CRIMINAL PROCEEDINGS AGAINST MANAGING DIRECTOR

[Mr. M. GOVINDARAJAN]

In Court ‘Sharad Kumar Sanghi V. Sangita Range’ – 2015 (2) TMI 1117 - SUPREME COURT the appellant is the Managing Director of M/s Sanghi Brothers (Indore) Limited, a registered company under Companies Act, 1956. The company is engaged in the business of automobile sale, finance and shipping etc.,  The company is having branches at various places. The respondent obtained a quotation from the Bhopal branch of the company for purchase of TATA diesel vehicle model SFC709/38LB during April 1998.  The vehicle was delivered to the respondent on 01.05.1998 on payment of price.  The respondent faced difficulty with the vehicle and eventually he came to know during August 2000 that there was a discrepancy in the engine number of the invoice issued to him. He also found that there was a letter issued by Tata Engineering and Locomotive Company on 07.11.2000 that in the course of transit from the company to Bhopal, the said vehicle had met with an accident as a result of which the engine was replaced by another engine.

The respondent filed a criminal complaint under Section 200 of Criminal Procedure Code alleging that the company being represented by the appellant, the Managing Director had suppressed the information and deliberately cheated the respondent.  The Magistrate took cognizance of the offence after the following procedure as contemplated under Section 202 of Criminal Procedure Code.  Summons was issued to the appellant.  Against the summons the appellant filed a revision before the Sessions Judge, Betul which was dismissed.  Therefore he approached the High Court under Section 482 of Criminal Procedure Code.

Before the High Court the appellant contended the following-

• The Magistrate had no territorial jurisdiction;
• There was no deceit by the respondent;
• The company was not made an accused in the complaint;
• There was no mens rea.

Therefore the appellant contended that the complaint was not maintainable.  The High Court dismissed the application for quashment of criminal complaint.

Against the order of the High Court the appellant filed the present appeal before the Supreme Court.  The Supreme Court found that there is no dispute that the vehicle was purchased by the respondent and the invoice contained a different engine number than the engine which was fitted into the vehicle.  The Supreme Court analyzed where there has been any specific allegation against the appellant.  The allegations made in the Complaint is – That the proprietor of M/s Sanghi Brothers, Indore, accused Sharad S/o Sohan Sanghi negligently prepared the accidental Vehicle No. 709 LM and projected the same as new to deliver the complainant causing gain to self and loss to the complainant which is punishable under Section 420 Indian Penal Code.

The Supreme Court observed that barring the aforesaid allegation in the initial statement made under Section 200 CrPC, the complainant after inheriting the fact has stated that Sanghi Brothers Limited run by Mr. Sharad Snaghi committed cheating with the applicant by delivering accidented vehicle in place a new one and caused gross financial loss.  The applicant is operating the vehicle after borrowing loan from bank and the vehicle is not worth operating at present due to the said defects. The Supreme Court observed that the allegations which find place against the Managing Director in his personal capacity seem to be absolutely vague. Where a complainant intends to rope in a Managing Director or any office of the Company  it is essential to make requisite allegation to constitute the vicarious liability.

The Supreme Court relied on the judgment in ‘Maksud Saiyed V. State of Gujarat’ – 2007 (9) TMI 400 - SUPREME COURT OF INDIA in which the Supreme Court held that where a jurisdiction is exercised on a complaint under Section 156 (3) or Section 200 of CrPC, the Magistrate is required to apply his mind.  The penal code does not contain any provision for attaching the vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is the company. The Magistrate failed to pose unto himself the correct question viz., as to whether the complaint, even if given face value and taken to be correct, in its entirety,  would lead to the conclusion that the respondents were personally liable for any office.  The Bank is a body corporate.  Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute.  Statutes must contain provision fixing such vicarious liabilities. It is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting the vicarious liability.

The Supreme Court relied on another judgment in ‘S.M.S. Pharmaceuticals Limited V. Neeta Bhalla’ – 2005 (9) TMI 304 - SUPREME COURT OF INDIA in which the Supreme Court held that it is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. The averment is an essential requirement of Section 141 and has to be made in a complaint.  Without this averment being made in a complaint, the requirements of Section141 cannot be said to be satisfied.

The Supreme Court found that the complainant’s initial state would reflect the allegations are against the company.  The company has not been made a party and therefore the allegations are restricted to the Managing Director.  The allegations against the Managing Director are vague.  There are no specific allegations against the Managing Director.  The Supreme Court held that when a company has not been arrayed no proceeding can be initiated against it even where vicarious liability is fastened under certain statutes.  When the company has not been arraigned as an accused, the Supreme Court was of the considered opinion that the High Court should have been well advised to quash the criminal proceedings initiated against the appellant and that having not been done, the order is sensitively vulnerable and accordingly the Supreme Court set aside.

From the above judgment it is clear that when a complaint is filed against the Officer of the Company it should be ensure that whether the statute states about the vicarious liability on the said officer like Companies Act, 2013 and also to include the company along with the Officer of the Company in the complaint.