltd. on 02nd April, 2014, which factum though accepted, has not been adverted to in the complaint. This short reply states that the Company neither manages the ATM nor works at the ATM and that the ATM site was managed by the respective banks and, therefore, the volitional as alleged do not apply to them. The complaint does not state why the reply was deficient or indicate even briefly as to the nature of activity and involvement of the Company's workers at the ATM site of the State Bank of India mandating compliance at the site in question. We are not ruling on merits, albeit highlighting the complaint being bereft and silent on these aspects and whether the authorities considered the legal provisions in the context of the factual background before initiating prosecution.

29. The authorities bestowed with the duty to confirm compliance are often empowered to take stringent including penal action to ensure observance and check defiance. There cannot also be any quarrel on the need to enforce obedience of the rules as the beneficial legislation protects the worker’s basic right to receive minimum wages. The rulebook makes sure that the workers are made aware of their rights and paid their dues as per law without unnecessary disputes or allegations as to absence, overtime payment, deductions, etc.

30. At the same time, initiation of prosecution has adverse and harsh consequences for the persons named as accused. In Directorate of Revenue and Another v. Mohammed Nisar Holia,17 this Court explicitly recognises the right to not to be disturbed without sufficient grounds as one of the underlying mandates of Article 21 of the Constitution. Thus, the requirement and need to balance the law enforcement power and protection of citizens from injustice and harassment must be maintained. Earlier in M/s. Hindustan Steel Ltd. v. State of Orrisa,18 this Court threw light on the aspect of invocation of penalty provisions in a mechanical manner by authorities to observe:

20 See Bennion On Statutory Interpretation, Sixth Edition, Part VI at Page No. 371. makers did not anticipate anomalous or unworkable consequences. The intention should not be to target and penalise an unintentional defaulter who is in essence law-abiding.

31. There are a number of decisions of this Court in which, with reference to the importance of the summoning order, it has been emphasised that the initiation of prosecution and summoning of an accused to stand trial has serious consequences21. They extend from monetary loss to humiliation and disrepute in society, sacrifice of time and effort to prepare defence and anxiety of uncertain times. Criminal law should not be set into motion as a matter of course or without adequate and necessary investigation of facts on mere suspicion, or when the violation of law is doubtful. It is the duty and responsibility of the public officer to proceed responsibly and ascertain the true and correct facts. Execution of law without appropriate acquaintance with legal provisions and comprehensive sense of their application may result in an innocent being prosecuted.

32. Equally, it is the court's duty not to issue summons in a mechanical and routine manner. If done so, the entire purpose of

21 See – Pepsi Foods Ltd. and Another v. Special Judicial Magistrate and Others, (1998) 5 SCC 749; GHCL Employees Stock Option Trust v. Indian Infoline Ltd. and Others, (2013) 4 SCC 505; Krishna Lal Chawla and Others v. State of Uttar Pradesh and Another, (2021) 5 SCC 435. laying down a detailed procedure under Chapter XV of the 1973 Code gets frustrated. Under the proviso (a) to Section 200 of the 1973 Code, there may lie an exemption from recording presummoning evidence when a private complaint is filed by a public servant in discharge of his official duties; however, it is the duty of the Magistrate to apply his mind to see whether on the basis of the allegations made and the evidence, a prima facie case for taking cognizance and summoning the accused is made out or not. This Court explained the reasoning behind this exemption in National Small Industries Corporation Limited v. State (NCT of Delhi) and Others:22

The issue of process resulting in summons is a judicial process that carries with it a sanctity and a promise of legal propriety.

33. Resultantly, and for the reasons stated above, we would allow the present appeal and quash the summoning order and the proceedings against the present appellant.

34. Accused No. 2, Vinod Singh, would also be entitled to the benefit of this order. Accordingly, the proceedings initiated against the accused no. 2, namely Vinod Singh, also stand quashed ....................................... J. (R. SUBHASH REDDY) ...................................... J. (SANJIV KHANNA) NEW DELHI; OCTOBER 29, 2021.