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A director cannot be held vicariously liable in criminal case without making company as party; SC.

Supreme Court of India

Justice M R Shah and Justice Ashok Bhushan

The SC {Sushil Sethi and another v. The State of Arunachal Pradesh and others} holds that every breach of  contract would not give rise to an offence of cheating          and  only in those cases breach of contract would amount to      cheating  where there was any deception played at the very inception.   It is further observed and held that for the purpose of  constituting an offence of cheating, the complainant is required to  show that the accused had   fraudulent   or  dishonest    intention   at   the   time  of   making promise or representation.  It is further observed  and held that even in a case where allegations are made    in regard  to failure on the part of the accused to keep his promise,        in the  absence of a culpable intention at the time of making initial  promise being absent, no offence under Section 420 IPC          can be  said to have been made out.  It is further observed and     held that  the real test is whether the allegations in the complaint      disclose  the criminal offence of cheating or not.

It was held that earlier also the SC had an occasion to consider the initiation of criminal  proceedings against the Managing Director or any officer of a  company where company had not been arrayed as a party to the  complaint.  It was observed and held by the Court earlier that in   the   absence   of   specific   allegation   against   the   Managing Director of vicarious liability, in the absence of  company being arrayed as a party, no proceedings can be       initiated  against such Managing   Director                 or   any   officer   of   a   company.   It   is   further observed and held that when a complainant      intends  to rope in a Managing Director or any officer of a company, it is  essential to make requisite allegation to constitute the     vicarious  liability.

Allowing, the appeal and quashing the FIR, in the present case, it was held that the main allegations can be said to be against the company.  The company  has not been made a party.   The allegations are restricted to the Managing Director and the Director of the company  respectively.  There are no specific allegations against the Managing  Director or even the Director.   There are no allegations to constitute the       vicarious liability.  

In the case of Maksud Saiyed v. State of Gujarat  (2008) 5 SCC 668, it is observed and held by the Court that the penal code   does    not   contain       any   provision   for   attaching   vicarious liability on the part of the Managing Director or the  Directors of the company when the accused is the company.   It is further observed and held that the vicarious liability of the  Managing Director and Director would arise provided any  provision exists in that behalf in the statute.   It is further observed that statute indisputably     must   contain   provision   fixing   such   vicarious liabilities.  It is further observed that even for the    said purpose, it is obligatory on the part of the complainant to    make  requisite allegations   which   would   attract   the   provisions   constituting vicarious liability.  In the present case, there are        no  such specific allegations against the appellants being        Managing  Director or the Director of the company respectively.  Under the  circumstances also,   the   impugned   criminal   proceedings   are   required   to   be quashed and set aside.

Accordingly, the impugned judgment and order passed by the High Court was set aside.  The impugned FIR and the chargesheet filed against the  appellants for   the   offence   under                     Section   420   IPC   were   quashed by the SC.




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