[Cites 24, Cited by 0]
Gujarat High Court
Darpankumar Jitendrabhai Shah vs State Of Gujarat on 23 March, 2026
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL REVISION APPLICATION NO. 272 of 2018
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE HASMUKH D. SUTHAR
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Approved for Reporting Yes No
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DARPANKUMAR JITENDRABHAI SHAH & ANR.
Versus
STATE OF GUJARAT & ANR.
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Appearance:
MR ZUBIN F BHARDA(159) for the Applicant(s) No. 1,2
DS AFF.NOT FILED (R) for the Respondent(s) No. 2
MR ROHAN RAVAL, APP for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE HASMUKH D. SUTHAR
Date : 23/03/2026
JUDGMENT
1) By way of present revision application under Sections 397 and
401 of the Code of Criminal Procedure, the applicants have
sought following relief:-
"(A) That this Hon'ble Court may be pleased to admit and
allow this Revision Application and call for Record and
Proceedings of Criminal Case no.698/2015 from the Court
of Additional Judicial Magistrate First Class, Umargam and
after perusing the same be pleased to quash and set aside
the common order dated 13.10.2017 passed by the
Additional Judicial Magistrate First Class, Umargaon,
rejecting applications Exhibit 9 and 10 filed by the
petitioners seeking discharge from the Criminal Case
No.698 of 2015 arising out of offence registered vide CR
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No.I - 14/2015 under Sections 405 and 406 of the Indian
Penal Code and in turn, be pleased to discharge the
petitioners from the Criminal Case No.698/2015 by
holding that the petitioners cannot be held vicariously
liable for the offence committed by the company /
establishment under section 405 of the Indian Penal
Code."
2) It is the case of the applicant that the learned Magistrate ought
to have considered that the Investigating Officer has no
authority to investigate the offence and no cognizance could
have been taken by the learned Magistrate pursuant to the
charge-sheet. As the applicants are not vicariously liable for the
offence without joining Viraj Polyplast Technologies Pvt. Ltd.,
(which shall hereinafter be referred to as "the company") which
is not arraigned as an accused which is a manifest error on the
record committed by the learned trial Court. He has further
submitted that the complainant - Divyeshbhai Jayshrikrushna
Shukal, has lodged the complaint against the applicants. The
company is indulged into the business of building material as
well as pre-cast concrete products,. Due to slack in the market
of construction and building materials and the fluctuation in the
rate of the US Dollar the company could not sustain itself and
tried to make efforts of payment of the salaries of its employees
and also became irregular and establishment did not resort to
retrenchment as a result of which the establishment did not
deduct the amount of contribution of the employees from their
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salaries towards the Employees Provident Fund (which shall
hereinafter be referred to as "EPF") and due to this reason in
turn did not deposit the same in the office of EPF and
subsequently along with interest the amount came to be paid
and deposited. Hence, he has requested to discharge the
applicants by allowing the present revision application.
3) Learned APP for the respondent - State has opposed the present
revision application and submitted that offences punishable
under Sections 405 and 406 of the Indian Penal Code would
attract as it is the statutory duty of the employer to deposit the
amount and subsequent deposit of contribution amount reveals
that at the relevant point of time the offence was committed and
amount thereafter the contribution was deposited and therefore
the Courts below have not committed error in passing the
impugned order and hence requested to dismiss the present
revision application.
