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TMI Blog2019 (8) TMI 1757X X X X Extracts X X X X X X X X Extracts X X X X ..... e case of Negotiable Instruments Act, 1881, Employees Provident Fund Act, 1952, Food Safety and Standards Act, 2006, etc. In case of a Non-Executive Director, they cannot be presumed to be involved in the day-to-day affairs of the running of the Company and they cannot be made liable just because they have attended Board Meetings or signed Balance Sheets. In the instant case, the only allegation that is found against the petitioner in the Final Report and in the materials collected by the prosecution during the course of investigation, is that the petitioner did not interfere with the illegal act committed by A-1 to A-3, and thereby he has abetted the commission of crime under Section 109 of IPC. Therefore, the prosecution has proceeded against the petitioner more on an assumption and by applying the principle of vicarious liability, without there being any material to show that the petitioner had perpetrated the commission of the offence, by playing an active role coupled with criminal intent. Unless, this minimum requirement is satisfied, the petitioner cannot be made as an accused in this case. There are no materials available against the petitioner to proceed further against hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Counsel further submitted that the concept of vicarious liability will not apply for IPC offences. The learned Senior Counsel concluded his arguments by submitting that the main accused persons have escaped from the clutches of, law, and the petitioner who was a Non-Executive Director and a Chartered Accountant by profession, has been going through the ordeal of facing criminal proceedings without there being any material available against him and the criminal proceeding is an abuse of process of Court, insofar as the petitioner is concerned. 5. The respondent Police have filed a counter affidavit in this case. The relevant portions of the counter affidavit is extracted hereunder: 3. It submitted that I am the Investigating Officer of the case in. Cr. No. 993/1999 U/s. 406, 409, 420, 506(ii) r/w 120 (B) IPC. On the Complaint of Tr. Rajendran, (Retd) Chief Engineer, Railways, No. A-87, Annanagar, Chennai-40 a case was registered against the company in EOW cr.993/1999 U/s. 406, 409, 420, 506 (ii) r/w 120(b) IPC and the case was Charged on 14.07.2006 before the C.M.M. Court, Egmore, in C.C. No. 4670/06, dated 24.08.06. Total defaulted amount is ₹ 118 Crores for 46,000 deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e management of the affairs of the company. The petitioner/accused along with the other accused issued pamphlet with the promise to pay 20% interest per annum for the deposit and there by induced depositors to invest their money with the company. The petitioner/accused along with the other accused entered into the conspiracy and deceived the depositors to the tune of ₹ 118 Crores to 46,000 depositors. The statements and documentary evidence categorical revealed all the ingredients of sections 406, 409, 420, 506(ii) r/w 34 IPC. Therefore a Final Report is liable to be quashed in this ground. 16. It is submitted that the averments made in Para 21, 22, 23 & 24 are denied. The petitioner/accused had attended the Board of Directors meeting during the period from 1996-97, 1997-98 and also signed in the minutes. The petitioner/accused had also signed in the Balance Sheet for the above said periods. Since, there is a prima facie case against the petitioner/accused, based on the statements and documents the Hon'ble CMM Court has taken cognizance of the offences U/s. 120(B), r/w 420, r/w 34 and 409, r/w 34, 109 IPC. Therefore there is a no question of non application of mind in ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in for any individual offences attributed against the other accused persons. The petitioner has been roped in only for the offence of criminal conspiracy under Section 120B of IPC and for the offence of abetment Under Section 109 IPC; 12. The specific averment that was made against the petitioner in the Final Report is extracted hereunder: The accused [A-4] N. Magesh, Director of the Company in pursuance of the conspiracy as a Director of Alwarpet Benefit Fund Ltd. engaging himself with conspiracy illegally committed by intentionally aiding the commission of cheating and criminal breach of trust by A1 to A-3 by his non-interference by illegal omission involving the breach obligation enshrined in the Articles of Association and thus appear to committed an offence of abatement u/s. 109 IPC. 13. In the counter affidavit, it has been stated that the petitioner had attended the meeting of the Board of Directors and had also signed in the Balance Sheet of the Company for the period from 1997 to 1999. Therefore, the prosecution, has come to a conclusion that the petitioner is involved in the day-to-day affairs of the Company, and therefore he is also a link in the chain of conspiracy, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that a fabricated document containing the offending endorsement was tendered in evidence before the Arbitral Tribunal on behalf of MSEB by Accused 6, who was in charge of Shirpur Section. It is evident from the afore extracted paragraphs of the complaint that other accused have been named in the complaint because, according to the complainant, MSEB, Accused 1 was acting under their control and management. It bears repetition that the only averment made against Appellant 2 is that Appellant 1 i.e. MSEB was acting under the control and management of Appellant 2 along with other three accused. There is no denying the fact that Appellant 2 happened to be the Chairman of MSEB at the relevant time but it is a settled proposition of law that one cannot draw a presumption that a Chairman of a company is responsible for all acts committed by or on behalf of the company. In the entire body of the complaint there is no allegation that Appellant 2 had personally participated in the arbitration proceedings or was monitoring them in his capacity as the Chairman of MSEB and it was at his instance that the subject interpolation was made in Ext. C-64. xx xx xx In this regard, it would be useful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 138. Thus, the statutory intendment is absolutely plain. As is perceptible, the provision makes the functionaries and the companies to be liable and that is by deeming fiction. A deeming fiction has its own signification." 32. The moot question is whether the aforesaid proposition, to proceed against the appellants is backed by law? In order to find the answer, let us scan through the case law that was cited during the arguments. 