This article is authored by Advocate Sanjeev Sirohi.
While leaving not even a scintilla of doubt on the key question of vicarious liability of the officers of a company, the Jammu and Kashmir and Ladakh High Court in a most learned, laudable, landmark, logical and latest judgment titled Reema Arora & Ors Vs Department of Agriculture th. Law Enforce Inspector (Fertilizer) namely Noor Mohammad Bhat in CRM(M) No. 156/2021 CrlM Nos. 496/2021, 878/2021 and cited in 2023 LiveLaw (JKL) 51 that was reserved on February 28 and then finally pronounced on March 10, 2023, has minced just no words to make it crystal clear that when the company is an offender, no vicarious liability can be attached to its officers unless the statute specifically provides so. The Court quashed the criminal complaint that was filed under the Essential Commodities Act, 1955 against the directors of a company on the ground that the complaint nowhere spells out how and in what manner the petitioners/accused were in charge of or were responsible to the accused company. The Single Judge Bench of Hon’ble Mr Rajesh Sekhri clearly stated that “The legal intendment is clear that when the company is an offender, vicarious liability of its directors can be imputed in terms of the provisions of a statute, making it a deeming fiction….There is no provision in the Penal Code to attach vicarious liability on Managing Director or Directors or employees of a Company.” Very rightly so!
At the very outset, this extremely commendable, cogent, composed and creditworthy judgment authored by the Single Judge Bench of Hon’ble Mr Rajesh Sekhri of Jammu and Kashmir and Ladakh High Court sets the ball in motion by first and foremost putting forth in para 1 that, “The petitioners have invoked inherent jurisdiction of this Court under Section 482 of Code of Criminal Procedure,1973 (Cr. PC, for short) for quashing of the complaint titled ‘Department of Agriculture Vs. Rema Arora and others and the cognizance order dated 04.09.2020 passed by the court of learned Judicial Magistrate, 1st Class, (Munisff), Chadoora, Budgam (trial court, for short).”
To put things in perspective, the Bench envisages in para 2 that, “The case set out by the petitioners is that they are employees of M/s Agro Care Organic Farm Private Limited Company involved in manufacturing of fertilizers, including Bio Fertilizers such as Vermicompost (soil food). Petitioner No. 2/accused No. 2 in the complaint, sent an intimation to the respondents for taking samples of Vermicompost from Batch No. AOF/105 was received on 28.02.2016. It is an allegation of the petitioners that the respondent did not take the sample for analysis in accordance with the procedure provided by the Fertilizers Control Order, 1985 (hereinafter referred to as “FCO of 1985”). Thereafter respondent seized the fertilizer from godowns of the Company i.e, M/s Agro Care Organic Farm Private Limited Company located at Nowgam Bypass, Srinagar alleging that same was not according to the specifications of FCO of 1985. Consequently, the complaint came to be filed by the respondents against the petitioners under Clause 19(a) of the FCO, 1985 read with section 7 of the Essential Commodities Act, 1955 (EC Act for short) and impugned cognizance was taken by the learned trial court.”
As it turned out, the Bench then stipulates in para 8 that, “A pristine question of law which arises for consideration, is whether employees of a company alone can be prosecuted and held liable without arraignment of the company as an accused.”
Needless to say, the Bench states in para 9 that, “It is settled proposition of law that one cannot draw a presumption that Managing Director of a Company or the Directors or officers or employees for that matter are responsible for all acts committed by or on behalf of the company. It all depends upon the respective roles assigned to the officers or employees of a company.”
Simply put, the Bench then observes in para 10 that, “Companies are changed with mens rea offences, thus they require guilty mind as the said offences are not strict liability offences. The thrust of this legal position is that it is the “human agency” in the accused companies who can be held responsible.”
Most significantly, we see that the Bench then minces absolutely no words to mandate in para 19 holding succinctly that, “Reverting to the present case, it is an admitted position on the face of the record that the respondent/complainant received intimation on 29.02.2020 from M/s Agri Care Organic Farms Private Limited Company Ludhiana and on receipt of the said intimation, the respondent/complainant visited the godown of the said company at Pahroo, Nowgam on 02.03.2020 and took one sample of Vermicompost ( soil food) bearing Batch No. AOF/105 out of stock which as per the laboratory report was not according to the specification of the FCO of 1985. It is pertinent to underline that as per the complaint, the respondent/complainant served a show cause notice to the said accused company i.e, M/s Agri Care Organic Farms Private Limited. A bare perusal of the complaint would reveal that there is nothing to suggest that the petitioners/accused persons, at any point in time, were responsible for the acts committed on behalf of the Company. There is nothing to indicate that petitioners are responsible for the business of the company. No doubt, the company being a corporate entity performs its functions through its officers including Chairman, Managing Director, Directors etc. However, it is a trite position of criminal jurisprudence that no vicarious liability can be attached to said officers unless the statute specifically provides so.”
Be it noted, the Bench states in para 20 that, “Section 10 of the EC Act which deals with offences by companies reads thus:
“Section 10 offences by companies:
1)If the person contravening an order made under section 3 is a company, every person who, at the time the contravention was committed, was in charge of, and 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 contravention and shall be liable to be proceeded against and punished accordingly.
Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
2) Notwithstanding anything contained in sub-Section (1) where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of any director, manager, secretary or another officer of the company such director, manager, secretary or another officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation:- For the purpose of this Section:-
a) “company” means anybody corporate, and includes a firm or other association of individuals, and
b) “director” in relation to a firm means a partner in the firm”.
Most forthrightly, the Bench enunciates in para 21 that, “Section 10 of the EC Act clearly postulates that when a company commits an offence, every person who, at the time contravention was committed was in charge of, and was responsible to, the company for the conduct of the business as well as the company, are deemed to be guilty of contravention and shall be liable for prosecution. Proviso to Section 1 of Section 10 of the EC Act further clarifies that nothing in sub-section 1 shall render any such person liable to any punishment if he proves that contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. Therefore, if an officer of a company has perpetrated an offence on behalf of the company, he can be made an accused and prosecuted along with the company, provided there is sufficient evidence of his active role coupled with criminal intent on his part. As already discussed, the complaint filed by the respondent/complaint in the trial court nowhere spells out how and in what manner the petitioners/accused were in charge of or were responsible to the accused company i.e, M/s Agri Care Organic Farms Private Limited for the conduct of its business. Viewed thus, the complaint filed in the trial court is nothing but an abuse of process of law.”
Finally, the Bench concludes to hold in para 24 that, “Having regard to what has been observed and discussed hereinabove, the present petition is allowed and the impugned complaint as also impugned order dated 04.09.2020 passed by the trial court are quashed and consequently, the petitioners are discharged.”
In conclusion, we thus see that the Jammu and Kashmir and Ladakh High Court has made it unequivocally clear that when the company is an offender, no vicarious liability can be attached to its officers unless the statute specifically provides so. Of course, all the courts must pay heed to what has been held in this case so clearly, cogently and convincingly. No denying it!
Picture Source :
