For the Mighty Managing Director, vicarious criminal liability can be thy arch nemesis

The Nagpur bench of the Hon’ble Bombay High Court, in a recent case[1] was pleased to quash criminal proceedings initiated by the Inspector of Legal Metrology – Nagpur Division against the Managing Director and Chairman of the Raymond Group, Mr. Gautam Hari Singhania (Applicant), while re-iterating the principles of vicarious liability in criminal jurisprudence.

Facts 
The Inspector of Legal Metrology, Nagpur Division, during his visit to a retail establishment, noticed a carboard package containing fabrics, of Raymond Limited (the company), which did not contain certain declarations as required under the Legal Metrology Act, 2009 (Act) and Legal Metrology (Packaged Commodities) Rules, 2011 (Rules). The Inspector then issued a notice to the company for compounding of the offences. The company, however, replied to the notice refuting the charges. Consequently, the Inspector filed a complaint before the Judicial Magistrate, First Class, against the company and its directors (including the applicant), for violation of sections 18(1), 36(1) and 49 of the Act read with rule 18(1) and 24 of the Rules[2]. The Magistrate vide an order dated May 19, 2014 (said Order) was pleased to issue process against the company and the directors (including the Applicant). The Applicant filed the present criminal application under section 482 of the Code of Criminal Procedure assailing the said Order.

The Applicant contended that the Magistrate has mechanically passed the said Order, without application of mind. The Applicant, relying on an order of the Apex Court in Managing Director, Castrol India Limited vs. State of Karnataka and another[3](Castrol India), further contended that the complaint did not contain any specific averments attributing a specific role to the Applicant in commission of the offence, and in the absence of such specific averment the complaint was untenable.

The Hon’ble Court was pleased to quash and set aside the said Order on the grounds that (i) the complainant had failed to make out an offence against the Applicant in the complaint; and (ii) the Learned Magistrate had passed the said Order without application of mind.

The Hon’ble Court observed that a bare perusal of the complaint would reveal that the averments made in the complaint are vague and besides disclosing the name of the company, the complainant had merely pleaded in a generalised form that the Applicant is either the owner or partner or director of the company. No specific averments were made in the complaint to attribute any role in any capacity to the Applicant. In the absence of such specific averments, the complainant failed to fasten vicarious liability for prosecution on the accused i.e. the Applicant. The Hon’ble Court further observed that considering the scheme of the Act, and more particularly Section 49, before issuing process against the Applicant the Learned Magistrate ought to have applied his mind to the provisions of law and facts and recorded his prima facie satisfaction about the role of the Applicant in committing the offence. Since the Learned Magistrate failed to do so, it was evident that the Learned Magistrate had mechanically passed the said Order without application of mind, therefore the said Order was liable to be quashed and set-aside.

Analysis
It is trite law in criminal jurisprudence that vicarious liability cannot be automatically imputed to a director/Managing Director of a company unless a legislation explicitly provides for it and specific allegations have been levelled against the director, pinpointing their precise role in the commission of the crime or their involvement in the company’s daily affairs.

The Supreme Court in Castrol India (supra), and the Hon’ble Bombay High Court, in several cases[4],  while deciding cases under the Standards of Weights and Measures Act, 1976 and the Legal Metrology Act, 2009, has held that it cannot be presumed that the Managing Director merely by virtue of his/her post is in-charge of managing the daily affairs of the company and hence cannot ipso facto be vicariously liable for the acts committed by the company in the absence of specific averments in the complaint.

However, a three-judge bench of the Hon’ble Supreme Court in S.M.S Pharmaceuticals Limited vs Neeta Bhalla & Ors.[5], while deciding a case under the provisions of the Negotiable Instruments Act, 1938, has held that a Managing Director or Joint Managing Director of a company would be deemed to be in charge of and responsible for the conduct of the business of a company. The Supreme Court has further held that by virtue of their office Managing Directors and/or Joint Managing Directors can be held vicariously liable for the acts of a company, even in the absence of specific averments. The Supreme Court follows the same diktat in the case of K.K. Ahuja vs V.K. Vora and Anr[6]. Both cases, however, are under the Negotiable Instruments Act.