33. First case which needs to be discussed is Iridium India (supra). Before we discuss the facts of this case, it would be relevant to point out that the question as to whether a company could be prosecuted for an offence which requires mens rea had been earlier referred to in a Constitution Bench of five Judges in the case of Standard Chartered Bank v. Directorate of Enforcement[11]. The Constitution Bench had held that a company can be prosecuted and convicted for an offence which requires a minimum sentence of imprisonment. In para 8 of the judgment, the Constitution Bench clarified that the Bench is not expressing any opinion on the question whether a corporation could be attributed with requisite mens rea to prove the guilt. Para 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Graham & Sons Ltd. in the following words: (AC p. 172): "A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company. That is made clear in Lord Haldane's speech in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. (AC at pp. 713, 714). So also in the criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the directors or the managers will render the company themselves guilty." 62. The afor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctorate of Enforcement (2005) 4 SCC 530. On a detailed consideration of the entire body of case laws in this country as well as other jurisdictions; it has been observed as follows: (SCC p. 541, para 6) "6. There is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the effect that corporations cannot commit a crime, the generally accepted modern rule is that except for such crimes as a corporation is held incapable of committing by reason of the fact that they involve personal malicious intent, a corporation may be subject to indictment or other criminal process, although the criminal act is committed through its agents." 35. It is abundantly clear from the above that the principle which is laid down is to the effect that the criminal intent of the "alter ego" of the company, that is the personal group of persons that guide the business of the company, would be imputed to the company/corporation. The legal proposition that is laid down in the aforesaid judgment is that if the person or group of persons who control the affairs of the company commit an offence with a criminal intent, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a position is, therefore, because of statutory intendment making it a deeming fiction. Here also, the principle of "alter ego", was applied only in one direction namely where a group of persons that guide the business had criminal intent, that is to be imputed to the body corporate and not the vice versa. Otherwise, there has to be a specific act attributed to the Director or any other person allegedly in control and management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company. This very principle is elaborated in various other judgments. We have already taken note of Maharashtra State Electricity Distribution Co. Ltd. (supra) and S.K. Alagh (supra). Few other judgments reiterating this principle are the following: 15. It is also important to take note of the fact that the petitioner is a Chartered Account, by profession and he was a Non-Executive Director of the Company. At this juncture, it will be useful to take note of the judgment of the Hon'ble Supreme Court in Chintalapati Srinivasa Raju and Others Vs. Securities and Exchange Board of India, reported in (2018 5 MLJ 857). The relevant portions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . But the complaint should spell out as to how and in what manner Respondent 1 was in charge of or was responsible to the accused Company for the conduct of its business. This is in consonance with strict interpretation of penal statutes, especially, where such statutes create vicarious liability. 14. A company may have a number of Directors and to make any or all the Directors as accused in a complaint merely on the basis of a statement that they are in charge of and responsible for the conduct of the business of the company without anything more is not a sufficient or adequate fulfilment of the requirements under Section 141." Non-executive directors are, therefore, persons who are not involved in the day to day affairs of the running of the company and are not in charge of and not responsible for the conduct of the business of the company. 17. An instructive judgment of Lord Halsbury is contained in Dovey and the Metropolitan Bank v. John Cory [1901] AC 477. The Lord Chancellor put it thus: "The charge of neglect appears to rest on the assertion that Mr. Cory, like the other directors, did not attend to any details of business not brought before them by the general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ectors, or whether the knowledge which might have been derived from a careful and comparative examination of the weekly states and quarterly returns from the different branches of the bank ought to be imputed to the respondent, or (alternatively) whether he was guilty of such neglect of his duty as a director as would render him liable to damages. I do not think that it is made out that either of the two latter questions should be answered in the affirmative. I think the respondent was bound to give his attention to and exercise his judgment as a man of business on the matters which were brought before the board at the meetings which he attended, and it is not proved that he did not do so. But I think he was entitled to rely upon the judgment, information, and advice of the chairman and general manager, as to whose integrity, skill, and competence he had no reason for suspicion. I agree with what was said by Sir George Jessel in Hallmark's Case, and by Chitty J. in In re Denham & Co., that directors are not bound to examine entries in the company's books. It was the duty of the general manager and (possibly) of the chairman to go carefully through the returns from the branc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Report and in the materials collected by the prosecution during the course of investigation, is that the petitioner did not interfere with the illegal act committed by A-1 to A-3, and thereby he has abetted the commission of crime under Section 109 of IPC. Therefore, the prosecution has proceeded against the petitioner more on an assumption and by applying the principle of vicarious liability, without there being any material to show that the petitioner had perpetrated the commission of the offence, by playing an active role coupled with criminal intent. Unless, this minimum requirement is satisfied, the petitioner cannot be made as an accused in this case. 19. Even to rope in the petitioner under Section 109 of IPC, the prosecution must establish the element of mens rea and a positive act on the part of the petitioner. Negligence or carelessness or even facilitation cannot be termed to be abetment and abetment is not a matter of mere suspicion or surmises. Therefore, even if the entire materials are taken as it is, along with the allegations made in the Final Report, this Court does not find even an iota of evidence against the petitioner to rope him for the offence of abetment. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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