Telangana High Court
Sri Ch Venkateswara Rao vs State Of Telangana on 6 February, 2024
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THE HON'BLE SRI JUSTICE K.SURENDER
CRIMINAL PETITION No.2888 of 2021
ORDER:
1. This Criminal Petition is filed to quash the proceedings against the petitioner/A1 in CC No.703 of 2016 on the file of XVII Additional Chief Metropolitan Magistrate, Hyderabad for the offences under Sections 406 and 420 of IPC.
2. The Enforcement Officer and Assistant Public Prosecutor of Bhavishyanidhi Bhavan, Bharkatpura filed complaint alleging that the petitioner herein, is the Managing Director of M/s. Image Broadcasting Private Limited, Jubilee Hills, Hyderabad, which is an establishment covered under the employees of Provident Funds Miscellaneous Provisions Act, 1952. Petitioner falls within the definition of 'employer'. An employer of an establishment shall make payment of the deducted contribution for Provident Fund (PF) from the salaries of the employees as the Central Government may fix and the employer shall forward to the Commissioner within 25 days of the close of the month, the details such as monthly extract showing the aggregating amounts recoveries 2 from the wages of the members and the aggregate amount of contribution by the employer in respect of such members. However, the petitioner falling within the definition of an employer under the Act has deducted the employee share of provident fund from the salary/wages and has not deposited in the statutory fund as required by law. On the basis of the said complaint, crime was registered and charge sheet filed under Sections 406 and 420 of IPC.
3. Learned counsel appearing for the petitioner would submit that the petitioner cannot be prosecuted in his personal capacity unless the company is made as an accused. In fact, the said amount of employee provident fund that has to be paid is in dispute and it is not stated by the department regarding he quantum that has to be paid. He relied on the judgment of the Hon'ble Supreme Court in the case of S.K.Alagh v. State of U.P and others 1 and argued that Section 406 of IPC would not be attracted. He relied on the relevant observations:
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Appeal (Crl.) No.317 of 2008, dated 15.02.2008 3 "20. As, admittedly, drafts were drawn in the name of the company, even if appellant was its Managing Director, he cannot be said to have committed an offence under Section 406 of the Indian Penal Code. If and when a statute contemplates creation of such a legal fiction, it provides specifically therefor. In absence of any provision laid down under the statute, a Director of a company or an employee cannot be held to be vicariously liable for any offence committed by the company itself. {See Sabitha Ramamurthy and another v.
R.B.S.Channabasavaradhya [(2006) 10 SCC 581]}.
21. We may, in this regard, notice that the provisions of the Essential Commodities Act, Negotiable Instruments Act, Employees' Provident Fund (Miscellaneous Provision) Act, 1952 etc. have created such vicarious liability. It is interesting to note that Section 14A of the 1952 Act specifically creates an offence of criminal breach of trust in respect of the amount deducted from the employees by the company. In terms of the explanations appended to 405 of the Indian Penal Code, a legal fiction has been created to the effect that the employer shall be deemed to have committed an offence of criminal breach of trust. Whereas a person in charge of the affairs of the company and in control thereof has been made vicariously liable for the offence committed by the company along with the company but even in a case falling under Section 406 of the Indian Penal Code vicarious liability has been held to be not extendable to the Directors or officers of the company. {See Maksud Saiyed v. State of Gujarat and others [2007 (11) SCALE 318]}."
4. Learned counsel also relied on the judgment of Hon'ble Supreme Court in Employees' State Insurance Corporation v. S.K.Aggarwal and others 2, the Hon'ble Supreme Court held as follows:
"9. In the case of ESI Corpn. v. Gurdial Singh [1991 Supp (1) SCC 204 :
1991 SCC (L&S) 833 : 1991 Lab IC 52] this Court held that the directors of a private limited company were not personally liable to pay contributions under the Employees' State Insurance Act, 1948. The Court was considering a case where a private limited company was the owner of the factory and the occupier of the factory had been duly named under the Factories Act, 1948. The Court said that the directors did not come within the definition of clause 1 of Section 2(17) of the Employees' State Insurance Act. This Court also disapproved of the decision of a Single Judge of the Bombay High Court which has been subsequently overruled by the Division Bench of the Bombay High Court in the case of Suresh Tulsidas Kilachand v. Collector of Bombay [1984 Lab IC 1614 : 1984 LLN 312 (Bom)] .
