What is vicarious liability?
According to the Black’s Law Dictionary, vicarious liability is defined as the imposition of liability on one person for the actionable conduct of another, Based solely on a relationship between the two persons.
The vicarious liability could be in terms of the contract act, the law of torts, or under the criminal law, e.g. in terms of the Indian Contract Act, the principal is liable for the acts committed by the agent in the principal-agent relationship.
As far as vicarious criminal liability is concerned, it has to be a creation of a specific statute. In other words, directors of the company cannot be vicariously liable for the offences under the Indian Penal Code. There is no concept of vicarious liability of directors of the company for offences committed by the company under the Indian Penal Code.
Vicarious Liability under Specific Statues
However, the concept of vicarious liability of directors for the offences by the companies is incorporated in various statutes. For example, Section 141 of the Negotiable Instruments Act of 1882[1] (“NI Act of 1882”) provides that if offence under 138 of the NI Act of 1882[2] is committed by the company, every person who at the time of commission of offence, was in charge of and 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 an offence.
Although the Section does not refer to the word “director” specifically, it is generally understood that the company functions through the board of directors and directors are normally considered to be in charge of the affairs of the company and with limited specific allegations, the complainant can array all the directors of a company for dishonour of check issued by the company.
Section 127 of the Companies Act of 2013 [3]provides that where a dividend has been declared by the company and has not been paid to the shareholder who is entitled to the dividend, every director of the company shall if he is knowingly a party to the default, shall be punishable under the said Section. Such provisions of vicarious liability could be found under various specific acts e.g. payment of wages act of 1936, SEBI act of 1992 etc.
Statute may provide for vicarious liability for a matter as trivial as not maintaining the register required to be maintained at construction project-site.
Practical difficulties
While offences under specific statutes as discussed above are normally going to be bailable and non-cognizable, taking the cognizance thereof by the competent courts result in the concerned officer of the company (in various cases- directors of the company) being required to present themselves before the concerned courts, regularly appear before the court, furnish and obtain bail from the court and face trial, which cause severe difficulties. Pending proceedings against director may also flare up as red flag in investor due diligence for investment in other group companies.
Remedies for Director facing complaint of vicarious liability
There are different remedies available for the directors facing such complaints rather than going through the ordeal of regularly appearing before the court during the trial and getting exonerated at the end of trial e.g. filing the application for a permanent exemption or getting the complaint quashed by invoking the jurisdiction of the concerned jurisdictional high court under Section 482 of the Code of Civil Procedure of 1973[4] (“The CPC of 1973”) read with Article 226 of the Constitution of India[5].
Remedy of quashing of the complaint will be conditional to specific grounds and it may be difficult to make out a case for quashing in majority of the cases.
Permanent exemption application, even if granted, will not result in stay of proceedings against the directors and even after exemption, trial will continue to proceed.
Challenging the Process issued by Court when director does not reside within the jurisdiction of the court
While we will deal with the subjects of quashing and permanent exemption at some other time, in this article, we aim to write about one important statutory provision and remedy for the directors especially if the cognizance of the case is taken by a court at a far away place in whose jurisdiction the directors don’t reside.
Scheme of CRPC about proceedings on private complaint
In terms of the scheme of the Code of Criminal Procedure 1973 (now Bharatiya Nagarik Suraksha Sanhita, 2023), upon filing of the complaint with the magistrate, the complainant is required to be examined by the concerned magistrate and upon considering the statements on oath of the complainant and of any witnesses, the magistrate shall dismiss the complaint if he comes to form an opinion that there is no sufficient ground for proceedings and in case of finding a sufficient ground for proceeding, the magistrate may issue a summons or warrant in a summons case and a warrant case respectively.
Normally, upon complainants producing the documents and getting himself examined on oath before the concerned magistrate, summons gets issued and issued on prima facie satisfaction and complicated questions of facts or law are not gone into at the stage of issuance of process to the accused.
This results in the issuance of process on the filing of the complaint with prima facie satisfaction without any detailed inquiry about there being sufficient ground for proceeding.
Difficulties faced by persons residing at faraway places
Realizing the difficulties faced by the accused persons who may be residing at the place beyond the area in which the magistrate exercises jurisdiction, provisions of Section 202 of the Code of Criminal Procedure of 1973 (“the CPC of 1973)[6] were amended in 2005 providing that the magistrate must postpone the issuance of process against the accused not residing an area within his jurisdiction and he shall; in such a case, before issuance of the process, he either inquire into the case himself or direct an investigation to be made by a police officer or by any other such person as he thinks fit for the purpose of deciding whether or not there is a sufficient ground for proceeding.
Inquiry u/s.202 of CRPC
During the course of the inquiry under Section 202[7], the magistrate will determine not only, whether he has territorial jurisdiction but also whether the allegations make out some offence of which the magistrate can take cognizance as also whether there is sufficient material in support of the allegations to proceed further.
Such inquiry is mandatory even in the offences punishable under Section 138 of the NI Act of 1882[8], where the Hon’ble Supreme Court of India has issued directions for expeditious proceedings and where even the statutory provisions provide for taking the evidence of the complaint complainant on affidavit in terms of s.145 of said act.
The judgment regarding the postponement of issuance of process in the complaint in Section 138 of the NI Act of 1882[9] has observed that although the affidavit evidence has to be taken of the complainant in terms of Section 145 of the NI Act of 1882[10], where the accused resides in a different place which is not within the jurisdiction of the magistrate following the provisions of Section 202 of the CPC of 1973[11] will be mandatory and magistrate in such cases simply must not act based on evidence on affidavit and other material produced by the complainant which can be done under Section 145[12] and 146 of the NI Act of 1882[13]; during the inquiry, the magistrate can ask the complainant and the witnesses to remain present before him and make necessary queries by asking questions regarding the material produced by produced in support of the complaint.
Thus, it is clear that for any offences under the Companies Act, Payment of Wages Act, Negotiable Instruments Act, or any other specific statutes, if the board of directors or the members of the board of the company are residing not within the jurisdiction of the magistrate taking cognizance of the complaint, or if any other accused are not residing within the jurisdiction of the magistrate, the magistrate must follow the process of Section 202 the CPC of 1973[14], postpone the issuance of process and shall conduct inquiry as postulated in terms of the provisions of the abovementioned section.
Remedy in Case of Issuance of Process Without Conduct of Inquiry
If in any criminal case, summons comes to be issued to the accused residing beyond the jurisdiction of the magistrate without following the process as postulated in Section 202 of the CPC of 1973[15] and there is no order of the magistrates recording the finding of the inquiry and observing that at the end of the inquiry, magistrate found sufficient ground for proceeding against the accused, order of issuance of the process could be challenged by way of filing of criminal revision application before the Superior Court, or by way of filing of a petition under Section 482 of the CPC of 1973[16] before the jurisdictional High Court for setting aside the process issued to the accused and the order taking cognizance of the complaint.
*The content of this article is intended to provide general information. No reader or user should act or refrain from acting on the basis of the information written above without first seeking legal advice from a qualified law practitioner.
[1] Section 141 of the Negotiable Instruments Act of 1882
[2] Section 138 of the Negotiable Instruments Act of 1882
[3] Section 127 of the Companies Act of 2013
[4] Section 482 of the Code of Civil Procedure of 1973
[5] Article 226 of the Constitution of India
[6] Section 202 of the Code of Criminal Procedure of 1973
[7] Supra 10
[8] Supra 3
[9] Supra 3
[10] Supra 8
[11] Supra 10
[12] Supra 8
[13] Section 146 of the Negotiable Instruments Act of 1882
[14] Supra 10
[15] Supra 10
[16] Supra 5