Dayle De Souza vs Government Of India Thr. Deputy … on 29 October, 2021


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Supreme Court of India

Dayle De Souza vs Government Of India Thr. Deputy … on 29 October, 2021

Author: Sanjiv Khanna

Bench: Sanjiv Khanna, Hon’Ble Ms. Trivedi

                                                                                     REPORTABLE

                                                IN THE SUPREME COURT OF INDIA

                                              CRIMINAL APPELLATE JURISDICTION

                                            CRIMINAL APPEAL NO.              OF 2021
                          (ARISING OUT OF SPECIAL LEAVE PETITION (CRL.) NO. 3913 OF 2020)


                          DAYLE DE’SOUZA                                     .....   APPELLANT(S)

                                                        VERSUS

                          GOVERNMENT OF INDIA THROUGH
                          DEPUTY CHIEF LABOUR COMMISSIONER
                          (C) AND ANOTHER                                    ..... RESPONDENT(S)




                                                          JUDGMENT

SANJIV KHANNA, J.

Leave granted.

2. The appellant, Dayle De’Souza, is a director of M/s. Writer

Safeguard Pvt. Ltd. (hereinafter referred to as ‘the Company’). In

2009, the Company had entered into an agreement titled

“Agreement for Servicing and Replenishment of Automated Teller

Machines” with M/s. NCR Corporation India Private Ltd., the latter
Signature Not Verified

Digitally signed by Dr.
Mukesh Nasa
Date: 2021.10.29
17:57:11 IST
having earlier entered into an agreement with the State Bank of
Reason:

India for maintenance and upkeep of the State Bank of India’s

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 1 of 32
ATMs. On 19th February 2014, the Labour Enforcement Officer

(Central) had inspected the State Bank of India’s ATM at AST,

Komal Chand Petrol Pump, Civil Lines, Sagar, Madhya Pradesh

(hereinafter referred to as ‘the ATM’). On 06th March 2014, a

notice was issued by the Labour Enforcement Officer (Central) to

the appellant and one Vinod Singh, Madhya Pradesh head of M/s.

Writer Safeguard Pvt. Ltd. alleging non-compliance with the

provisions of the Minimum Wages Act, 1948 (for short, ‘the Act’)

and Minimum Wages (Central) Rules, 1950 (for short, ‘the Rules’)

at the ATM. On 02nd April 2014, the Company responded claiming

that they neither manage nor work at the ATM. After more than

four months, the Labour Enforcement Officer (Central), by letter

dated 08th August 2014, informed the appellant and Vinod Singh

that they were required to appear in the court on 14th August

2014. On 14th August 2014, the Labour Enforcement Officer

(Central) filed a criminal complaint before the Court of the Chief

Judicial Magistrate, Sagar, Madhya Pradesh, under Section 22A

of the Act. We shall refer to the contents of the complaint later.

3. On the date of presentation of the complaint, that is, 14th August

2014, the Judicial Magistrate, First Class, Sagar, Madhya Pradesh

took cognisance of the offence and issued a bailable warrant

against the appellant and Vinod Singh in Criminal Case No.

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3398/2014. On 01st August 2015, the Company submitted a

detailed representation to the Deputy Chief Labour Commissioner

(Central), Marhatal, Jabalpur, Madhya Pradesh denying the

contents of the notice dated 06th March 2014.

4. Thereafter, on 01st August 2015, the appellant filed a petition

M.Cr.C. No. 846/2016 under Section 482 of the Code of Criminal

Procedure, 1973 (‘the Code’, for short) before the High Court of

Madhya Pradesh at its Principal Seat at Jabalpur for quashing the

complaint in Criminal Case No. 3398/2014. By the impugned

order in M.Cr.C. No. 846/2016 dated 20th January 2020, the High

Court dismissed the petition as sans merit. Hence, the present

appeal.

5. Upon perusal of the complaint in question, which is placed on

record, we note that two individuals have been enlisted as

accused, namely: (i) Dayle De’Souza – the appellant before us,

who as per the cause-title is stated to be a director of M/s. Writer

Safeguard Pvt. Ltd. and resident of Writer House located in

Mumbai, Maharashtra; and (ii) Vinod Singh, who it is stated is the

Madhya Pradesh head of M/s. Writer Safeguard Pvt. Ltd. and a

resident of Bhopal, Madhya Pradesh. The Company is not

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 3 of 32
enlisted as an accused in the complaint and has not been

summoned to stand trial.

6. The complaint, with reference to the two accused, in paragraph 3

states:

“(3) That the accused persons are Contractor who
were getting work of cash loading and security of cash
through labours and they are responsible for
employment and payment of labours employed in said
work under said Act, who is Employer under Part 2 (E)
of the Minimum Wages Act
, 1948.”

It is also alleged in the complaint:

“(4) That the work of said Employer is regulated under
Notification No.- S.O. 1284 (E) dated 20.05.2009 of
the Government of India and they are Scheduled
Employer under Minimum Wages Act, 1948 and
Minimum Wages (Central) Rules, 1950.”

7. The complaint states that the inspection on 19th February 2014

had revealed violation of Rules 21(4), 22, 25(2), 26(1) and 26(5)

on account of failure to keep and display, as the case may be, the

Fine Register Form-1, Register Form-2, the notice of minimum

wages, Rule, and abstract of the Act, name of Inspectors with

address in Hindi and English at the worksite, overtime register,

wages payment register and attendance register at the worksite or

at any adjoining place(s).

