Directors of a company cannot be held criminally liable for actions of the company unless statutory vicarious liability is established; allegations must show mens rea for fraud.

ORDER :

N. NAGARESH, J.

These Criminal Revision Petitions are filed by accused Nos.1 to 5 in CC Nos.197/2006 and 230/2006 on the files of the Court of the Judicial First Class Magistrate's Court-I, Alappuzha.

2. The 1^st petitioner in the Crl.R.P. is an incorporated Finance Company. The 2^nd petitioner is the Managing Director and petitioners 3 and 4 are Directors. The 5^th petitioner is the Branch Manager and Deposit Consultant.

3. The respondents/complainants alleged that the 1^st petitioner-Company was accepting deposits from the public offering higher rate of interest. The petitioners represented that they are accepting deposits strictly in accordance with the supervision and control of the Reserve Bank of India. Believing the petitioners, the complainant in Crl.R.P. No.1660/2018 deposited ₹3 lakhs and the complainant in Crl.R.P. No.1665/2018 deposited ₹2 lakhs. The deposits were made from August, 2002 to April, 2005. The petitioners paid interest only upto April, 2005. The complainants came to know that the RBI has prohibited the Company from accepting any deposits. The complainants alleged that the petitioners have cheated them and had dishonestly and fraudulently induced them to part with the money by making false representations.

4. The petitioners state that even going by the allegations in the complaint, an offence punishable under Section 420 of the INDIAN PENAL CODE was not made out against the revision petitioners. The revision petitioners in order to meet the capital requirements of the Company, issued bonds which were not prohibited by the RBI. The bond certificates were issued to the complainants.

5. After the evidence of the complainants, the accused filed CMPs seeking discharge under Section 245 Cr.P.C. stating that there was no deception as alleged in the complaint. The petitioners further stated that issuance of bond certificates will not amount to acceptance of deposits as alleged. The petitioners contended that the court below has failed to consider the question of law urged by the revision petitioners and dismissed the application for discharge filed by the petitioners holding that the court need not delve into the question whether Exts.P1 to P3 were bonds or deposits at this stage. Aggrieved by the orders rejecting discharge petitions, the petitioners are before this Court.

6. The counsel for the petitioners argued that no charge can be framed against petitioners 2 to 4, who are Directors of the Company. They do not have any vicarious liability. This Court in the judgment in has held that when Company is the offender, vicarious liability of Directors cannot be imputed automatically, in the absence of any statutory provision to that effect.

7. In the judgment in Ashok Kumaran @ Sabu C. v. State of Kerala [ 2023 (4) KHC 545 ], this Court held that it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless statute specifically provides so. A corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a Company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the Company.

8. The learned counsel for the petitioners further relied on the judgment of the Apex Court in Susheel Sethi and another v. State of Arunachal Pradesh and others [ (2020) 3 SCC 240 ] to urge that in the absence of specific allegations and averments in complaint that accused had fraudulent or dishonest intention at the time of entering into the contract, it cannot be said that even a prima facie case for offence under Section 420 IPC is made out. In the case of the petitioners, admittedly, against the amount paid by the complainants, they were r