@JUDGMENTTAG-ORDER
Raghuvendra S. Rathore, J.@mdashThis misc. petition u/s 482, Cr.P.C. has been filed by the petitioners against the order dated 15-4-2004 (Annexure-3) passed by the learned ACJM No. 3, Alwar, whereby he had taken cognizance against them. Thereafter, the petitioners had filed a revision petition before the Sessions Court which came to be considered by ADJ No. 1, Alwar (Revision Petition No. 09/2004) and the same was dismissed on 11-6-2004. Being aggrieved of the aforesaid orders, the petitioners have filed the present petition before this Court.
2. Brief facts of the case are that one Ram Nath Saraswat, Enforcement Officer. In the office of Central Provident Fund, Alwar lodged a report at Police Station M.I.A., Alwar. It was stated in the said report that Modi Alkalies Chemicals Ltd. (for short ''Company'' herein) which later changed its name as ''Lords Chloro Alkali Ltd.'', had deducted the amount of provident fund from the salaries of its employees for the period of June 1998 to February 1999, but the same was not deposited in the office of Provident Fund Commissioner. Therefore, it was stated in the report that the Company has committed offences under Sections 406 and 409, IPC.
3. On the aforesaid report, the instant FIR No. 124/99 came to be registered. Thereafter, the police investigated the matter and on conclusion of the same, submitted a Final Report holding that the matter is of a civil nature. The learned Court then issued notice to the complainant, who filed a protest petition before the learned Magistrate. On having received the protest petition, the learned ACJM examined the complainant and his witnesses and thereupon took cognizance against the accused-petitioners on 4-6-2001 (Annexure-1).
4. The petitioners being aggrieved of the said order of cognizance passed by the learned Magistrate, preferred a revision petition before the Sessions Court, Alwar and the same was transferred to the Special Judge SC/ST (Prevention of Atrocities), Alwar. The learned revisional Court, after considering the entire matter, allowed the revision petition vide its order dated 24-4-2002 (Annexure-2), set aside the order passed by the learned Magistrate and remanded the case to him for deciding the matter afresh in accordance to law, after considering the documents filed by the police, the affidavits taken by the Court and the material on record.
5. In furtherance of the direction issued by the learned Special Judge, ACJM considered the matter but again passed an order of cognizance against the petitioners for the offence u/s 406, IPC vide its order dated 15-4-2004 (Annexure-3) and the petitioners were summoned through bailable warrants of Rs. 10,000/- each. The order of cognizance again passed by the Magistrate was challenged by the petitioners before the Court of Sessions Judge, Alwar, by filing a revision petition. The said petition was transferred to ADJ No. 1, Alwar. The learned revisional Court dismissed the revision petition, vide its order dated 11-6-2004 (An-nexure-4). Hence, this misc. petition has been filed by the petitioners, being aggrieved of the order dated 15-4-2004 (Annexure-3) and 11-6-2004 passed by the revisional Court (Annexure-4).
6. In this case, petitioner No. 1 is a Company. Petitioners No. 2 to 7 are the directors/ex-directors and petitioner No. 8 is ''Karkhana Prabandhak'' of Modi Alkalies & Chemicals Ltd. In the report filed by the Enforcement Officer, Central Provided Fund, Alwar, it is alleged, inter alia, that the directors of the Company are legally bound to pay to the provident fund the employees''-cum-members'' contribution within 15 days from the end of the month. It is also alleged that deduction from the employees'' wages/salary had been done by the Company from the month of June, 1998 to February, 1999 but the same had not been deposited. Therefore, it is alleged that the directors have committed criminal breach of trust and are liable for the offence u/s 406 and 409, IPC.
7. After filing of the Final Report by the police on the conclusion of investigation, the Enforcement Officer then filed a protest petition, wherein he had only alleged that the establishment had committed offence under Sections 406 and 409, IPC. Therefore it was requested therein that proceedings may be taken against the directors. In the statement of the Enforcement Officer recorded by the trial Court u/s 200, Cr.P.C. it had been stated that on the inspection having been made on 30-3-1999, it was found that the employees'' contribution was deducted by the Company from the month of June, 1998 to February, 1999 and the same was not deposited in accordance to law. It was also stated, that a statement in this regard was duly prepared by the authorized officer of the Company namely Shri N.C. Tiwari, Assistant Personal Officer and was given to the Enforcement Officer, wherein it was also shown that there was deduction of employee''s contribution for the aforesaid period.
