Mr Aman J Agarwal vs State Of Karntaka
2022 Latest Caselaw 5830 Kant

                           1



      IN THE HIGH COURT OF KARNATAKA AT BENGALURU

         DATED THIS THE 31ST DAY OF MARCH, 2022

                         BEFORE

        THE HON'BLE MR. JUSTICE M. NAGAPRASANNA

             CRIMINAL PETITION No.1092/2020

BETWEEN

MR. AMAN J AGARWAL,
S/O JANARDHAN AGARWAL,
AGED ABOUT MAJOR,
WORKING FOR GAIN AS THE
DIRECTOR OF BOMBAY RAYON
FASHIONS LIMITED,
HAVING ITS REGISTERED OFFICE AT D,
1ST FLOOR, OBEROI GARDEN ESTATES,
CHANDIVALI FARMS ROAD,
CHANDIVALI, ANDHERI,
EAST MUMBAI - 400 072.
MAHARASHTRA.

ALSO AT NO.315/A,
MITTAL PARK, RUIA PARK, JM ROAD,
JUHU, MUMBAI - 400 049.
                                              ... PETITIONER
[BY SRI.SHYAM SUNDAR H.V., ADVOCATE]

AND

1.    STATE OF KARNATAKA,
      BY RMC YARD POLICE STATION,
      YESHWANTHPUR.

2.    MR. R.SURESH BABU,
      THE ENFORCEMENT OFFICER,
      EMPLOYEES PROVIDENT FUND ORGANIZATION
                              2



     UNDER THE AEGIS OF
     MINISTRY OF LABOUR,
     GOVERNMENT OF INDIA,
     THROUGH ITS REGIONAL OFFICE,
     PEENYA, NO.62, 3RD CROSS,
     INDUSTRIAL SUBURB,
     YESHWANTHPUR II STAGE,
     BENGALURU - 560 022,
                                               ... RESPONDENTS
[BY SMT.K.P.YASHODHA, HCGP FOR R1]

      THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C. PRAYING TO (a) QUASH THE CHARGE SHEET FILED ON
06.04.2018 IN CR.NO.90/2017 FILED BY THE RESPONDENT NO.1
VIDE ANNEXURE-C PENDING BEFORE THE IV ADDITIONAL CHIEF
METROPOLITAN       MAGISTRATE       AT   BENGALURU      IN
C.C.NO.27295/2018 AND ETC.,


     THIS CRIMINAL PETITION COMING ON FOR ADMISSION, THIS
DAY, THE COURT MADE THE FOLLOWING:

                            ORDER

The petitioner is before this Court calling in question the

proceedings in CC No.27295/2018 alleging offences punishable

under Sections 406 and 420 IPC pending before the IV

Additional Chief Metropolitan Magistrate at Bengaluru.

2. Heard Sri. Shyam Sundar H.V., learned counsel

appearing for the petitioner and Smt. K.P.Yashodha, learned

High Court Government Pleader for respondent No.1.

3. Brief facts leading to the filing of the present petition

as borne out from the pleadings are as follows:

Petitioner is the Director of Bombay Rayon Fashions

Limited, a Company incorporated under the Companies Act,

1956 and is in the business of manufacture of wide range of

fabrics and garments and has pan India operations.

4. The allegation in the present case is that, after

collection of the amount of the employees for the purpose of

Provident Fund, the same has been remitted after a delay.

Proceedings under Provident Funds Act was also instituted

against the petitioner. Pursuant to which, petitioner has been

imposed fine and penalty both for having made delayed

payment and the petitioner has fulfilled all the liabilities that are

due to Provident Fund Authorities.

5. The present issue arises out of the complaint registered

by the 2nd respondent for the offences punishable under

Sections 406 and 420 IPC for the very same question on which

the petitioner was already fined and penalty imposed. A

criminal case is registered without making the Company as a

party and petitioner being its Managing Director has been held

responsible for the affairs of the Company. It is trite law that

there is no vicarious liability in criminal law unless the statute

provides for it. Therefore, without making a Company as a

party, the complaint itself is not maintainable and all further

proceedings taken thereto would become nullity in law.

6. The issue whether Company should be made a party in

such proceedings is delineated by the Apex Court in the case of

Aneeta Hada Vs. Godfather Travels and Tours Limited

reported in [(2012) 5 SCC 661] which held as follows:

"53. It is to be borne in mind that Section 141 of the Act is concerned with the offences by the company. It makes the other persons vicariously liable for commission of an offence on the part of the company. As has been stated by us earlier, the vicarious liability gets attracted when the condition precedent laid down in Section 141 of the Act stands satisfied. There can be no dispute that as the liability is penal in nature, a strict construction of the provision would be necessitous and, in a way, the warrant.

... ... ...

56. We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not

to be imposed affecting the rights of persons, whether juristic entities or individuals, unless they are arrayed as accused. It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the company. The learned counsel for the respondents have vehemently urged that the use of the term "as well as" in the section is of immense significance and, in its tentacle, it brings in the company as well as the Director and/or other officers who are responsible for the acts of the company and, therefore, a prosecution against the Directors or other officers is tenable even if the company is not arraigned as an accused. The words "as well as" have to be understood in the context.

