Karnataka High Court

Mr. B. K. Narayan vs The State Of Karnataka on 14 June, 2021

Author: S Vishwajith Shetty

                                           CRL.P.2529/2021
                              1


     IN THE HIGH COURT OF KARNATAKA AT BENGALURU

          DATED THIS THE 14TH DAY OF JUNE, 2021

                            BEFORE

       THE HON'BLE MR. JUSTICE S.VISHWAJITH SHETTY

                     CRL.P.No.2529/2021

BETWEEN:

MR. B.K.NARAYAN,
AGED 62 YEARS,
SON OF BAIKADY KRISHNAYYA,
RESIDING AT 501, PAVAN,
APARTMENTS,
KARANGALPADY,
MANGALORE - 575003.                       ... PETITIONER

(By Sri. P.P.Hegde, Adv.)

AND:

1.     THE STATE OF KARNATAKA
       THROUGH THE SUB INSPECTOR OF
       POLICE, ULLALA POLICE STATION,
       MANGALURU,
       DAKSHINA KANNADA DISTRICT,
       REPRESENTED BY THE STATE
       PUBLIC PROSECUTOR, HIGH COURT
       OF KARNATAKA,
       BENGALURU - 575 001.

2.     ENFORCEMENT OFFICER,
       THE REGIONAL P.F.
       COMISSIONER,
       EPF ORGANIZATION,
       DIVISION 1, 3 & 5,
       SILVA ROAD,
       MANGALORE - 575002.             ... RESPONDENTS

(By Smt. Rashmi Jadhav, HCGP for R1,
    Smt. M.R.Shalamala, Adv. For R2)
                                                 CRL.P.2529/2021
                               2


      This Criminal Petition is filed under Section 482 Cr.P.C,
praying to quash the proceedings in C.C.No.153/2020 pending
on the file of I Additional Senior Civil Judge and C.J.M.,
Mangaluru (Arising out of Cr.No.18/2019 of Ullala Police
Station, Mangaluru) Registered for the offence P/U/S 406 and
409 of IPC and all further proceedings in the said case.

      This petition coming on for admission, this day, the Court
made the following:

                            ORDER

1. Heard the learned Counsel for the petitioner, learned

HCGP for respondent no.1-State and the learned Counsel

for respondent no.2.9

2. Brief facts of the case that are necessary for the

disposal of this petition are, FIR in Crime No.18/2019 was

registered by Ullala Police Station, Mangaluru, against the

petitioner herein on the complaint of respondent no.2 for

the offences under Sections 406 & 409 IPC. The allegations

made in the complaint are, that though the petitioner had

deducted the provident fund contribution from the

employees of M/s. Shagil Precision India Pvt. Ltd., of

which he is the Director, the same was not deposited in CRL.P.2529/2021

the provident fund account of the employees within time,

and therefore, he had committed the aforesaid alleged

offences. After investigation, the police have filed a charge

sheet for the offences under Sections 406 & 409 IPC

against the petitioner and the case is now pending before

the Court of I Addl. Senior Civil Judge & CJM, Mangaluru,

in C.C.No.153/2020. The present petition is filed with a

prayer to quash the entire proceedings in the said case.

3. Learned Counsel for the petitioner has made two-fold

submissions. Firstly, he submits that the petitioner is only

a Director of the Company and he cannot be held

responsible individually if the company has not deposited

the provident fund contribution of its employees. He

submits that the company has not been made a party to

the proceedings and it is only the petitioner who is one of

the Director who is arrayed as a party. Secondly, he

submits that the company has belatedly deposited the

entire amount in the provident fund account, and

therefore, this Court may exercise its discretion and quash

the proceedings. He has relied upon the judgment of the CRL.P.2529/2021

Hon'ble Apex Court in the case of EMPLOYEES' STATE

INSURANCE CORPORATION VS S.K.AGGARWAL AND OTHERS -

(1998)6 SCC 288, and also the judgment of this Court in

Crl.R.P.No.1068/2018 disposed of on 27.03.2019. He has

also placed reliance on the judgment of the Calcutta High

Court in the case of ROBIN PAUL VS STATE OF WEST BENGAL

& ORS. - [2010]153 CompCas 419 (Cal).

4. Per contra, learned Counsel for respondent no.2

submits that the petitioner is a person who was incharge

of the company, and therefore, he has to be held

responsible for the act of his. She also submits that

belated deposit will not wipe of the crime and the

petitioner is required to be tried for the alleged offences

before the Trial Court.

5. I have carefully considered the arguments addressed

on both sides and perused the material on record.

6. It is not in dispute that the petitioner is only a

Director of M/s. Shagil Precision India Pvt. Ltd. The

company has not been arrayed as party to the complaint.

CRL.P.2529/2021

The criminal proceedings has been initiated only as

against the petitioner on the ground that he being the

Director of the Company and he being incharge of the

management of the company, he is directly responsible for

non-deposit of the employees contribution which has been

collected by the company.

7. In the judgment relied upon by the learned Counsel

for the petitioner in S.K.Aggarwal's case (supra) and also in

Robin Paul's case (supra), the question whether the

Director of a company can be prosecuted for the offences

406 & 409 IPC was considered and it has been held that

the Director of the company cannot be prosecuted for the

said offences and it is only the company which can be held

responsible and prosecuted. In the said judgment, it has

been held that the term 'employer' does not include

'Director' of the company. It is the company which is the

employer and not its Directors either individually or

collectively.

CRL.P.2529/2021

8. A reading of explanations (1) & (2) of Section 405 IPC

would go to show that it is the employer who has the

responsibilities to deduct the employees' contribution and

deposit the same before the statutory authority and only

the employer can be held liable for commission of the

offence of criminal breach of trust, if the share of the

provident fund of the employees which has been deducted

by the company/employer is not deposited with the

statutory authority. The word 'employer' used in Section

405 IPC does not include 'Director'.

9. The Hon'ble Supreme Court in the case of MAKSUD

SAIYED VS STATE OF GUJARAT - (2008)5 SCC 668 has held in

paragraph 13 as under:

"13. Where a jurisdiction is exercised on a complaint petition filed in terms of Section 156(3) or Section 200 of the Code of Criminal Procedure, the Magistrate is required to apply his mind. Indian Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is the Company.

CRL.P.2529/2021

The learned Magistrate failed to pose unto himself the correct question viz. as to whether the complaint petition, even if given face value and taken to be correct in its entirety, would lead to the conclusion that the respondents herein were personally liable for any offence. The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability."

10. In the case of S.K.ALAGH VS STATE OF U.P. - (2008)5

SCC 662, the Hon'ble Supreme Court has observed in

paragraph 21 as under:

"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 CRL.P.2529/2021

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 Section 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 Ors. [2007 (11) SCALE 318]}."

11. Under the circumstances, I am of the considered

opinion that the petitioner being a Director of the company

which has deducted its employees contribution towards

provident fund, but has not deposited the same to the

provident fund account, cannot be prosecuted for the

offences under Sections 406 & 409 IPC. It is only the CRL.P.2529/2021

company who is employer can be prosecuted. Accordingly,

I proceed to pass the following order:

12. Criminal petition is allowed. The entire proceedings

in C.C.No.153/2020 pending on the file of I Addl. Senior

Civil Judge & CJM, Mangaluru, arising out of Crime

No.18/2019 registered by Ullala Police Station,