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8. Section 22A of the Act, the provision invoked, is a ‘General

provision for punishment of other offences’ where “any employer

who contravenes any provision of this Act or of any rule or order

made thereunder shall, if no other penalty is provided for such

contravention by this Act, be punishable with fine which may

extend to five hundred rupees”. Clause (b) of sub-section (1) to

Section 22B with the heading “Cognizance of offences” states that

“No court shall take cognisance of a complaint against any person

for an offence – under clause (b) of section 22 or under section

22A, except on a complaint made by, or with the sanction of, an

Inspector”. Sub-section (2) to Section 22B, insofar as it relates to

Section 22A, vide sub-clause (b) states that “No Court shall take

cognisance of an offence – under Section 22A, unless complaint

thereof is made within six months of the date on which the offence

is alleged to have been committed.”

9. However, in the context of the present appeal, it is Section 22C of

the Act which is of more relevance which reads thus:

“22C. Offences by companies. —

(1) If the person committing any offence under this Act
is a company, every person who at the time the
offence was committed, was in charge of, and was
responsible to, the company for the conduct of the
business of the company as well as the company shall
be deemed to be guilty of the offence and shall be

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liable to be proceeded against and punished
accordingly:

Provided that nothing contained in this sub-section
shall render any such person liable to any punishment
provided in this Act if he proves that the offence was
committed without his knowledge or that he exercised
all due diligence to prevent the commission of such
offence.

(2) Notwithstanding anything contained in sub-section
(1), where an offence under this Act has been
committed by a company and it is proved that the
offence has been committed with the consent or
connivance of, or is attributable to any neglect on the
part of, any director, manager, secretary or other
officer of the company, such director, manager,
secretary or other officer of the company shall also be
deemed to be guilty of that offence and shall be liable
to be proceeded against and punished accordingly.

Explanation. — For the purposes of this section —

(a) “company” means any body corporate and includes
a firm or other association of individuals; and

(b) “director” in relation to a firm means a partner in
the firm.”

10. Sub-section (1) to Section 22C states that where an offence is

committed by a company, every person who at the time the

offence was committed was in-charge of and was responsible to

the company for the conduct of the business, as well as the

company itself shall be deemed to be guilty of the offence. By

necessary implication, it follows that a person who do not bear out

the requirements is not vicariously liable under Section 22C(1) of

the Act. The proviso, which is in the nature of an exception, states

that a person who is liable under sub-section (1) shall not be

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punished if he proves that the offence was committed without his

knowledge or that he had exercised all due diligence to prevent

the commission of such offence. The onus to satisfy the

requirements to take benefit of the proviso is on the accused, but

it does not displace or extricate the initial onus and burden on the

prosecution to first establish the requirements of sub-section (1) to

Section 22C of the Act. The proviso is to give immunity to a

person who is vicariously liable under sub-section (1) to section

22C of the Act. In S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla

and Another,1 in relation to pari materia proviso in Section 141 of

the Negotiable Instruments Act, 1881, this Court observed:

“4… A company being a juristic person, all its deeds
and functions are the result of acts of others.
Therefore, officers of a company who are responsible
for acts done in the name of the company are sought
to be made personally liable for acts which result in
criminal action being taken against the company. It
makes every person who, at the time the offence was
committed, was in charge of, and was responsible to
the company for the conduct of business of the
company, as well as the company, liable for the
offence. The proviso to the sub-section contains an
escape route for persons who are able to prove that
the offence was committed without their knowledge or
that they had exercised all due diligence to prevent
commission of the offence.

xx xx xx

9. The position of a managing director or a joint
managing director in a company may be different.

These persons, as the designation of their office

1 (2005) 8 SCC 89.

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suggests, are in charge of a company and are
responsible for the conduct of the business of the
company. In order to escape liability such persons
may have to bring their case within the proviso to
Section 141(1), that is, they will have to prove that
when the offence was committed they had no
knowledge of the offence or that they exercised all
due diligence to prevent the commission of the
offence.”
(Emphasis added)

In Aneeta Hada v. Godfather Travels and Tours Private

Limited,2 this Court had reiterated that the proviso to general

vicarious liability under Section 141 of the Negotiable Instruments

Act, 1881, applies as an exception, by observing:

“22. On a reading of the said provision, it is plain as
day that if a person who commits the offence under
Section 138 of the Act is a company, the company as
well as every person in charge of and responsible to
the company for the conduct of business of the
company at the time of commission of offence is
deemed to be guilty of the offence. The first proviso
carves out under what circumstances the criminal
liability would not be fastened. Sub-section (2)
enlarges the criminal liability by incorporating the
concepts of connivance, negligence and consent that
engulfs many categories of officers. It is worth noting
that in both the provisions, there is a “deemed”
concept of criminal liability.”
(Emphasis added)

The proviso being an exception cannot be made a

justification or a ground to launch and initiate prosecution without

the satisfaction of conditions under sub-section (1) of Section 22C

of the Act. The proviso that places the onus to prove the exception

2 (2012) 5 SCC 661.

