M J Antony: Fuzzy logic of vicarious liability

Unless the law specifies, top executive directors are not apt for the fault of their employees.

If work force at the helm of corps read laws and recent Supreme Court judgments regarding their vicarious liability for wrongfulnesses done by people below them, they might lose slumber despite counting sheep, or say, lawyers. The recent order to restart prosecution in Som Mittal Vs State of Mysore overshadowed another of import Supreme Court judgement delivered the same week, in which the Managing Director of Britannia Industries Ltd, Calcutta, was hauled to the tribunal by a dissatisfied gross sales agent for criminal breach of trust (S Kelvin Alagh volts State of UP). In the latter case, the tribunal not only released the top executive director from the litigative nightmare, but also emphasised certain rules which would come up as a alleviation to those at the vertex of big organisations.

Britannia terminated the franchise of an country wholesale agent in Uttar Pradesh and appointed another. However, the former agent sent two demand bills of exchange for supply of goods. When the company did not respond, he filed a ailment before the judge alleging criminal breach of trust, Section 406 of the Indian Penal Code. Though the judge discharged him, the Allahabad high tribunal allow the prosecution revive. On appeal, the Supreme Court put aside the high tribunal decision.

The Supreme Court noted that the bills of exchange were drawn in the name of the company. The franchise understanding was also between the company and the agent. The company was not made a political party in the complaint. The anger was against the executive. The judgement said that the Indian Penal Code did not contemplate any vicarious liability on the portion of a individual who is not charged directly for the committee of an offence. Since the bills of exchange were drawn in favor of the company, the mendelevium cannot be said to have got committed the offence.

If and when a law contemplates vicarious liability on the portion of the people in complaint of a company's affairs, the legislative act specifically would state so. The penal codification is not one such as law. This opinion will thus protect top executive directors from direct hits for the offenses committed by the company or its employees. However, there are respective laws which make the legal fiction that the work force in complaint would be vicariously apt for the wrongfulnesses of the company. Some such as legislative acts are: the Essential Commodities Act, the Employees' Provident Fund Act and the Negotiable Instruments Act. Section 14A of the provident monetary fund law specifically makes an offense of criminal breach of trust in regard of amounts deducted from the employees by the company.

A few calendar months ago, the Supreme Court dealt with another case, Maksud Saiyed volts State of Gujarat, in which a former president and managing manager of Dena Depository Financial Institution was accused of conspiracy, giving false evidence, providing false statements and a figure of other criminal offenses when the depository financial institution floated a public issue. The complaints were made by a individual who had taken a loan from the depository financial institution and who was summoned by the debt recovery tribunal. He establish some errors in the course catalog and filed the ailment before the magistrate. The justice directed the police force to look into the allegations. The Gujerat high tribunal quashed the charges. On appeal, the Supreme Court upheld the high tribunal order and said that a bona fide mis-description of the pending lawsuit which did not materially influenced the determination of the investors did not give rise to a cause of action for filing a complaint. In the Jiyajirao Cotton Robert Mills lawsuit (2005), the Supreme Court ruled that managers of a company could not be personally prosecuted for non-payment of wages, overruling the Madhya Pradesh high court.

There have got been a figure of lawsuits recently where the managers of companies were accused of issuing checks which were dishonoured for privation of sufficient finances in the banks. In one of the prima judgments, the Supreme Court had laid down the rules to be followed in lawsuits where the top executive directors are involved (SMS Pharmaceuticals volts Neeta Bhalla). However, more than entreaties have got come up from the high tribunals questioning the prosecution of directors, MDs and chairmen in bounced check cases.

Even the local laws can do concern to the executive director heads, as the Som Mittal lawsuit have shown. He was caught in the web of the Mysore Shops and Establishments Act which obliges the directions of IT houses to supply security to the women staff who are dropped back place during nighttime shifts. Perhaps the foremen should at some clip inquire their legal advocate to acquire a listing of all national, state and local laws where they are deemed to be apt for errors committed by their employees.