4) At the outset, it is worth mentioning here that the offence was
registered at the instance of the respondent no.2 for the
offences punishable under Sections 405 and 406 of the IPC with
the allegation that the applicants failed to deposit contribution
amount and also failed to perform their statutory obligation to
deposit the contribution of the employees towards the EPF. The
applicants are Directors of the Company and the said Company
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is not joined as an accused in the present case. However, this is
not the case wherein the applicant have misappropriated the
amount of the contribution of the employees which are already
deducted from the salaries of the employees. After receiving the
notice and registration of complaint on 04.02.2015, the
company has deposited Rs.4,69,252/- and Rs.6,31,060/- in total
Rs.11,00,312/- came to be deposited by the company inclusive
of the contribution of the employer towards the EPF. The
applicant no.1 is the Director and applicant no.2 is the General
Manager of the Company and no allegations are there against
the applicant that they have deducted the funds form the
salaries of employees and did not deposit the same. Further, it is
the case of the applicants that in absence of company no
prosecution can be initiated and by arraigning the accused they
cannot be held vicariously liable. In this regard reference is
made to the judgment of the Hon'ble Supreme Court in
Employees State Insurance Corporation Vs. S. K.
Aggarwal, reported in (1998) 6 SCC 288. Merely, the present
applicants are connected with the management of the company
is not a ground to file the proceedings against them.
5) To advert the aforesaid contention, it is worth to refer to
provision of section 405 of the IPC, which reads as under:
"405. Criminal breach of trust.- Whoever, being in
any manner entrusted with property, or with any
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dominion over property, dishonestly misappropriates
or converts to his own use that property, or
dishonestly uses or disposes of that property in
violation of any direction of law prescribing the mode
in which such trust is to be discharged, or of any
legal contract, express or implied, which he has
made touching the discharge of such trust, or
willfully suffers any other person so to do, commits
"criminal breach of trust".
The essential ingredients of the offense of
criminal breach of trust are: (1) The accused must be
entrusted with the property or with dominion over it,
(2) The person so entrusted must use that property,
or; (3) The accused must dishonestly use or dispose
of that property or wilfully suffer any other person to
do so in violation, (a) of any direction of law
prescribing the mode in which such trust is to be
discharged, or; (b) of any legal contract made
touching the discharge of such trust.
Explanation 2.-- A person, being an employer,
who deducts the employees' contribution from the
wages payable to the employee for credit to the
Employees' State Insurance Fund held and
administered by the Employees' State Insurance
Corporation established under the Employees' State
Insurance Act, 1948 (34 of 1948), shall be deemed
to have been entrusted with the amount of the
contribution so deducted by him and if he makes
default in the payment of such contribution to the
said Fund in violation of the said Act, shall be
deemed to have dishonestly used the amount of the
said contribution in violation of a direction of law as
aforesaid.
"Entrustment" of property under Section 405 of
the Indian Penal Code, 1860 is pivotal to constitute
an offence under this. The words used are, 'in any
manner entrusted with property. So, it extends to
entrustments of all kinds whether to clerks, servants,
business partners or other persons, provided they
are holding a position of 'trust'. A person who
dishonestly misappropriates property entrusted to
them contrary to the terms of an obligation imposed
is liable for a criminal breach of trust and is punished
under Section 406 of the Penal Code.
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The definition in the section does not restrict the
property to movables or immoveable alone."
To make out an offence under Section 406 of the IPC,
prosecution must have to prove that the accused was entrusted
property or with any dominion or power over it and there was
dishonest intention, misappropriation or dishonest conversion
or disposal of property in violation of directions of law or legal
contract by the accused himself. Herein, in the case on hand,
no any iota of evidence or allegation, which suggests
entrustment of the property to the applicants and dishonest
intention on the part of the accused. In absence of any such
contract of transaction or any breach of terms of agreement
between the complainant and applicants, no offence is made
out. It is needless to say that liability recommends difference
between the simple payment of investment of money. In
absence of any fraudulent entrustment or dishonest intention,
no offence is made out.