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on the accused, does not reverse the onus under the main

provision, namely Section 22C(1) of the Act, which remains on the

prosecution and not on the person being prosecuted.

11. Sub-section (2) states that notwithstanding anything contained in

sub-section (1), where any offence under the Act has been

committed by a company, and it is proved that such offence has

been committed with the consent or connivance of, or is

attributable to any neglect on the part of, any director, manager,

secretary or other officer of the company, then such director,

manager, secretary or other officer of the company shall also be

deemed to be guilty of that offence and shall be liable to be

proceeded against and punished accordingly. Without much ado,

it is clear from a reading of sub-section (2) to Section 22C of the

Act that a person cannot be prosecuted and punished merely

because of their status or position as a director, manager,

secretary or any other officer, unless the offence in question was

committed with their consent or connivance or is attributable to

any neglect on their part. The onus under sub-section (2) to

Section 22C is on the prosecution and not on the person being

prosecuted.

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12. Unlike sub-section (2) to Section 22C, sub-section (1)

conspicuously does not use the term ‘director, manager, secretary

or other officer of the company’ to bring them within the ambit of

the vicarious liability provision, albeit every person in-charge of

and responsible to the company for the conduct of its business at

the time of the commission of the offence in question is deemed to

be additionally liable. The words ‘in-charge of the company’ and

‘responsible to the company’ are pivotal to sub-section (1). This

requirement has to be satisfied for the deeming effect of sub-

section (1) to apply and for rendering the person liable to be

proceeded against and, on such position being proved, punished.

Interpreting an identical expression used in Sections 23-C(1) and

23-C(2) of the Foreign Exchange Regulation Act, 1947, this Court

in Girdhari Lal Gupta v. D.H. Mehta and Another,3 has held:

“6. What then does the expression “a person in-charge
and responsible for the conduct of the affairs of a
company” mean? It will be noticed that the word
“company” includes a firm or other association, and
the same test must apply to a director in-charge and a
partner of a firm in-charge of a business. It seems to
us that in the context a person “in-charge” must mean
that the person should be in over-all control of the day
to day business of the company or firm. This inference
follows from the wording of Section 23-C(2). It
mentions director, who may be a party to the policy
being followed by a company and yet not be in-charge
of the business of the company. Further it mentions
manager, who usually is in charge of the business but

3 1971 (3) SCC 189.

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not in over-all charge. Similarly, the other officers may
be in-charge of only some part of business.

xx xx xx

8. In R.K. Khandelwal v. State D.S. Mathur, J., in
construing Section 27 of the Drugs Act, 1940, a
provision similar to the one we are concerned with,
observed:

“There can be directors who merely lay down the
policy and are not concerned with the day to day
working of the company. Consequently, the mere
fact that the accused person is a partner or
director of the Company, shall not make him
criminally liable for the offence committed by the
Company unless the other ingredients are
established which make him criminally liable.””

Those not in overall control of the day to day business of the

company or the firm are not deemed to be constructively liable

under Section 23-C(1) of the Foreign Exchange Regulation Act,

1947.

13. This exposition on the meaning of the term ‘in-charge and

responsible for’ was referred to with approval in State of

Karnataka v. Pratap Chand and Others.4 This decision relates to

the prosecution of the partner of a firm under the Drugs and

Cosmetics Act, 1940. The judgment referred to the explanation to

Section 34 in the said Act (which is pari materia with the

explanation in Section 22C of the Minimum Wages Act, 1948) to

observe that for the purpose of imposing liability on the company

4 (1981) 2 SCC 335.

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under the said Section, a company includes a body corporate, a

firm or an association of individuals. A director in relation to a firm

means a partner in that firm. Therefore, even in the case of

partners, when a firm commits an offence, the requirement of

either sub-section (1) or sub-section (2) to Section 22C must be

satisfied. This means that in terms of sub-section (1), the partner

should be “in-charge of” and “responsible to” the firm for the

conduct of its business as per the dictum in Girdhari Lal Gupta

(supra). Further, as per sub-section (2), a partner may also be

liable, just as a director is liable for the conduct of the business of

a company, if the offence is committed with the consent or

connivance of, or is attributable to any neglect on the part of the

partner concerned.

14. Way back in 1982, in Municipal Corporation of Delhi v. Ram

Kishan Rohtagi and Others,5 this Court had quashed criminal

proceedings under the Prevention of Food Adulteration Act, 1954

against the directors of a manufacturing company at the

summoning stage, observing that the presumptive assertion made

in the complaint that the directors of the accused company ‘as

such’ were in-charge of and responsible for the conduct of the

business of the company at the time of sampling was vague. The

5 1983 (1) SCC 1.