59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh [(1970) 3 SCC 491 : 1971 SCC (Cri) 97] which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal [(1984) 4 SCC 352 : 1984 SCC (Cri) 620] does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada [(2000) 1 SCC 1 : 2001 SCC (Cri) 174] is overruled with the qualifier as stated in para 51. The decision in Modi Distillery [(1987) 3 SCC 684 : 1987 SCC (Cri) 632] has to be treated to be restricted to its own facts as has been explained by us hereinabove."

In the light of the law laid down by the Apex Court in

Aneeta Hada's case which is followed by this Court in identical

circumstances in the case of I.R. Rao and others Vs. The State

of Karnataka and others in Criminal Petition No.5320/2009

(DD 22-07-2013), wherein this Court considering an identical

circumstance of the complaint of the Provident Fund Authorities

has observed as follows:

"5. The principal contention urged in support of the prayer for quashing is that, the company which is stated to be the principal offender, having not been arraigned as accused, the prosecution launched only against these petitioners as Managing Director and Directors, is not tenable and therefore, the learned Magistrate is not justified in taking cognizance of the offences alleged in the charge sheet and ordering issue of summons. In this regard, reliance was placed on the decision of the Apex Court in Aneeta Hada Vs. Godfather Travels and Tours Limited [(2012) 5 SCC 661].

6. On the other hand, learned counsel for Respondent No.2 contended that even without prosecuting the company, the prosecution launched against these petitioners for the aforesaid offences, is tenable.

7. As noticed supra and on perusal of the contents of the FIR, it is clear that these petitioners are being prosecuted on the ground that they are the Managing Director and Directors of the Company and in that capacity, they are responsible for the conduct of the business of the company. Even according to the allegations made in the FIR, from the salary of the employees of the company, their contribution towards the Provident Fund was deducted during the aforesaid period and the same was not remitted to the concerned account. Thus, from the above, it is clear that the allegations made in the case relate to violation of the provisions of the Act. No doubt, in Explanation-I to Section-405 of IPC, presumption arises to the effect that, a person being the employer of an

establishment whether exempted under Section 17 of Act, who deducts employees' contribution from the wages payable to the employees for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, 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 law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid. Section-11 of IPC defines 'Person', which includes any Company or Association or Body of Persons, whether incorporated or not. Even according to the prosecution, the person, who deduced the employees contribution from their wages, was the company, therefore, the company is the principal offender. Section 14(A) of Act, deals with the offences by the company and it creates a legal fiction to the effect that, where the person committing the offence under Act or Scheme, etc., is a company, every person who at the time of 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.

8. Reading of the contents of the FIR makes it clear that it is by invoking the provisions of Section 14-A of Act, these petitioners are sought to be prosecuted for the offences committed by the Company.

9. In Aneeta Hada's case cited supra, three Judge Bench of the Apex Court has considered the provisions of Section 141 of the Negotiable Instruments Act (for short, N.I. Act), which is pari materia with the provisions of Section 14-A of Act.

10. In Aneeta Hada's case referred to supra, the three Judge Bench, after reviewing various earlier decisions on the point, in the light of the earlier three Judge

Bench decision in State of Madras Vs. C.V. Parekh [1970(3) SCC 491] after referring a passage from Maxwell's "The Interpretation of Statutes (12th Edn.), has held at Para-56, 58 and 59 thus:-

"56. We have referred to the aforesaid passages only to highlight that there has to be strict observance of the provisions regard being had to the legislative intendment because it deals with penal provisions and a penalty is not to be imposed affecting the rights of persons, whether juristic entities or individuals, unless they are arrayed as accused. It is to be kept in mind that the power of punishment is vested in the legislature and that is absolute in Section 141 of the Act which clearly speaks of commission of offence by the company The learned counsel for the respondents have vehemently urged that the use of the term "as well as" in the section is of immense significance and, in its tentacle, it brings in the company as well as the Director and/or other officers who are responsible for the acts of the company and, therefore, a prosecution against the Directors or other officers is tenable even if the company is not arraigned as an accused. The words "as well as" have to be understood in the context."

Xx xx xxx xxx

58. Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words "as well as the company" appearing in the Section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the

averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a director is indicted."

59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh which is a three Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada is overruled with the qualifier as stated in paragraph 51. The decision in Modi Distillery has to be treated to be restricted to its own facts as has been explained by us hereinabove."

The aforesaid principles of law laid down by the Apex Court in Aneeta Hada's case cited supra, would apply to the facts of the case on hand also since Section 14-A of Act, Pari materia with Section 141 of the N.I.Act.

11. In the case on hand, admittedly, the company has not been arraigned as an accused. In the absence of the company being prosecuted for the offences alleged, as held by the Apex Court, the prosecution only against the other category of persons mentioned in Section 14-A of Act, is not tenable."

8. In the light of the judgment of the Apex Court and that

of this Court and following the said judgments, I deem it

appropriate to pass the following:

ORDER

(i) The petition stands allowed.

(ii) All the further proceedings pending before the

IV Additional Chief Metropolitan Magistrate at

Bengaluru in CC No.27295 of 2018 stands

quashed against the petitioner.

In view of the disposal of the main petition, I.A.No.1/2019

does not survive for consideration and the same is disposed of.

Sd/-

JUDGE

tsn*