In explanation (2) to section 405 of the IPC, nowhere word
"principal employer" is explained. Hence, it must be understood
as in ordinary parlance. In ordinary parlance it is the company
which is the employer and not its Directors either singly or
collectively and said issue is also considered by the Hon'ble
Apex Court in the case of S.K. Aggarwal (Supra) and ESI
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Corpn. vs. Gurdial Singh [1991 Supp (1) SCC 204] and the
head-note reads as under:
"A. Penal Code, 1860 - 1860 - Ss.405 Expln.2 and
406 - Word "employer" occurring in Expln.2 to S.405
- Meaning and scope - Held, does not attract the
definition of "principal employer" contained in S.40 of
ESI Act - Word "employer" although used in Ss.85-B
and 85-C of ESI Act, held, has not been defined in
that Act - High Court rightly applied ordinary
parlance meaning to the said word - Hence, where
the factory in question was owned by a limited
company, held, the company, and not its directors
singly or collectively, was the employer liable for
prosecution under S.406 - Labour Law - Employees'
State Insurance Act, 1948, Ss.40, 2(17) & (15), 85-B
and 85-C - Factories Act, 1948, Ss.2(n) (as it then
stood) and 100(2) - Words and phrases - "Employer".
B. Labour Law - Employees' State Insurance Act,
1948 - Ss.40 and 2(17) & (15) - Principal employer -
Who is - Where the factory in question was owned by
a limited company, held, the owner and not the
occupier of the factory would be the principal
employer - Further held, S. 2(17) uses the words
"owner" and "occupier" disjunctively - Hence, where
the factory in question was owned by a limited
company, which was also the employer of the
employees, the definition of principal employer under
the ESI Act even if applied in Expln. 2 to S. 405, IPC,
the directors of that company, held, would not be
covered by that definition so as to render them liable
to prosecution under S. 406 - Penal Code, 1860, Ss.
405 Expln.2 and 406 - Interpretation of Statutes -
Subsidiary rules - Conjunctive or disjunctive."
As the Employees' State Insurance Act does not define the
term "employer", the term "employer" is used in Section 2(17)
of the ESI Act, which defines the term "principal employer" as
either "owner" or "occupier". The word "owner" and "occupier"
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have used disjunctively where the owner of the factory is a
"principal employer", there is no need to examine as to who is
the occupier. The owner will be the "principal employer".
6) At this stage, definition of "employer", as provided in Section
2(e) of the Employees' Provident Funds And Miscellaneous
Provisions Act, 1952, is required to be referred to, which reads
as under:
"2(e) "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
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) Further, Section 14A of the EPF Act reads as under:
"14A. Offences by companies.--
(1) If the person committing an offence under this Act,
the Scheme or [the [Pension Scheme or the
Insurance Scheme] is a company, every person,
who at the time the offence 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 offence and shall be
liable to be proceeded against and punished
accordingly:
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Provided that nothing contained in this sub-
section shall render any such person liable to any
punishment, if he proves that the offence was
committed without his knowledge or that he
exercised all due diligence to prevent the
commission of such offence.
(2) Notwithstanding anything contained in sub-section
(1), where an offence under the Act , the Scheme or
[the [Pension Scheme or the Insurance Scheme]]
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 or
manager, secretary or other officer of the
company, such director, manager, secretary or
other officer shall be deemed to be guilty of
that offence and shall be liable to be proceeded
against and punished accordingly.
Explanation.-- For the purposes of this section,--
(a)"company" means any body corporate and
includes a firm and other association of individuals;
and
(b)"director", in relation to a firm, means a partner
in the firm.]
Section 34 of the Drugs and Cosmetics Act, 1940 reads as under:
34. Offences by companies.-- (1) Where an
offence under this Act has been committed by a
company, every person who at the time the offence
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 offence 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 provided in this Act if he proves that
the offence was committed without his knowledge or
that he exercised all due diligence to prevent the
commission of such offence.
(2) Notwithstanding anything contained in sub-
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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 other officer of the company, such
director, manager, secretary or other 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 purposes of this section--
(a)"company" means a body corporate, and includes
a firm or other association of individuals;
and(b)"director" in relation to a firm means a
partner in the firm."