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use of the words “as such” in the complaint indicated that the

complainant had merely presumed that the directors must be

guilty because they held the office of the director. The Court

opined that such presumptive accusations against the directors

without any specific averment or criminal attribution being made in

the complaint would be insufficient. Thereafter, reference was

made to Section 319 of the Code of Criminal Procedure, 1973

which empowers the Court to take cognisance of and proceed

against a person who is not an accused before it and try him

along with others. Upholding the reasoning of the High Court

quashing the proceedings against the directors, it was highlighted:

“12…….The main clause of the complaint which is the
subject-matter of the dispute is clause 5 which may be
extracted thus:

5. That accused 3 is the Manager, of
accused 2 and accused 4 to 7 are the
Directors of accused 2 and as such they
were incharge of and responsible for the
conduct of business of accused 2 at the time
of sampling.

xx xx xx

14. Reliance has been placed on the words “as such”
in order to argue that because (sic) the complaint does
not attribute any criminal responsibility to Accused 4 to
7 except that they were incharge of and responsible
for the conduct of the business of the Company. It is
true that there is no clear averment of the fact that the
Directors were really incharge of the manufacture and
responsible for the conduct of business but the words
“as such” indicate that the complainant has merely
presumed that the Directors of the Company must be

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guilty because they are holding a particular office. This
argument found favour with the High Court which
quashed the proceedings against the Directors as also
against the Manager, Respondent 1.”

However, the initiation of a prosecution and the summoning

order against the manager in the factual context was held to be

proper.

15. In another decision by the same Bench titled Municipal

Corporation of Delhi v. Purshotam Dass Jhunjunwala and

Others,6 the assertions were that the individual accused, namely

the chairman, managing director and directors of the company,

were “in-charge of and responsible to it for the conduct of its

business at the time of commission of the offence”. The words “as

such” were missing. This Court, therefore, concluded that the

directors of the company were not being prosecuted merely

because of their official position but because of the assertion that

they were “in-charge of and responsible for the conduct of the

business at the time of commission of the offence”. There was a

clear averment regarding the active role played by the accused

and the extent of their liability. Accordingly, restoring the order

passed by the Metropolitan Magistrate by which the directors etc.

were summoned for trial in accordance with the law and setting

6 (1983) 1 SCC 9

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aside the order of the High Court quashing the prosecution

against them, this Court has held:

“3…..The relevant allegations against the accused-
respondents are to be found in para 5 of the complaint
which may be extracted thus:

5. That accused Ram Kishan Bajaj is the
Chairman, accused R.P. Neyatia is the
Managing Director and Accused 7 to 12 are
the Directors of the Hindustan Sugar Mills
Ltd. and were incharge of and responsible to
it for the conduct of its business at the time
of commission of offence.

xx xx xx

5. In the instant case, a clear averment has been
made regarding the active role played by the
respondents and the extent of their liability. In this view
of the matter, it cannot be said that para 5 of the
complaint is vague and does not implicate
Respondents 1 to 11. As to what would be the
evidence against the respondents is not a matter to be
considered at this stage and would have to be proved
at the trial. We have already held that for the purpose
of quashing the proceedings only the allegations set
forth in the complaint have to be seen and nothing
further.”

16. The legal position has undergone further elucidation in a number

of judgments.7 However, for the present decision, we would refer

to the summarisation in National Small Industries Corporation

Limited v. Harmeet Singh Paintal and Another,8 to the following

effect:

7 See, Pooja Ravinder Devidasani v. State of Maharashtra and another, (2014) 16 SCC 1; Gunmala
Sales Private Ltd. v. Anu Mehta
and Others, (2015) 1 SCC 103; Shailendra Swarup v. Deputy
Director, Enforcement Directorate
, (2020) 16 SCC 561.
8 (2010) 3 SCC 330.

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“39. From the above discussion, the following
principles emerge:

(i) The primary responsibility is on the complainant to
make specific averments as are required under the
law in the complaint so as to make the accused
vicariously liable. For fastening the criminal liability,
there is no presumption that every Director knows
about the transaction.

(ii) Section 141 does not make all the Directors liable
for the offence. The criminal liability can be fastened
only on those who, at the time of the commission of
the offence, were in charge of and were responsible
for the conduct of the business of the company.

(iii) Vicarious liability can be inferred against a
company registered or incorporated under the
Companies Act, 1956 only if the requisite statements,
which are required to be averred in the
complaint/petition, are made so as to make the
accused therein vicariously liable for offence
committed by the company along with averments in
the petition containing that the accused were in
charge of and responsible for the business of the
company and by virtue of their position they are liable
to be proceeded with.

(iv) Vicarious liability on the part of a person must be
pleaded and proved and not inferred.

(v) If the accused is a Managing Director or a Joint
Managing Director then it is not necessary to make
specific averment in the complaint and by virtue of
their position they are liable to be proceeded with.

(vi) If the accused is a Director or an officer of a
company who signed the cheques on behalf of the
company then also it is not necessary to make
specific averment in the complaint.

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(vii) The person sought to be made liable should be
in charge of and responsible for the conduct of the
business of the company at the relevant time. This
has to be averred as a fact as there is no deemed
liability of a Director in such cases.”

17. The necessities of sub-section (2) to Section 22C of the Act are

different from sub-section (1) to Section 22C of the Act. Vicarious

liability under sub-section (2) to Section 22C can arise because of

the director, manager, secretary, or other officer’s personal

conduct, functional or transactional role, notwithstanding that the

person was not in overall control of the day to day business of the

company when the offence was committed. Vicarious liability is

attracted when the offence is committed with the consent,

connivance, or is attributable to the neglect on the part of a

director, manager, secretary, or other officer of the company.

