Allahabad HC: No vicarious liability of directors under IPC

No vicarious liability of directors under IPC; Court directs the accused to file discharge application before the Trial Court

The Lucknow bench of the Hon’ble Allahabad High Court recently issued a decision in the case of Shekhar Ramamurthy v. The State of U.P. Thru. Prin. Secy. Home, Lko and Another (Application u/s 482 No. 7907 of 2022) reiterating the legal position while disposing of an application under section (“u/s”) 482 of the Code of Criminal Procedure, 1973 (“Cr.P.C”) that a director, managing director, etc., can be held liable for an offence along with the company only if there is sufficient material to prove their active role in the commission of the alleged offence.

In other words, the Hon’ble Court reiterated the principle that there is no vicarious liability on a director in respect of Indian Penal Code, 1860 (“IPC”) offences. However, since there were certain disputed questions of fact, the Hon’ble Court directed the Applicant to approach the Trial Court by filing a discharge application under the provisions of Cr.P.C.

Brief Facts:

• The Applicant was the Managing Director of United Breweries Limited (“UBL”), a company engaged in the business of manufacture and sale of alcoholic beverages. The accused resigned from UBL and ceased to be a Director of UBL w.e.f. 31.07.2020.

• An FIR was filed against 3 individuals (other than the Applicant) along with UBL. As per the FIR, the Complainant had placed an order for three trucks of beer and made a payment of Rs. 92,98,902/-. The Complainant stated that despite making the payment, Akhil Sarda, one of the accused in the FIR, did not supply the beers ordered.

• In this case, the Investigating Officer (“IO”) filed a chargesheet on 10.02.2019 against the 4 accused persons (i.e., 3 individuals and UBL). The Applicant was not named in this chargesheet. Further, 3 supplementary chargesheets were also filed in the case and even in these chargesheets, the Applicant was not named as an accused. The Trial Court took cognisance of the chargesheets and issued a process against the accused persons. Since the accused persons did not appear before the Court, bailable and non-bailable warrants were issued.

• An application was moved before the Trial Court by the IO requesting that the name of the Applicant be included in the capacity of the MD of UBL. This application was allowed and a summoning order dated 17.10.2022 was passed by the Trial Court. This summoning order dated 17.10.2022 was challenged by the Applicant before the Hon’ble High Court in an application u/s 482 of Cr.P.C. seeking quashing of the said order dated 17.10.2022.

Held:

• The Hon’ble High Court reiterated the principle that a director can be made liable for an offence committed by a company only if he was personally involved in the alleged transaction. The Court stated that there is no provision under the IPC which casts vicarious liability on the directors and that it is imperative on the investigating authority to identify the exact role and criminal intent of the accused person.

• The Hon’ble High Court held that in an application u/s 482 of Cr.P.C, the Court cannot decide disputed questions of fact and that the Court is only required to examine the facts and allegations to find out if the proceedings are an abuse of the process of the court and law.

• In the present case, the Hon’ble Court found that there are disputed questions of fact, and therefore the appropriate remedy for the Applicant would be to approach the Trial Court in a discharge petition.

• Accordingly, the Hon’ble High Court refused to quash the proceedings and granted 3 weeks’ time to the Applicant to file a discharge application before the Trial Court. The Hon’ble High Court further granted protection against any coercive measures until the disposal of the discharge application.

Analysis:

• The Hon’ble High Court has reiterated the position in law that the IPC does not contain any provision for vicarious liability of directors. The Hon’ble Court reiterated the law laid down by the Hon’ble Supreme Court in the case of Sunil Bharti Mittal and Shiv Kumar Jatia, which held that an officer, director etc., of a company can be made an accused along with the company only if there is sufficient material to prove their active role in the commission of the alleged offences with criminal intent.

• The Court also reiterated the position that for any officer or director of a company to be made an accused, the FIR or chargesheet must contain specific allegations of the commission of an offence by such individuals.

• This decision is very helpful in those cases where people are made accused solely on the basis of their occupying the position of director, and there is absolutely no evidence regarding their active role or involvement in the commission of offences under the IPC.

Authored by Aishwarya Pawar, Associate at Metalegal Advocates. The views are personal and do not constitute legal opinion.