8. The learned Counsel for the petitioners has sought to challenge the order of cognizance passed by the learned Magistrate, on various grounds, He has submitted that before a process can be issued against the director of the Company in relation to Employees'' Provident Funds and Miscellaneous Provisions Act, 1952, it has to be established that the director was in charge of or was responsible to the Company for the conduct of the business of the Company, According to him, not a word in this regard has been stated in the complaint/report filed in this case and merely because the petitioners are directors/Karkhana Prabandhak of the Company, it would not make them liable for the conduct of the business or in management of It. Therefore, he has submitted that the cognizance taken against the petitioners is bad in law.
9. He has further submitted that according to the provisions of the Act of 1952, the petitioners do not fall within the meaning of employer. He has also submitted that no offence is made out against the petitioners on the basis of bald allegations made in the complaint and therefore no cognizance can be taken. He has submitted that the learned Magistrate had not taken cognizance against one of the directors namely B. Ram on the ground that he was a nominee of RIICO. Therefore, he has submitted that the case of petitioner No. 5 Shri C.L. Agarwal and petitioner No. 7 Shri R.K. Arora also falls on the same footing as they are the nominees of the Bank and as such the proceedings against them should have been dropped. It was submitted on behalf of the petitioners that from the material on record none of the ingredients of the offence u/s 406, IPC is made out against the petitioners for the reason that there is no direct or positive evidence with regard to entrustment of the amount to the accused petitioners nor there was any mens rea which is a necessary element for constituting the said offence. The learned Counsel has submitted that the learned trial Court has overlooked the provisions contained u/s 14(1)(c) of the Act of 1952, wherein without any sanction, no Court can take cognizance of an offence punishable under the Act. In the last, the learned Counsel for the petitioners submitted that the amount with interest has already deposited by the Company, without any further delay.
10. The learned Public Prosecutor, on the other hand has supported the order of cognizance passed by the learned Magistrate and according to him the said order is in accordance with law. He has further submitted that even if the amount of provident fund had been deposited thereafter, it does not make any difference so far as the offences is concerned, He has placed reliance on the case of
11. Under the Act of 1952, there is a specific provision that if the person committing an offence under that Act, is a company then only the person/persons who was/were in charge of and responsible to the company for the conduct of the business, of the company, would be guilty of the offence. The said provision has been incorporated u/s 14A of the Act which read as under:
If the person committing an offence under this Act, the Scheme or the Family Pension Scheme 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 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 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, the Scheme or the Family Pension Scheme, 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 or manager, secretary or other officer of the company, such director, manager, secretary or other officer shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Therefore, under the aforesaid provision, a company is primarily liable for an offence under the Act. The said liability may extend to other persons only under the conditions laid down in the aforesaid Section. In other words, vicarious liability only arises to the directors if the conditions laid down for the provision u/s 14A are fulfilled. A director of a company may be concerned only with the policy to be followed and he may not have any role in the management of the day to day affairs of the company. Such persons are, in other words immune from prosecution. In the instant complaint/report filed, apart from the allegation and the statement made by the informant that the Directors of the Company have legal duty to deposit the provident fund, there is no other averment or material from which the learned Magistrate could have satisfied himself that petitioners are either responsible for the conduct of the business of the Company or they took part in the running of it.
12. As early as in the year 1971, the Apex Court considered this point in the case of
23-C. (1) If the person committing a contravention 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:
Provided that nothing contained in this Sub-section shall render any such person liable to punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
23-C. (2) Notwithstanding anything contained in Sub-section (1), where a contravention under this Act has been committed by a company and it is proved that the contravention has taken place 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 shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation.- For the purpose 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.
A contention was raised by the counsel for the accused-appellant in that case, that the aforesaid provisions are not applicable because there is no evidence j that the appellants, therein were in-charge of the conduct of the business of the firm at the relevant time or that the contravention took place with the consent or connivance of, or was attributable to any neglect on their part. While dealing with the said contention, the Supreme Court observed in paras 5 and 6 as under:
It seems to us quite clear that Section 23-C(1) is a highly penal Section as it makes a person who was in-charge and responsible to the company for the conduct for its business vicariously liable for an offence committed by the company. Therefore, in accordance with well-settled principles this Section should be construed strictly.