18. In the factual context present before us it is crystal clear that the

complaint does not satisfy the mandate of sub-section (1) to

Section 22C of the Act as there are no assertions or averments

that the appellant before this Court was in-charge of and

responsible to the company M/s. Writer Safeguard Pvt. Ltd. in the

manner as interpreted by this Court in the cases mentioned

above. The proviso to sub-section (1) in the present case would

not apply. It is an exception that would be applicable and come

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into operation only when the conditions of sub-section (1) to

Section 22C are satisfied. Notably, in the absence of any specific

averment, the prosecution in the present case does not and

cannot rely on Section 22C(2) of the Act.

19. There is yet another difficulty for the prosecution in the present

case as the Company has not been made an accused or even

summoned to be tried for the offence. The position of law as

propounded in State of Madras v. C.V. Parekh and Another:9 ,

reads:

“3. Learned Counsel for the appellant, however,
sought conviction of the two respondents on the basis
of Section 10 of the Essential Commodities Act under
which, if the person contravening an order made under
Section 3 (which covers an order under the Iron and
Steel Control Order, 1956), is a company, every
person who, at the time the contravention was
committed, was in charge of, and was responsible to,
the company for the conduct of the business of the
company as well as the company, shall be deemed to
be guilty of the contravention and shall be liable to be
proceeded against and punished accordingly. It was
urged that the two respondents were in charge of, and
were responsible to, the Company for the conduct of
the business of the Company and, consequently, they
must be held responsible for the sale and for thus
contravening the provisions of clause (5) of the Iron
and Steel Control Order. This argument cannot be
accepted, because it ignores the first condition for the
applicability of Section 10 to the effect that the person
contravening the order must be a company itself. In
the present case, there is no finding either by the
Magistrate or by the High Court that the sale in
contravention of clause (5) of the Iron and Steel
Control Order was made by the Company. In fact, the

9 (1970) 3 SCC 491.

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Company was not charged with the offence at all. The
liability of the persons in charge of the Company only
arises when the contravention is by the Company
itself. Since, in this case, there is no evidence and no
finding that the Company contravened clause (5) of
the Iron and Steel Control Order, the two respondents
could not be held responsible. The actual
contravention was by Kamdar and Vallabhdas Thacker
and any contravention by them would not fasten
responsibility on the respondents. The acquittal of the
respondents is, therefore, fully justified. The appeal
fails and is dismissed.”

20. However, this proposition was later deviated from in Sheoratan

Agarwal and Another v. State of Madhya Pradesh.10 This case

pertained to the pari materia provision under Section 10 of the

Essential Commodities Act, 1955. The court held that anyone

among: the company itself; every person in-charge of and

responsible to the company for the conduct of the business; or

any director, manager, secretary or other officer of the company

with whose consent or connivance or because of whose neglect

offence had been committed, could be prosecuted alone.

However, the person-in-charge or an officer of the company could

be held guilty in that capacity only after it has been established

that there has been a contravention by the company as well.

However, this will not mean that the person-in-charge or an officer

of the company must be arraigned simultaneously along with the

company if he is to be found guilty and punished.

10 (1984) 4 SCC 352.

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21. Relying upon the reasoning in Sheoratan Agarwal (supra) and

limiting the interpretation of C.V. Parekh (supra), this Court in Anil

Hada v. Indian Acrylic Ltd.11 had held that:

“13. If the offence was committed by a company it can
be punished only if the company is prosecuted. But
instead of prosecuting the company if a payee opts to
prosecute only the persons falling within the second or
third category the payee can succeed in the case only
if he succeeds in showing that the offence was
actually committed by the company. In such a
prosecution the accused can show that the company
has not committed the offence, though such company
is not made an accused, and hence the prosecuted
accused is not liable to be punished. The provisions
do not contain a condition that prosecution of the
company is sine qua non for prosecution of the other
persons who fall within the second and the third
categories mentioned above. No doubt a finding that
the offence was committed by the company is sine
qua non for convicting those other persons. But if a
company is not prosecuted due to any legal snag or
otherwise, the other prosecuted persons cannot, on
that score alone, escape from the penal liability
created through the legal fiction envisaged in Section
141
of the Act.”

22. However, subsequent decisions of this Court have emphasised

that the provision imposes vicarious liability by way of deeming

fiction which presupposes and requires the commission of the

offence by the company itself as it is a separate juristic entity.

Therefore, unless the company as a principal accused has

committed the offence, the persons mentioned in sub-section (1)

would not be liable and cannot be prosecuted. Section 141(1) of
11 (2000) 1 SCC 1.

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 20 of 32
the Negotiable Instruments Act, extends vicarious criminal liability

to the officers of a company by deeming fiction, which arises only

when the offence is committed by the company itself and not

otherwise. Overruling Sheoratan Agarwal and Anil Hada, in

Aneeta Hada v. Godfather Travels and Tours Private

Limited,12 a 3-judge bench of this court expounding on the

vicarious liability under Section 141 of the Negotiable Instruments

Act, has held:

“51. We have already opined that the decision in
Sheoratan Agarwal runs counter to the ratio laid down
in C.V. Parekh which is by a larger Bench and hence,
is a binding precedent. On the aforesaid ratiocination,
the decision in Anil Hada has to be treated as not
laying down the correct law as far as it states that the
Director or any other officer can be prosecuted without
impleadment of the company. Needless to emphasise,
the matter would stand on a different footing where
there is some legal impediment and the doctrine of lex
non cogit ad impossibilia gets attracted.

xx xx xx

59. In view of our aforesaid analysis, we arrive at the
irresistible conclusion that for maintaining the
prosecution under Section 141 of the Act, arraigning of
a company as an accused is imperative. The other
categories of offenders can only be brought in the
drag-net on the touchstone of vicarious liability as the
same has been stipulated in the provision itself. We
say so on the basis of the ratio laid down in C.V.