At this stage, section 141 of the Negotiable Instruments
Act, 1881 is also relevant to be referred to, which reads as
under:
"141. Offences by companies. -- (1) If the
person committing an offence under section 138 is a
company, every person who, at the time the offence
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 offence and shall
be liable to be proceeded against and punished
accordingly:
Provided that nothing contained in this sub-section
shall render any person liable to punishment if he
proves that the offence was committed without his
knowledge, or that he had exercised all due
diligence to prevent the commission of such
offence:
Provided further that where a person is nominated
as a Director of a company by virtue of his holding
any office or employment in the Central
Government or State Government or a financial
corporation owned or controlled by the Central
Government or the State Government, as the case
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may be, he shall not be liable for prosecution under
this Chapter.
(2) Notwithstanding anything contained in sub-
section (1), where any 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 other officer of the company, such
director, manager, secretary or other 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 purposes of this section,--
(a)"company" means any body corporate and
includes a firm or other association of individuals;
and(b)"director", in relation to a firm, means a
partner in the firm.
8) Now, coming back to the provision of section 14A of the EPF Act,
the provision is pari materia to section 34 of the Drugs and
Cosmetics Act and Section 141 of the Negotiable Instruments
Act, 1881 is also required to be considered.
9) Merely because present applicants are the Director and General
Manager of the Company, the applicants cannot be held
vicariously responsible and prosecuted in aid of Section 14A of
the EPF Act. To connect the accused persons with an offence,
complainant must have to show that how and in what manner
the present applicants being the Director and General Manager
of the Company and are answerable for the conduct and
business of the Company. Herein, in the complaint, nowhere the
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specific role of the present applicants is alleged and merely their
names are mentioned in Form No.5A in declaration and by virtue
of designation the applicants are arraigned as accused in their
individual capacity. The applicants are not full time salaried
employees or also not getting any remuneration from the
Company and only by virtue of their designation, as a care
taker, they are arraigned as accused. To make answerable or
responsible the Director or members of the Company for the
administration of the Company, complainant must have to show
that present applicants were responsible for the day to day
affairs of the Company. Mere bald statement in the complaint is
not enough for proceeding against the applicants.
In this regard, I lay my hand on pari materia provision of
section 141 of the Negotiable Instruments Act, 1881 qua
responsibility and prosecution against Directors in case of
company, firm or association and reference is required to be
made to the decision of the Hon'ble Supreme Court in the case
of S.M.S. Pharmaceuticals Ltd vs Neeta Bhalla & Anr.
reported in (2005) 8 SCC 89; Ashoke Mal Bafna vs. M/s.
Upper India Steel Mfg. & Engg. Co. Ltd. reported in (2018)
14 SCC 202 and Susela Padmavathy Amma vs. Bharti
Airtel Limited reported in 2024 SCC OnLine (SC) 311
wherein, dealing with provisions under Section 34 of the Drugs
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and Cosmetics Act, 1940 has observed in paragraph 18 as
under:
"18. In the case of State of Haryana vs. Brij Lal Mittal
and others [(1998)5 SCC 343], this Court observed
thus:
"8. Nonetheless, we find that the impugned
judgment of the High Court has got to be upheld for
an altogether different reason. Admittedly, the
three respondents were being prosecuted as
directors of the manufacturers with the aid of
Section 34(1) of the Act which reads as under:
"34. Offences by companies.--(1) Where an
offence under this Act has been committed by a
company, every person who at the time the
offence 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
offence 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 provided in this Act if he
proves that the offence was committed without
his knowledge or that he exercised all due
diligence to prevent the commission of such
offence."
It is thus seen that the vicarious liability of a person
for being prosecuted for an offence committed under the
Act by a company arises if at the material time he was in
charge of and was also responsible to the company for
the conduct of its business. Simply because a person is a
director of the company it does not necessarily mean
that he fulfils both the above requirements so as to make
him liable. Conversely, without being a director a person
can be in charge of and responsible to the company for
the conduct of its business. From the complaint in
question we, however, find that except a bald statement
that the respondents were directors of the
manufacturers, there is no other allegation to indicate,
even prima facie, that they were in charge of the
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company and also responsible to the company for the
conduct of its business."
