Introduction

The Supreme Court of India, in its decision in
Ravindranatha Bajpe v. Mangalore Special Economic Zone Ltd.
& Others, Criminal Appeal Nos. 1047-1048/2021, held
that company officials such as chairman, managing director,
executive director, etc. cannot be held vicariously liable under
criminal law for offences committed by the company unless there are
specific allegations and averments against them with respect to
their individual role in the offense committed.

Factual Backdrop

The facts leading up to the present case are as under:

Mr. Ravindranatha Bajpe (the
“Appellant“) had filed a private
complaint before the Judicial Magistrate, First Class, Mangalore
(“Judicial Magistrate“) for offences
punishable under Sections 406, 418, 420, 427, 447, 506 and 120B
read with Section 34 of the Indian Penal Code, 1860
(“IPC“) against thirteen accused
(Accused Nos 1. and 6 were companies while the Accused Nos. 2 to 5
and 7 to 13 were top officials or employees in these companies)
alleging that the Accused No. 1 to 13 had conspired together with
common intention to lay down pipeline beneath the schedule
properties of the Appellant without any lawful authority and legal
right. In furtherance of the same, the accused had trespassed over
the schedule properties of the Appellant and had demolished the
compound wall and also cut and demolished trees in the schedule
properties. The Judicial Magistrate examined all the documents put
on record and passed an order directing to register case against
all the thirteen accused, i.e., Accused No. 1 to 13, for offences
punishable under Sections 427 (Mischief causing damage), 447
(Criminal trespass), 506 (Criminal intimidation) and 120B (Criminal
conspiracy) read with Section 34 of IPC. Accused No. 1 to 9
preferred criminal revision petition before the learned Sessions
Court which allowed the same and quashed and set aside the order
passed by the Judicial Magistrate with respect to Accused No. 1 to
8 but confirmed the order passed with respect to the Accused No.
9.

The Appellant filed revision applications before the Karnataka
High Court (“High Court“), which were
dismissed by the High Court. The Appellant preferred filing
criminal appeals against the impugned judgment passed by the High
Court before the Supreme Court of India (“Supreme
Court“).

Judgement

The learned judges of the Supreme Court after hearing the
counsels for the respective parties and after going through the
allegations in the complaint of the Appellant noticed that except
for the statement that Accused Nos. 2 to 5 and 7 & 8 have
conspired with the common intention to lay the pipeline, without
any lawful authority and right, within the schedule properties
belonging to the Appellant, there were no specific allegations or
role attributed to the accused in the present case. There were no
further allegations on behalf of the Appellant that on the command
of the Accused Nos. 2 to 5 and 7 & 8, the demolition of the
compound wall of the schedule properties had taken place. The
judges of the Supreme Court further observed that all of the
accused in present case were merely arrayed as an accused as
Chairman, Managing Director, Deputy General Manager (Civil &
Env.), Planner & Executor, Chairman and Executive Director
respectively and all of them were stationed at Hyderabad, Telangana
at the time of the commission of the alleged offence.

The Supreme Court while deciding the case, placed reliance on
the following observations made by the Court in its own earlier
judgments:

I. Sunil Bharti Mittal v. Central Bureau of Investigation,
(2015) 4 SCC 609

The Supreme Court had, in the said case, observed that:

1. An individual who has perpetrated the commission of an offence
   on behalf of a company can be made an accused, along with the
   company, if there is sufficient evidence of his active role coupled
   with criminal intent;




2. When the company is the offender, vicarious liability of the
   directors cannot be imputed automatically, in the absence of any
   statutory provision to this effect.

II. Pepsi Foods Limited v. Special Judicial Magistrate,
(1998) 5 SCC 749

The Supreme Court took into consideration its judgement in the
case of Pepsi Foods Limited v. Special Judicial Magistrate,
(1998) 5 SCC 749 where it was held that summoning of an
accused in a criminal case is a serious matter and criminal law
cannot be set into motion as a matter of course.

III. Pepsi Foods Limited v. Special Judicial Magistrate,
(1998) 5 SCC 749

The Supreme Court further took into consideration its judgment
in the case of GHCL Employees Stock Option Trust v. India
Infoline Limited, (2013) 4 SCC 505 that in the order issuing
summons, the Magistrate has to record his satisfaction about a
prima facie case against the accused who are managing director, the
company secretary and the directors of the company and the role
played by them in their respective capacities which is sine qua
non for initiating criminal proceedings against them.

IV. Key observation

The key observation of the Supreme Court was that merely because
the Accused Nos. 2 to 5 and 7 & 8 are the Chairman/ Managing
Director/Executive Director/Deputy General Manager/Planner &
Executor, they cannot automatically be held vicariously liable,
unless, there are specific allegations and averments against them
with respect to their individual role in the alleged offence.
Further, the Supreme Court also observed that criminal proceedings
cannot be set in motion on its own and that a magistrate granting
summons must record his satisfaction about a prima facie case
against the accused Accordingly, the Supreme Court held that the
High Court had rightly dismissed the revision applications filed by
the Appellant and had rightly confirmed the order passed by the
Sessions Court quashing and setting aside the order passed by the
Judicial Magistrate issuing process against Accused Nos. 1 to 8 for
the offences punishable under Sections 427, 447, 506 and 120B read
with Section 34 of the IPC.

The Supreme Court, basis the reasons stated above, dismissed the
appeals filed by the Appellant and directed the Judicial Magistrate
to proceed with the complaint only against the original Accused
Nos. 9 to 13 on its own merits, in accordance with law.

Implications

It is a progressive judgment as it settles the law in India that
employees cannot be held criminally liable for offenses committed
by the company, unless specific role is attributed to such
employees for the offense.

However, this judgement does not affect liability of employees
qualifying as ‘officer who is in default‘ under
the Companies Act, 2013 as well as vicarious liability of directors
under other Indian laws such as labour law, taxation laws, foreign
exchange control regulations, environmental laws, etc.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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