Parekh which is a three-Judge Bench decision. Thus,
the view expressed in Sheoratan Agarwal does not
correctly lay down the law and, accordingly, is hereby
overruled. The decision in Anil Hada is overruled with
the qualifier as stated in para 51. The decision in Modi

12 (2012) 5 SCC 661.

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Distillery has to be treated to be restricted to its own
facts as has been explained by us hereinabove.”

23. The proposition of law laid down in Aneeta Hada (supra) was

relied upon by this Court in Anil Gupta v. Star India Private

Limited and Another:13

“13. In the present case, the High Court by the
impugned judgment dated 13-8-2007 [Visionaries
Media Network v. Star India (P) Ltd., Criminal Misc.
Case No. 2380 of 2004, decided on 13-8-2007 (Del)]
held that the complaint against Respondent 2
Company was not maintainable and quashed the
summons issued by the trial court against Respondent
2 Company. Thereby, the Company being not a party
to the proceedings under Section 138 read with
Section 141 of the Act and in view of the fact that part
of the judgment referred to by the High Court in Anil
Hada has been overruled by a three-Judge Bench of
this Court in Aneeta Hada, we have no other option
but to set aside the rest part of the impugned judgment
[Visionaries Media Network v. Star India (P) Ltd.,
Criminal Misc. Case No. 2380 of 2004, decided on 13-
8-2007 (Del)] whereby the High Court held that the
proceedings against the appellant can be continued
even in absence of the Company. We, accordingly, set
aside that part of the impugned judgment dated 13-8-
2007 [Visionaries Media Network v. Star India (P) Ltd.,
Criminal Misc. Case No. 2380 of 2004, decided on 13-
8-2007 (Del)] passed by the High Court so far as it
relates to the appellant and quash the summons and
proceeding pursuant to Complaint Case No. 698 of
2001 qua the appellant.”

24. In Sharad Kumar Sanghi v. Sangita Rane,14 this Court observed

that:

“11. In the case at hand as the complainant’s initial
statement would reflect, the allegations are against the
13 (2014) 10 SCC 373.

14 (2015) 12 SCC 781.

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 22 of 32
Company, the Company has not been made a party
and, therefore, the allegations are restricted to the
Managing Director. As we have noted earlier,
allegations are vague and in fact, principally the
allegations are against the Company. There is no
specific allegation against the Managing Director.
When a company has not been arrayed as a party, no
proceeding can be initiated against it even where
vicarious liability is fastened under certain statutes. It
has been so held by a three-Judge Bench in Aneeta
Hada v. Godfather Travels and Tours (P) Ltd
. in the
context of the Negotiable Instruments Act, 1881.

xx xx xx

13. When the company has not been arraigned as an
accused, such an order could not have been passed.
We have said so for the sake of completeness. In the
ultimate analysis, we are 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 we set aside
the same and quash the criminal proceedings initiated
by the respondent against the appellant.”

25. This position was again clarified and reiterated by this Court in

Himanshu v. B. Shivamurthy and Another.15 The relevant

portion of the judgment reads thus:

“6. The judgment of the High Court has been
questioned on two grounds. The learned counsel
appearing on behalf of the appellant submits that
firstly, the appellant could not be prosecuted without
the company being named as an accused. The
cheque was issued by the company and was signed
by the appellant as its Director. Secondly, it was urged
that the observation of the High Court that the
company can now be proceeded against in the
complaint is misconceived. The learned counsel
submitted that the offence under Section 138 is
complete only upon the issuance of a notice of
demand and the failure of payment within the

15 (2019) 3 SCC 797.

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prescribed period. In absence of compliance with the
requirements of Section 138, it is asserted, the
direction of the High Court that the company could be
impleaded/arraigned at this stage is erroneous.

7. The first submission on behalf of the appellant is no
longer res integra. A decision of a three-Judge Bench
of this Court in Aneeta Hada v. Godfather Travels &
Tours (P) Ltd
. governs the area of dispute. The issue
which fell for consideration was whether an authorised
signatory of a company would be liable for prosecution
under Section 138 of the Negotiable Instruments Act,
1881 without the company being arraigned as an
accused. The three-Judge Bench held thus: (SCC p.
688, para 58)

“58. Applying the doctrine of strict
construction, we are of the considered opinion
that commission of offence by the company is
an express condition precedent to attract the
vicarious liability of others. Thus, the words
“as well as the company” appearing in the
section make it absolutely unmistakably clear
that when the company can be prosecuted,
then only the persons mentioned in the other
categories could be vicariously liable for the
offence subject to the averments in the
petition and proof thereof. One cannot be
oblivious of the fact that the company is a
juristic person and it has its own
respectability. If a finding is recorded against
it, it would create a concavity in its reputation.
There can be situations when the corporate
reputation is affected when a Director is
indicted.”

