Telangana High Court
Sri Ch Venkateswara Rao vs State Of Telangana on 6 February, 2024
1
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
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:
Appeal (Crl.) No.317 of 2008, dated 15.02.2008
"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
(1998) 6 Supreme Court Cases 288
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
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
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.
2007 (11) SCALE 318
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