10. Therefore, even if we read the definition of "principal employer"
under the Employees' State Insurance Act, 1948 in Explanation 2 to 2 (1998) 6 Supreme Court Cases 288 4 Section 405 of the Penal Code, 1860, the Directors of the Company, in the present case, would not be covered by the definition of "principal employer" when the Company itself owns the factory and is also the employer of its employees at the Head Office."
5. On the other hand, learned counsel appearing for the respondent had relied on the judgment of Kerala High Court in the case of V.S.Ganeshan and others v. State of Kerala in Crl.M.C.No.3250 of 2016 dated 23.1.12016 and argued that explanation 1 of Section 405 of IPC mandates prosecution of the employer for not depositing the provident fund deduction. Since the Managing Director is the whole and sole of a company and responsible person of a company, he has been made as an accused. The prosecution cannot be quashed on the said ground of not adding the company as an accused.
6. The Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (for short 'the Act') Section 2(e)defines an employer as under;
"employer" means-
(i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under clause f of sub-section 1 of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and
(ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control 5 over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent. "
7. Under Section 14A of the Act, if a person committing the offence is the company, every person at the time when the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, shall be deemed to be guilty and liable to be proceeded against and punished accordingly.
8. Admittedly, the company has to be made as an accused and the persons responsible vicariously liable under the provisions of the Act of 1952. When the person responsible in the company is made vicariously liable under the Act, unless the company is made as an accused, the Managing Director or any other person responsible on behalf of the company cannot be made liable.
9. In explanation 1 of Section 405 of IPC, an employer shall be deemed to have committed an offence of criminal breach of trust, however, a person in charge of affairs of the company has been made vicariously liable for the said offence. Admittedly, notices were served on the company for 6 the alleged violation of not depositing the deducted PF amount. In the present case, unless the company is made as an accused under Section 406 of IPC, the petitioner, the Managing Director cannot be made personally liable since by operation of law, the company is the employer and the persons responsible including Mnaging Director can be made vicariously liable. Following the judgments of Hon'ble Supreme Court in Maksud Saiyed v. State of Gujarat and others 3 and S.K.Alagh's case (supra), the prosecution of the petitioner is bad in law without prosecuting the company.
10. Further, to prosecute any person criminally, the charge has to be specific for the offence under Section 406 of IPC. The complainant, who is the Enforcement Officer and Assistant Public Prosecutor has vaguely stated that amounts during the month of October, 2014 to June, 2015 have been deducted. However, details of the employees or the amount that was deducted which is liable to be paid is not stated. A vague assertion that amount has been deducted from the employees wages or salaries, without giving specific details cannot form basis to frame a charge under Section 406 of IPC.
3 2007 (11) SCALE 318 7
11. Section 406 of IPC contemplates entrustment of property including money to a person which is subjected to dishonest misappropriation or converting such property to his own use, is made punishable. Unless it is specifically mentioned regarding the quantum that has been deducted which amount can be taken as entrusted by the employees and also the number of employees, infirmity of not giving the specific quantum or details of misappropriation cannot form basis to continue criminal prosecution for the offence under Section 406 of IPC. In the present case, the question of cheating does not arise for the very same reasons.
12. In the result, the proceedings against the petitioner in CC No.703 of 2016 on the file of XVII Additional Chief Metropolitan Magistrate, Hyderabad, are hereby quashed.
13. Criminal Petition is allowed.
__________________ K.SURENDER, J Date : 06.02.2024 kvs