In similar terms, the Court further held: (SCC p. 688,
para 59)

“59. In view of our aforesaid analysis, we
arrive at the irresistible conclusion that for
maintaining the prosecution under Section
141
of the Act, arraigning of a company as an
accused is imperative. The other categories of
offenders can only be brought in the drag-net
on the touchstone of vicarious liability as the

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 24 of 32
same has been stipulated in the provision
itself.”

xx xx xx

12. The provisions of Section 141 postulate that if the
person committing an offence under Section 138 is a
company, every person, who at the time when the
offence was committed was in charge of or was
responsible to the company for the conduct of the
business of the company as well as the company,
shall be deemed to be guilty of the offence and shall
be liable to be proceeded against and punished.

13. In the absence of the company being arraigned as
an accused, a complaint against the appellant was
therefore not maintainable. The appellant had signed
the cheque as a Director of the company and for and
on its behalf. Moreover, in the absence of a notice of
demand being served on the company and without
compliance with the proviso to Section 138, the High
Court was in error in holding that the company could
now be arraigned as an accused.”

26. Applying the same proposition of law as laid down in Aneeta

Hada (supra), this Court in Hindustan Unilever Limited v. State

of Madhya Pradesh16 applying pari materia provision in

Prevention of Food Adulteration Act, 1954, held that:

“23. Clause (a) of sub-section (1) of Section 17 of the
Act makes the person nominated to be in charge of
and responsible to the company for the conduct of
business and the company shall be guilty of the
offences under clause (b) of sub-section (1) of Section
17
of the Act. Therefore, there is no material
distinction between Section 141 of the NI Act and
Section 17 of the Act which makes the company as
well as the nominated person to be held guilty of the
offences and/or liable to be proceeded and punished
accordingly. Clauses (a) and (b) are not in the
alternative but conjoint. Therefore, in the absence of
16 (2020) 10 SCC 751.

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the company, the nominated person cannot be
convicted or vice versa. Since the Company was not
convicted by the trial court, we find that the finding of
the High Court to revisit the judgment will be unfair to
the appellant-nominated person who has been facing
trial for more than last 30 years. Therefore, the order
of remand to the trial court to fill up the lacuna is not a
fair option exercised by the High Court as the failure of
the trial court to convict the Company renders the
entire conviction of the nominated person as
unsustainable.”

27. In terms of the ratio above, a company being a juristic person

cannot be imprisoned, but it can be subjected to a fine, which in

itself is a punishment. Every punishment has adverse

consequences, and therefore, prosecution of the company is

mandatory. The exception would possibly be when the company

itself has ceased to exist or cannot be prosecuted due to a

statutory bar. However, such exceptions are of no relevance in the

present case. Thus, the present prosecution must fail for this

reason as well.

28. There is also another aspect which requires our attention. We

have noted in some detail the contents of the complaint, which

refers to the violation as certain notices were not displayed and

certain registers and forms were not kept at the ‘worksite’, namely,

ATM of the SBI at AST, Komal Chand Petrol Pump, Civil Lines,

Sagar, District Sagar. A response to the show-cause-cum-

compliance notice in the form of a short reply by the authorised
Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 26 of 32
signatory of M/s. Writer Safeguard Pvt. Ltd. on 02nd April, 2014,

which factum though accepted, has not been adverted to in the

complaint. This short reply states that the Company neither

manages the ATM nor works at the ATM and that the ATM site

was managed by the respective banks and, therefore, the

volitional as alleged do not apply to them. The complaint does not

state why the reply was deficient or indicate even briefly as to the

nature of activity and involvement of the Company’s workers at

the ATM site of the State Bank of India mandating compliance at

the site in question. We are not ruling on merits, albeit highlighting

the complaint being bereft and silent on these aspects and

whether the authorities considered the legal provisions in the

context of the factual background before initiating prosecution.

29. The authorities bestowed with the duty to confirm compliance are

often empowered to take stringent including penal action to

ensure observance and check defiance. There cannot also be any

quarrel on the need to enforce obedience of the rules as the

beneficial legislation protects the worker’s basic right to receive

minimum wages. The rulebook makes sure that the workers are

made aware of their rights and paid their dues as per law without

unnecessary disputes or allegations as to absence, overtime

payment, deductions, etc.

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 27 of 32

30. At the same time, initiation of prosecution has adverse and harsh

consequences for the persons named as accused. In Directorate

of Revenue and Another v. Mohammed Nisar Holia,17 this

Court explicitly recognises the right to not to be disturbed without

sufficient grounds as one of the underlying mandates of Article 21

of the Constitution. Thus, the requirement and need to balance

the law enforcement power and protection of citizens from

injustice and harassment must be maintained. Earlier in M/s.

Hindustan Steel Ltd. v. State of Orrisa,18 this Court threw light

on the aspect of invocation of penalty provisions in a mechanical

manner by authorities to observe:

“8. Under the Act penalty may be imposed for failure to
register as a dealer — Section 9(1) read with Section
25(1)(a)
of the Act. But the liability to pay penalty does
not arise merely upon proof of default in registering as
a dealer. An order imposing penalty for failure to carry
out a statutory obligation is the result of a quasi-

criminal proceeding, and penalty will not ordinarily be
imposed unless the party obliged either acted
deliberately in defiance of law or was guilty of conduct
contumacious or dishonest, or acted in conscious
disregard of its obligation. Penalty will not also be
imposed merely because it is lawful to do so. Whether
penalty should be imposed for failure to perform a
statutory obligation is a matter of discretion of the
authority to be exercised judicially and on a
consideration of all the relevant circumstances. Even if
a minimum penalty is prescribed, the authority
competent to impose the penalty will be justified in
refusing to impose penalty, when there is a technical
or venial breach of the provisions of the Act or where

17 2008 (2) SCC 370.

