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High Court of Calcutta
M.K. Mukherjee, J.
S.K. Agarwala – Appellant
Versus
E.S.I. Corporation – Respondent
Decided On : Jan 20, 1984
{'KEYWORD': "Employees' State Insurance Act, 1948", 'SUBJECT': 'Criminal Breach of Trust', 'ACT SECTION LIST': ['Section 406 Indian Penal Code', 'Section 405 Indian Penal Code', "Section 2 (17) Employees' State Insurance, Act, 1948", "Section 40 Employees' State Insurance, Act, 1948", "Section 85 (a) Employees' State Insurance, Act, 1948", 'Section 11 Indian Penal Code'], 'SUMMARY': "The court examined whether directors of a limited company could be held liable for prosecution under Section 406 of the Indian Penal Code for criminal breach of trust in relation to employees' contributions deducted under the Employees' State Insurance Act, 1948. The court noted that Explanation 2 to Section 405 of the Indian Penal Code, introduced by an amendment in 1975, deemed employers who deducted employees' contributions and failed to deposit them to the Employees' State Insurance Fund to have dishonestly misappropriated the said amount. However, the court observed that the term 'employer' was not defined in the Indian Penal Code and that the Act only defined 'immediate employer' and 'principal employer.' The court concluded that in the absence of a definition of 'employer' in the Indian Penal Code, the ordinary meaning of the term should be applied, which would refer to the person who employs. The court held that the company itself, as an incorporated entity, would be the employer of its employees, and not the directors individually. The court also noted a Division Bench judgment from the Punjab and Haryana High Court, which did not support the contention that principal employers could be prosecuted under Section 406 of the Indian Penal Code."}
Fact of the Case:
The petitioners, directors of Indo Japan Steel Ltd., were accused of criminal breach of trust under Section 406 of the Indian Penal Code for failing to deposit employees' contributions deducted from wages to the Employees' State Insurance Fund within the specified time. The complainant, an Insurance Inspector of the Employees' State Insurance Corporation, alleged that the petitioners, as principal employers under the Employees' State Insurance Act, were liable for prosecution.
Finding of the Court:
The court held that the petitioners, as directors of the company, could not be held liable for prosecution under Section 406 of the Indian Penal Code because they were not 'employers' within the meaning of Explanation 2 to Section 405 of the Indian Penal Code. The court reasoned that the term 'employer' was not defined in the Indian Penal Code and that the Act only defined 'immediate employer' and 'principal employer.' The court concluded that in the absence of a definition of 'employer' in the Indian Penal Code, the ordinary meaning of the term should be applied, which would refer to the person who employs. The court held that the company itself, as an incorporated entity, would be the employer of its employees, and not the directors individually.
Issues: Whether directors of a limited company could be held liable for prosecution under Section 406 of the Indian Penal Code for criminal breach of trust in relation to employees' contributions deducted under the Employees' State Insurance Act, 1948.
Ratio Decidendi: The court relied on the ordinary meaning of the term 'employer' in the absence of a definition in the Indian Penal Code and concluded that the company itself, as an incorporated entity, would be the employer of its employees, and not the directors individually.
Final Decision: The court quashed the proceedings against the petitioners, holding that they could not be prosecuted under Section 406 of the Indian Penal Code for criminal breach of trust in relation to employees' contributions deducted under the Employees' State Insurance Act, 1948.
1. SRI Sankar Bhattacharjee, an Insurance Inspector of the Employees' State insurance Corpn. Calcutta, filed a complaint against the four petitioners of this revisional application in the court of the Chief Metropolitan Magistrate, Calcutta alleging commission of an offence under Section 406 of the Indian penal Code. The material allegations in the complaint are as under.
2. THE petitioners are all directors of m/s. Indo Japan Steel Ltd. and as such they are the principal employers' as de-fined under section 2 (17) of the Employees' State Insurance, Act, 1948 (hereinafter referred to as the Act. As the provisions of the said Act are applicable to the factory and the Head Office of the company, the petitioners as principal employers, are required to deduct from the wages of the every employees an amount of money in accordance with the first schedule of the said Act and are obligated to deposit the said contributions in the manner and within the period provided under title said Act. The complainant inspected the Head office of the Company and found that the petitioners, as the principal employers, deducted a sum of Rs.2,223.50p. as employees' share of contribution from, their wages during the period from February 1981 to September 1981 but failed to deposit the said amount to the Employees' State Insurance Fund within the specified time. Thereby, according to the complainant, the petitioner's committed criminal breach of trust in respect of the aforesaid sum within the meaning of Explanation 2 to section 405 of the Indian Penal Code for which they were liable for prosecution under section 406 of the Indian Penal Code. On that complaint the learned Magistrate took cognisance and issued summons against the petitioners to stand trial. The learned Magistrate also issued a search warrant for seizure of certain records of the Company as prayed for by the complainant. Aggrieved thereby the petitioners filed this instant application under sections 401/482 of the Criminal Procedure Code, which was heard as a contested one, for quashing the proceeding of the said case.
3. THE only point that was urged on behalf of the petitioners in support of this application was that the petitioners as directors of a limited Company, could not be made liable for prosecution under section 406 of the Indian Penal Code as they were not employers' within the moaning of Explanation 2 to section 405 of the Indian Penal Code. On behalf of the complainant it was contended on the other hand that the petitioners being the directors of the Company were the principal employers under the Employees' State Insurance Act and as such they were liable for prosecution under section 406 of the Indian Penal Code.'
4. TO appreciate the contentions of; the respective parties it will be necessary at this stage to refer to Explanation 2 to section 405 of the Indian Penal Code which was brought into the statute book by the Employees' State Insurance (Amendment) Act 1975. The Explanation 2 reads as under. :-
"explanation 2 A person, being an employer, who deducts the employees contribution from the wages payable to the employee for credit to the Employees' State Insurance Fund held and administered by the Employees' State insurance Corporation established under the Employees" State Insurance Act, 1948, 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 so deducted by him to the said Fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid".
From the above explanation it would be abundantly clear that the employer, who deducts the employees contribution shall be deemed to have been entrusted with the amount of contribution so deducted and he shall be deemed to have dishonestly misappropriated the said amount. In other words, the deeming provision applies to an employer 'em
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