What then does the expression "a per-son-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. If seems to us that in the context a person ''in-charge'' must mean that the person should be in overall 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 mentions manager, who usually is in charge of the business but not in overall charge. Similarly the other officers may be in-charge of only some part of business.
13. The present matter can be looked into from yet another angle that the petitioners were not the employers of the factory. The expression ''employer'' has been defined u/s 2(e)(1) of the Act of 1952 and it means:
(i) in relation to an establishment which is a factory, the owner or occupier of the factory including agent of such owner or occupier, the legal representative pf a deceased owner or occupier and where a person has been named as a manager of the factory under Clause (f) of Sub-section (1) of Section 71 of the Factories Act, 1948, the person so named;
(ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent.
Therefore, it is clear that ordinarily not all the persons are liable to be punished, but only those who have ultimate control over the affairs of the establishment, is liable to be prosecuted. In other words, where the person committing an offence1 under the Act is a company as provided under Sub-section (1) of Section 14A, it is not all the persons but the person who at the time of committing of the offence was in-charge and was responsible to the company for the conduct of the business of the company, as well as the company, would be deemed to be guilty of the offence and shall be liable to be proceeded against and punished in accordance to law.
14. Similar provisions, as in the Act of 1952, are in the employees'' State Insurance Act, 1948. u/s 2(17) of the Act of 1948, the term ''principal employer'' has been defined which read as follows:
2(17). Principal Employer means:
(i) in a factory, the owner or occupier of the factory includes the managing agent of such owner or occupier, the legal representative of a deceased owner or occupier, and where a person has been named as the manager of (the factory under Factories Act, 1948) (63 of 1948); the person so named;
(ii) ...
(iii) in any other establishment, any person responsible for the supervision and control of the establishment.
Under Section 40 of the Employees'' State Insurance Act, 1948 the obligation to pay contribution in the Employees'' State Insurance Fund has been cast on the principal employer. The relevant provisions of Section 40 are as follows:
40. Principal employer to pay contributions in the first instance:
(1) The principal employer shall pay in respect of every employee, whether directly employed by him or by or through an immediate employer, both the employer''s contribution and the employee''s contribution.
(2) Notwithstanding anything contained in any other enactment but subject to the provisions of this Act and the regulations. If any, made thereunder, the principal employer shall, in the case of an employee directly employed by him (not being an exempted employee), be entitled to recover from the employee the employees'' contribution by deduction from his wages and not otherwise:
Provided that no such deduction shall be made from any wages other than such as relate to the period or part of the period in respect of which the contribution is payable, or in excess of the sum representing the employees'' contribution for the period.
(3) ...
(4) Any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employees for the purpose of paying the contribution in respect of which it was deducted.
(5) ...
The said provisions were considered by the Hon''ble Supreme Court in the case of
15. Aggrieved of the order of cognizance, the accused, who were Directors of the Company, filed an application u/s 401/482, Cr.P.C. before the High Court for quashing the proceedings pending before the trial Court. The High Court quashed the proceedings primarily on the ground that the accused cannot be considered as employers within the meaning of Explanation 2 to Section 405 read with Section 406, IPC. Therefore, the accused were held not liable for prosecution u/s 406, IPC, Thereafter, an appeal was filed by the Employees'' State Insurance Corporation before the Hon''ble Supreme Court. The Hon''ble Supreme Court considered Explanation 2 to Section 408. It held that the directors of the company would not be covered by the definition of ''principal employer'' under the Act of 1948, when the company itself owns the factory and is also employer of its employees at the Head Office. The Hon''ble Supreme Court held that in the absence of any provision in IPC incorporating the definition of the principal employer in Explanation 2 of Section 405, this definition cannot be held to apply to the term employer in Explanation 2. The term ''employer'' in Explanation 2 must be understood as in ordinary parlance. Therefore, it is the company which is the employer and not its directors either singly or collectively. Consequently, the appeal filed by Employees'' State Insurance Corporation was dismissed.
