2013 (2) TMI 546 - HC - Companies Law

Vicarious liability Whether director of a company would be liable for the offence of company Company violated the provisions of the Bihar Finance Act in submitting their sales tax returns FIR was lodged against the directors who are the petitioners Held that - From bare perusal of section 49 of the Bihar Finance Act it is apparent that it does not provide for any vicarious liability of a person against whom no role is assigned in commission of any offence under this section. No role is assigned against the petitioners in the entire FIR and the allegation is only against the companies specifically No offence can be said to survive against the petitioners and the prosecution of the petitioners is fit to be quashed on this score as well. Further the case of Maharashtra State Electricity Distribution Co. Ltd. 2010 (10) TMI 83 - SUPREME COURT OF INDIA is relevant here, wherein it was decided that it is trite law that wherever by a legal fiction the principle of vicarious liability is attracted and a person who is otherwise not personally involved in the commission of an offence is made liable for the same, it has to be specifically provided in the statute concerned As even on the plain reading of the FIR, there is no role assigned to the directors, the continuance of the criminal proceeding against them cannot be sustained in the eyes of law - prosecution of the petitioners pursuant to the FIR quashed - writ application allowed.

Summary

Issues:
Directors' liability under Bihar Finance Act, 1981 - Vicarious liability - Quashing of FIR against directors.

Analysis:
The judgment involves the issue of directors' liability under the Bihar Finance Act, 1981, specifically regarding vicarious liability and the quashing of the FIR against the directors. The petitioners, who are directors of two separate companies engaged in manufacturing and selling country liquor, were accused of violating the provisions of the Act. The FIR alleged offenses under sections 49(1)(b), 49(2)(g), and 49(3)(d) of the Act against the companies, not the directors. The petitioners contended that as directors, they cannot be held vicariously liable for the companies' actions and sought to quash the FIR on this basis.

The petitioners argued that there was no provision for vicarious liability in section 49 of the Bihar Finance Act. They relied on legal precedents, including the decision in Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., emphasizing that a person not personally involved in an offense cannot be made liable unless specifically provided for in the statute. The petitioners also highlighted that the penalties imposed on the companies were set aside by the Commercial Taxes Tribunal, indicating that no offense remained against either the companies or the directors.

The State, on the other hand, contended that the FIR should not be quashed at the initial stage, citing legal principles that caution against interfering with ongoing investigations. They referenced cases such as State of M.P. v. Awadh Kishore Gupta to support this position. However, the court noted that the FIR did not assign any role to the petitioners in the alleged offenses and that the penalties against the companies had been overturned by the Tribunal. The court, therefore, found no basis for continuing the prosecution against the directors and proceeded to quash the FIR against them.

In conclusion, the court relied on legal principles and precedents to determine that the directors could not be held vicariously liable for the companies' actions under the Bihar Finance Act, especially when no specific role was assigned to them in the alleged offenses. The court emphasized that the continuation of the criminal proceedings against the directors would amount to an abuse of the legal process and unnecessary harassment. As a result, the court allowed the writ application and quashed the prosecution of the petitioners pursuant to the FIR.