2014 Supreme(Kar) 874

KARNATAKA HIGH COURT
K. N. PHANEENDRA, J.
Shamanur Shivashankarappa – Appellant
Vs.
India Sugars & Refineries Ltd., Bellary – Respondents
Cri. P. No. 100575 of 2014
Decided On : 18/07/2014

Headnote:ESSENTIAL COMMODITIES ACT, 1955 - Section 10 & Karnataka Sugarcane (Regulation & Distribution) (Hospet) Order, 1974: [K.N. Phaneendra, J] Offence as to procuring sugarcane from areas ear marked for other factory - Offence by company - Liability of Chairman and Directors - Held, for the purpose of proceeding against the persons other than the persons who are in charge of and are responsible to the Company for the conduct and business of the Company, some proof is required to prosecute them before the Court. The normal rule in the case involving criminal liability is against vicarious liability, i.e., no one is to be held guilty of criminal liability for an act of another. This normal rule is however subject to exception on account of specific provision being made in the statute, extending liability to others. One such provision is Section 10 of the EC Act. Therefore, if an offence is committed by a company, it extends the criminal liability to other officers of the company if the requirements contemplated under the said provision are satisfied before the liability is fastened on such Officers. Since the provision creates criminal liability, the conditions have to be very strictly and meticulously complied with.

        There is almost unanimous judicial opinion that necessary averments ought to be contained in the complaint, particularly against a person who are not deemed to be persons in charge of a Company or looking after the day to day affairs of the Company and therefore, it is necessary to specifically aver the duties, role of each & every person to show his responsibility, his duties and functions assigned under the Memorandum of Articles of the Company. Even considering the powers under the Companies Act, there is no universal principle or presumption that a Chairman or Director of the Company is in charge of its day to day affairs. It all depends upon the respective duties or roles assigned to the Officers of the Company. Where there is no specific averments made, but the Company which is represented by a Managing Director or the Joint Managing Director and in the absence of assigning any roles to the other Directors the Managing Director, is responsible to answer all the queries, with regard to the conduct and business of the Company.

        Looking to the above said powers and duties of the Chairman, it goes without saying that the Chairman is as good as a Director, but as he is higher is position, he presides over the meetings of the Company. Therefore, unless a specific role is given to a Chairman by virtue of articles of the Company to represent the management and participate in the day to day business, conduct & affairs of the Company, he is not liable for all the offences committed by the Company.

        In view of the above said ruling, the Chairman also stands on the same footing as that of a Director. If any liability has to be fastened on the Chairman, in law, a specific role has to be given to him and what is the overt act committed by him to share the criminal liability of the Company. Therefore, in the absence of such allegation and specific averments in the complaint, even Chairman also, ipso-facto by virtue of his position, cannot be made as an accused in a criminal case for the offence committed by the Company. The complaint must contain material to enable the Magistrate to make up his mind for issuing process. In this particular case, the Magistrate has in one sentence stated all the persons of the Company are liable for prosecution as they are participating in the day today affairs of the business and conduct of the Company. The said observation of the learned Magistrate is bereft of facts on record. The cognizance taken by the Magistrate and the process issued against the petitioner who is a Director and Chairman of the respective companies is bad in law and the same is liable to be quashed. Criminal Proceedings against Petitioner who is Chairman/Director was quashed. Trial Court was directed to proceed against other accused.