The Supreme Court recently in the case of, Ravindranatha Bajpe v. Mangalore Special Economic Zone Ltd, upheld the decision of Karnataka High Court of dismissing the revision petitions and confirming the judgment of Sessions Court for setting aside the orders of the Magistrate that issued the summons to the respondent nos. 1-8, where respondent numbers 1 and 6 were companies and 2 to 5 and 7 to 8, were the top brass company officials.
What Apex Court Decided?
The court ruled that company officials like chairman, managing director, director, deputy general manager etc. cannot automatically be held vicariously liable for the criminal offence committed by the company unless there are specific allegations and averments against them with respect to their individual role.
Stand of Complainant:
The complainant alleged that the accused conspired with the common intention of trespassing and laying pipelines unlawfully beneath the properties belonging to the complainant, demolished the compound wall and destroyed hundreds of valuable trees.
What Hon’ble Apex Court Observed?
The two-judge bench of M.R. Shah and A.S. Bopanna noted that the accused nos. 2 to 5 and 7 & 8, at the time of occurrence of such events, were stationed at Hyderabad and there were no allegations that at the time of the commission of the alleged offence, they were present. Therefore, the learned Magistrate was not justified in issuing a process against accused nos. 1 to 8.
Further, the court accepted the contention of the respondents placing reliance on India Infoline Limited (supra), where while issuing summons, the learned Magistrate has to record his satisfaction about a prima facie case against the accused and the role played by them in their respective capacities which is a sine qua non for initiating criminal proceedings against them.
It was noted that in the complaint there were no specific allegations and/or averments with respect to the role played by them in their capacity as company officials.
The court stated that without any specific role attributed and the role played by them in their capacity, they cannot be arrayed as an accused, and cannot be held vicariously liable for the offences committed by the companies. Therefore, the appeals filed against Mangalore Special Economic Zone Ltd and others were dismissed.
How it will be Helpful for the Companies?
The present judgment excludes the vicarious criminal liabilities of company officials as increased liabilities led to increased resignations and impacted the availability of deserving candidates. The penalization of Section 212(14A) of the Companies Act, dissuaded quality professionals from applying for board positions. Ultimately, this kind of vicarious liability violates principles of natural justice. But such a flaw in the strict interpretation of vicarious liability has led to increased scrutiny that whether a corporate official should actually be a subject of criminal liability for the offences they only have a remote connection with. It’s high time that such and similar provisions are done away with and a just system is established for the company officials.