18 1969 (2) SCC 627.

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 28 of 32
the breach flows from a bona fide belief that the
offender is not liable to act in the manner prescribed
by the statute. Those in charge of the affairs of the
Company in failing to register the Company as a
dealer acted in the honest and genuine belief that the
Company was not a dealer. Granting that they erred,
no case for imposing penalty was made out.”

Almost every statute confer operational power to enforce

and penalise, which power is to be exercised consistently from

case to case, but adapted to facts of an individual case19. The

passage from Hindustan Steel Ltd. (supra) highlights the rule

that the discretion that vests with the prosecuting agencies is

paired with the duty to be thoughtful in cases of technical, venial

breaches and genuine and honest belief, and be firmly unforgiving

in cases of deceitful and mendacious conduct. Sometimes legal

provisions are worded in great detail to give an expansive reach

given the variables and complexities involved, and also to avoid

omission and check subterfuges. However, legal meaning of the

provision is not determined in abstract, but only when applied to

the relevant facts of the case20. Therefore, it is necessary that the

discretion conferred on the authorities is applied fairly and

judiciously avoiding specious, unanticipated or unreasonable

results. The intent, objective and purpose of the enactment should

guide the exercise of discretion, as the presumption is that the

19 Secretary of State for Work and Pensions v B [2005] EWCA Civ 929 at [43].
20 See Bennion On Statutory Interpretation, Sixth Edition, Part VI at Page No. 371.

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 29 of 32
makers did not anticipate anomalous or unworkable

consequences. The intention should not be to target and penalise

an unintentional defaulter who is in essence law-abiding.

31. There are a number of decisions of this Court in which, with

reference to the importance of the summoning order, it has been

emphasised that the initiation of prosecution and summoning of

an accused to stand trial has serious consequences21. They

extend from monetary loss to humiliation and disrepute in society,

sacrifice of time and effort to prepare defence and anxiety of

uncertain times. Criminal law should not be set into motion as a

matter of course or without adequate and necessary investigation

of facts on mere suspicion, or when the violation of law is doubtful.

It is the duty and responsibility of the public officer to proceed

responsibly and ascertain the true and correct facts. Execution of

law without appropriate acquaintance with legal provisions and

comprehensive sense of their application may result in an

innocent being prosecuted.

32. Equally, it is the court’s duty not to issue summons in a

mechanical and routine manner. If done so, the entire purpose of

21See – Pepsi Foods Ltd. and Another v. Special Judicial Magistrate and Others, (1998) 5 SCC 749;
GHCL Employees Stock Option Trust v. Indian Infoline Ltd. and Others, (2013) 4 SCC 505; Krishna
Lal Chawla and Others v. State of Uttar Pradesh and Another
, (2021) 5 SCC 435.

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 30 of 32
laying down a detailed procedure under Chapter XV of the 1973

Code gets frustrated. Under the proviso (a) to Section 200 of the

1973 Code, there may lie an exemption from recording pre-

summoning evidence when a private complaint is filed by a public

servant in discharge of his official duties; however, it is the duty of

the Magistrate to apply his mind to see whether on the basis of

the allegations made and the evidence, a prima facie case for

taking cognizance and summoning the accused is made out or

not. This Court explained the reasoning behind this exemption in

National Small Industries Corporation Limited v. State (NCT

of Delhi) and Others:22

“12. The object of Section 200 of the Code requiring
the complainant and the witnesses to be examined, is
to find out whether there are sufficient grounds for
proceeding against the accused and to prevent issue
of process on complaints which are false or vexatious
or intended to harass the persons arrayed as accused.
(See Nirmaljit Singh Hoon v. State of W.B.) Where the
complainant is a public servant or court, clause (a) of
the proviso to Section 200 of the Code raises an
implied statutory presumption that the complaint has
been made responsibly and bona fide and not falsely
or vexatiously. On account of such implied
presumption, where the complainant is a public
servant, the statute exempts examination of the
complainant and the witnesses, before issuing
process.”

22 (2009) 1 SCC 407.

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 31 of 32
The issue of process resulting in summons is a judicial

process that carries with it a sanctity and a promise of legal

propriety.

33. Resultantly, and for the reasons stated above, we would allow the

present appeal and quash the summoning order and the

proceedings against the present appellant.

34. Accused No. 2, Vinod Singh, would also be entitled to the benefit

of this order. Accordingly, the proceedings initiated against the

accused no. 2, namely Vinod Singh, also stand quashed.

………………………………..J.
(R. SUBHASH REDDY)

………………………………..J.

(SANJIV KHANNA)

NEW DELHI;

OCTOBER 29, 2021.

Criminal Appeal a/o. SLP (Crl.) No. 3913 of 2020 Page 32 of 32



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