Criminal prosecution against directors under the Penal Code for non-payment of employee contributions is unsustainable if the company, as the primary employer, is not made an accused, as vicarious liability is not applicable under the Penal Code in the absence of specific statutory provisions.

Headnote:(A) Indian Penal Code, 1860 - Sections 406 and 409 - Employees' Provident Funds & Miscellaneous Provisions Act, 1956 - Sections 2(e), 14-A and 14-B - Criminal breach of trust - Non-payment of welfare contributions - Prosecution of company directors - Whether maintainable against directors in their official capacity without making the company an accused. (Paras 1, 8, 10, 13)

(B) Vicarious Liability - Criminal Law - Principles regarding prosecution of directors - Held, in the absence of a statutory provision in the Penal Code for vicarious liability, directors cannot be prosecuted for an offence committed by an entity without the entity itself being made an accused. (Paras 12, 31)

(C) Regulatory Compliance - Statutory duties - Distinction between civil liability, penalty by way of damages, and criminal prosecution - Necessity of proceeding against the legal entity holding ultimate control before invoking individual liability. (Paras 18, 22-26, 31)

Facts of the case:
The petitioners, who were directors of an establishment, sought the quashing of criminal proceedings initiated against them for alleged criminal breach of trust due to the delay in the deposit of contributions towards an employee welfare fund. The establishment was named in the initial complaint but was not indicted in the final report submitted to the trial court.

Findings of Court:
The court observed that the establishment was the "employer" under the relevant statute. It held that the directors could not be individually prosecuted for the establishment's breach of trust because the law does not recognize vicarious liability in the context of the penal code provisions invoked. Since the employer (the entity) was not charged, the proceedings against the directors were legally untenable.

Issues: The primary issue was whether criminal prosecution against directors under the Penal Code for default in statutory contributions is sustainable when the company, as the principal employer, has not been made an accused.

Ratio Decidendi: The legal entity responsible for the statutory duty must be the primary accused in any criminal proceeding for breach of that duty. In the absence of a specific statutory provision for vicarious liability within the Penal Code, individual directors cannot be held criminally liable for the acts of an entity unless the entity itself is subjected to the same prosecution.

Result: Proceedings quashed; application allowed.

Shampa Dutt (Paul), J.:

1. The present revision has been preferred praying for quashing of proceeding being G.R. No. 1715/2017 in connection with Birpara Police Station Case No. 112/17 dated 08.09.2017 under Section 406/409 of the Indian Penal Code filed in the Court of the Learned Chief Judicial Magistrate, Alipurduar and now pending in the Court of the Learned Chief Judicial Magistrate, Alipurduar.

2. The petitioners nos. 1 to 4 are the Directors of the company, M/s. Hind Tea Company Ltd.

3. M/s. Hind Tea Company Ltd. is the owner of the said tea estate and the ‘employer’ within the meaning of Section 2(e) of the Employees' Provident Fund & Miscellaneous Provisions Act, 1956. The said company is covered by the Employees' Provident Fund & Miscellaneous Provisions Act, 1956, and has to pay provident fund dues under the provisions of the said Act in respect of the said tea estate.

4. The financial condition of the said company depends largely on the market conditions. If the market conditions are adverse the said company is unable to make payment of wages and other statutory dues. The company suffered primarily from high cost of labour and other inputs as also low price realisation of its product. However, payment of wages has been made first as a priority to make payment of wages, rations and other statutory dues. The provident fund payment is always made thereafter.

5. The said company has not defaulted in payment of wages. The said company has however, been unable to make timely payment of provident fund contribution towards the employees' share amounting to Rs.18,56,165/- for the period from October, 2016 to February, 2017 as it has been prevented by circumstances beyond its control from making payment of the said provident fund dues in time. However, the said company subsequently paid the total dues.

6. Though the company M/s. Hind Tea Company Ltd. was named in the FIR, it was not charge sheeted.

7. The company paid the total dues towards the said employees' share. Documents are annexed at page 46 and 47.

8. Mr. Mukherjee submits that it has been held by the Supreme Court in Employees' State Insurance Corporation vs. S. K. Agarwal & Ors. that in neither of the explanation under Section 405 of the Indian Penal Code there is found anything to the effect that the Directors of the Company or an establishment may be prosecuted under Section 405 of Indian Penal code for the alleged commission of Criminal Breach of Trust.

9. In both explanations no.1 & 2 to Section 405 of Indian Penal Code, it is the person who is an employer and who deducts employees' contribution is responsible for commission of the offence.

10. It is further stated that a director cannot be termed as an ‘employer’. It has been categorically stated by the Supreme Court that the word 'employer' does not include 'director'. In view of the above, the petitioner being the Director of the company cannot be said to have committed offence under Section 405 (explanation 1) punishable under Sections 406/409 of Indian Penal code and as such the petitioner cannot be prosecuted for commission of default if any by the company, who is not an accused in this case in the criminal prosecution under Section 405 of the Indian Penal Code.

11. It is also submitted that a Co-ordinate Bench of this Hon'ble Court in the case of Satish Kumar Jhunjhunwala vs. State of West Bengal reported in (2008) 3 CAL LT 484 (HC) held that launching of prosecution against the directors of the establishment under Sections 406 and 409 of the Indian Penal Code for non-payment of employees' provident fund contribution is completely illegal and bad in law and the criminal proceeding was quashed. The aforesaid view was taken in the case of B.P. Gupta & Ors. vs. State of Bihar reported in 2000 Cr.L.J 781(Patna), R. L. Kanoria & Ors. vs. State of Another reported in 2003 C Cr. LR(Cal) 341 and Probhas Kumar Basu vs. State of West Bengal reported in (2012) 2 C Cr. LR(Cal) 615. Similar view was taken by this

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