10) Further, dealing with section 138 read with Section 141 of the
Negotiable Instruments Act, 1881, considering the decision of
Hon'ble Supreme Court in the case of S.M.S. Pharmaceuticals
Ltd. (Supra), the Hon'ble Supreme Court paragraph 20
observed thus:
"20. In the case of S.M.S. Pharmaceuticals Ltd. (supra),
this Court was considering the question as to whether it
was sufficient to make the person liable for being a
director of a company under Section 141 of the
Negotiable Instruments Act, 1881. This Court considered
the definition of the word "director" as defined in Section
2(13) of the Companies Act, 1956. This Court observed
thus:
"8. ....... There is nothing which suggests that
simply by being a director in a company, one is
supposed to discharge particular functions on
behalf of a company. It happens that a person may
be a director in a company but he may not know
anything about the day-to-day functioning of the
company. As a director he may be attending
meetings of the Board of Directors of the company
where usually they decide policy matters and guide
the course of business of a company. It may be
that a Board of Directors may appoint sub-
committees consisting of one or two directors out
of the Board of the company who may be made
responsible for the day-to-day functions of the
company. These are matters which form part of
resolutions of the Board of Directors of a company.
Nothing is oral. What emerges from this is that the
role of a director in a company is a question of fact
depending on the peculiar facts in each case. There
is no universal rule that a director of a company is
in charge of its everyday affairs. We have
discussed about the position of a director in a
company in order to illustrate the point that there
is no magic as such in a particular word, be it
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director, manager or secretary. It all depends upon
the respective roles assigned to the officers in a
company. ....."
11) Further, the principle of vicarious liability is inserted to make
sure that the real perpetrators of the offence are punished. The
Courts while recognizing the principle of vicarious liability in
criminal jurisprudence have time and again laid down some ratio
so as to prevent the misuse of the principle. The Hon'ble
Supreme Court has also laid down guidelines to prevent the
misuse of the section. One of the foremost requirement is the
presence of specific averment. In the case of SMS
Pharmaceuticals (Supra) and other all cases referred above,
the Hon'ble Supreme Court has held that "with a view to make
the Director of a Company vicariously liable for the acts of
the company, it was obligatory on the part of the
complainant to make specific allegations and in the
absence of same, the complaint should not be
entertained". Merely simply stating that the accused in charge
of the firm or company will not satisfy the contours of the Act.
To launch a prosecution, it has to be showcased that accused
were involved and this has to be done in a clear and
unambiguous manner. The test of "factual and legal
requirement" is that, accused "was in charge of, and was
responsible to the company for the conduct of the business of
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the company". To impose vicarious liability on an individual,
"person should fulfill the 'legal requirement' of being a person in
law (under the statute governing companies) responsible to the
company for the conduct of the business of the company and
also fulfill the "factual requirement' of being a person in charge
of the business of the company". In the same case, while
referring to sub-clause 2 of the same section, the Apex Court
had reiterated that, to impose liability under the said sub-clause,
it has to be showcased that there is some "consent, connivance
or negligence" on the part of the accused which led to the
commission of the offence.
12) Similarly, in view of order dated 11.09.2024 passed by this
Court in Criminal Misc. Application No.9538 of 2012, the present
revision application deserves consideration and the order passed
by Court below is required to be quashed and set aside.
13) Accordingly, the present revision application is disposed of being
allowed. The common order dated 13.10.2017 below Exhibits 9
and 10, in Criminal Case No.698 of 2015, passed by the
Additional Judicial Magistrate First Class, Umargam, is quashed
and set aside and the discharge applications under Section 239
of the Code of Criminal Procedure, filed by the applicants is
hereby allowed and the applicants are discharged from the
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charges levelled against them.
14) Record and proceedings, if any, be sent back to the concerned
Court forthwith.
(HASMUKH D. SUTHAR,J)
ANKIT JANSARI