16. Likewise, the Hon''ble Supreme Court considered the provisions of the Essential Commodities Act, 1955, while deciding the case of
10. Offences by companies:- (1) If the person contravening an order made u/s 3 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.
Provided that nothing contained in this Sub-section shall render any such person liable to any punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention.
(2) Notwithstanding anything contained in Sub-section (1) where as 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 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.
The Hon''ble Supreme Court in paras 9 and 10 held as under:
It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day-to-day in the firm. There may be partners, better known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to Sub-section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in Sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted. We, therefore, reject the contention urged by counsel for the State.
We have perused the evidence of the prosecution. Santlal Inspector, Food and Civil Supplies (P.W. 1) has deposed that the accused were partners of the firm. He has stated that the statement Ex. P.8 regarding purchase of paddy and supply of levy rice was signed by Lajpat Rai as partner on behalf of the firm. The rest of his statement relates to the short supply of levy rice, and it does not indicate that other partners were also conducting the business during the relevant time. The statement of P.W. 3 who investigated the case does not indicate anything further. He has seized the relevant documents tyke stock register and recovery memo and arrested all the four accused. These documents do not indicate even remotely that all the partners were doing the business of the firm. There is no other evidence on record on this aspect. With these titbits, it is impossible to hold that when the offence was committed all the partners were conducting the business of the firm. However, Lajpat Rai accused No. 3 cannot escape the liability. The material on record indicates that he was conducting the business of the firm and in fact, he has signed the statement Ex. P.8 on behalf of the firm. His conviction cannot therefore be disturbed. But the conviction of other partners is absolutely uncalled for.
17. Furthermore, there is a specific bar against the Court taking cognizance and proceeding with trial of such offences u/s 14AC of the Act of 1952, except on a report in writing of the facts constituting such offence made with previous sanction of the Central Provident Fund Commissioner or such other officer as may be authorized by the Central Government. Therefore, making of bald allegations in the complaint, is not enough to attract the provisions under the Act of 1952. The facts essential to constitute the offence attracting the provisions have to be stated. Therefore, in the absence of necessary allegations of the facts attracting the provisions of the Act of 1952 or the Indian Penal Code, it cannot be said that the prosecution launched and cognizance taken by the Magistrate, in the instant case, against accused petitioners is proper.
18. As submitted by the learned Counsel for the accused petitioner, the learned Magistrate had not taken cognizance against Shri B. Ram, one of the Directors of the Company who was a nominee of RIICO. On the same premise the cognizance should not have been taken against the petitioner No. 5 Shri C.L. Agarwal and petitioner No. 7 Shri R.K. Arora who are also directors as being nominees of the Bank. It is also relevant to mention here that the Company has already deposited the amount with interest in the office of the Provident Fund Commissioner.
But so far as the submission made learned Counsel for the petitioners, by relying on a judgment of the Apex Court in case of Jaipur Textile, Faridabad AIR 1987 SC 1738 that in view of the fact that all the arrears of provident fund have been paid and therefore the prosecution against them should not be proceeded, is concerned the same will not make any difference in respect of the commission of the offence in the case. Even if the arrears have been deposited subsequently, the fact remains that the offence stands committed earlier when the Company failed to deposit the amount of provident fund within the statutory period, as given in the Act of 1952. Moreover, in the aforesaid case cited by the learned Counsel, the Apex Court has itself laid down that the order in that case will not serve as precedent as it is passed in the peculiar facts and circumstances of the case. Therefore, the case law relied upon by the counsel for the petitioners cannot be considered by this Court and as such it does not help the petitioners in any manner.
19. A For the reasons mentioned above, I am of the considered opinion that so far as accused petitioners Nos. 2 to 8 are concerned, the order of cognizance and process issued against them deserve to be set aside. However, the order of cognizance passed by the Magistrate as against the accused petitioner No. 1, the Company, is affirmed.
20. In the result, this petition is partly allowed and the order of cognizance and issuance of process passed by the learned Magistrate on 15-4-2004 as well as the order of Revisional Court dated 11-6-2004 against petitioners Nos. 2 to 8 are quashed and set aside. So far as accused petitioner No. 1, the Company is concerned, the petition is rejected and the case before the learned trial Court shall proceed against it.