It is pertinent to note that proviso to section 49(1) of the Act provides that no person shall be held liable for an offence if he proves that the offence was committed without his knowledge and that he exercised all due diligence to prevent the commission of such offence. Therefore, upon reading the various dicta and the provisions of the Act together, a case can be made out that section 49 of the Act creates a rebuttable presumption against the Managing Director. This presumption, however, cannot be extended for a director of the company and even in the case of the Managing Director a complaint must specifically point to the role of the Managing Director in the day-to-day affairs in the company and/or conduct of the business.

In the present case, however, since the complainant failed to make any specific averment about the exact position held by the Applicant in the company, the Hon’ble Court rightly held that the complainant had failed to fasten any vicarious liability on the Applicant.

It is further pertinent to note that almost all offences under the Act are violations/misconduct which do not involve mens rea and may not adversely affect the public interest at large. Therefore, the Ministry of Consumer Affairs has issued a proposal to decriminalize the Act.[7] The proposed amendment to Section 36(1) i.e., the penalty for selling, distributing etc. of non-standard packages is a mere penalty of up to INR  2,00,000/-, without imprisonment, and subsequent cancellation of licence issued by the State/Central Government in the event the offence is not compounded.

Parting Thoughts
At this point, it is also worthwhile to note that most litigation under the Act can be avoided by availing the benefit of compounding of offences. Compounding of offences does not necessarily amount to an admission of mala fide or mens rea, and in terms of Section 320(8) of the Code of Criminal Procedure, 1973 has the effect of an acquittal. Section 48 of the Act provides for compounding of offences by payment of a compounding fee (which shall not be more than the maximum fine payable) and most offences under the Act, including an offence under Section 36(1) of the Act, are compoundable.

 We trust you will find this an interesting read. For any queries or comments on this update, please feel free to contact us at insights@elp-in.com or write to our authors:

Ashishchandra Rao, Partner – Email – ashishchandrarao@elp-in.com
Kareena Tahilramani, Associate – Email – kareenatahilramani@elp-in.com

Disclaimer:The information contained in this document is intended for informational purposes only and does not constitute legal opinion or advice. This document is not intended to address the circumstances of any individual or corporate body. Readers should not act on the information provided herein without appropriate professional advice after a thorough examination of the facts and circumstances of a situation. There can be no assurance that the judicial/quasi-judicial authorities may not take a position contrary to the views mentioned herein

References:
[1] Gautam Hari Singhania vs State of Maharashtra, Criminal Application (APL) No. 223 of 2023, Bombay High Court (Nagpur Bench)
[2] Provisions of the Act and the Rules dealing with the declarations to be made on Pre-packaged Commodities and prosecution for contravention of the declaration requirements.
[3] (2018) 17 SCC 275
[4] Yum Restaurants (India) Pvt. Ltd. (KFC) & Ors. vs State of Maharashtra, Criminal Application (APL) No. 609 of 2015, Bombay High Court (Nagpur Bench); Rajiv Kashinarayan Tandon & Ors. vs State of Maharashtra, Criminal Application (APL) Nos. 48 and 79 of 2018, Bombay High Court (Nagpur Bench); Dr. Vijaypat Singhania and Ors. vs State of Maharashtra, Criminal Application (APL) No. 829 of 2015
[5] AIR 2005 SC 3512
[6] (2009) 10 SCC 48
[7] Government of India, Department of Consumer Affairs, Legal Metrology Division, I-9/12/2020-W&M, published on 13 July 2020, accessible here: Home | Department of Consumer Affairs | Ministry of Consumer Affairs Food and Public Distribution | Government of India, last accessed on 6 July 2023