Introduction

This decision clarifies two interlocking propositions in Indian criminal and banking law. First, officers of a company (here, a public sector bank) cannot be prosecuted for offences under the Indian Penal Code (IPC) on a theory of vicarious liability unless the company itself is arraigned and there are concrete allegations of the officers’ specific culpable acts. Second, statutory immunity under Section 32 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) protects secured creditors and their officers from prosecution for acts done in good faith under the Act—even where a clerical error occurs in a possession notice and is promptly corrected.

The case arises from a criminal defamation complaint filed by Phoenix India, a borrower with non-performing accounts, against senior officers of Bank of Baroda (BoB). A clerical mistake in a possession notice under Section 13(4) SARFAESI inflated the displayed outstanding amount. Despite the Bank’s quick correction and expression of regret, the borrower lodged a complaint under Sections 499, 500 and 501 IPC. The Magistrate issued process; the High Court refused to quash. The Supreme Court has now set aside those orders and quashed the proceedings in entirety.

Summary of the Judgment

• Non-joinder of the company is fatal: Prosecution of corporate officers, without impleading the company whose act is in question, is impermissible. The Court relied on Aneeta Hada v. Godfather Travels & Tours (P) Ltd. (2012) 5 SCC 661 to reaffirm that when liability is alleged on account of a company’s act, the company must be arraigned and a direct link between each officer’s conduct and the company’s liability must be pleaded.
• No vicarious liability under IPC absent statutory creation: There is no general doctrine of vicarious criminal liability under the IPC. In the absence of a specific statutory provision creating such liability (as under special penal statutes), officers cannot be proceeded against merely because of their designation. The Court cited Maksud Saiyed v. State of Gujarat (2008) 5 SCC 668 and Punjab National Bank v. Surendra Prasad Sinha 1993 Supp (1) SCC 499.
• Section 32 SARFAESI immunity (good faith): Acts done in good faith under SARFAESI are statutorily protected from prosecution. The possession notice, though containing a clerical mistake, was issued bona fide during statutory enforcement; the Bank promptly clarified and expressed regret. The Court held that prosecution founded on this error is untenable.
• Abuse of process: The Magistrate and the High Court erred in assuming the officers’ responsibility and issuing process without specific allegations of culpable acts. Continuing the proceedings would amount to misuse of the criminal process.
• Disposition: Orders of the Magistrate issuing process and the High Court’s refusal to quash were set aside; Complaint No. 6353 of 2007 was quashed in entirety. A connected complaint (Criminal Appeal No. 1166 of 2011) was also quashed on identical facts.

Background, Facts, and Issues

Parties and Context

• Appellants: Dr. Anil Khandelwal (then Chairman & Managing Director, Bank of Baroda), B.M. Sharma (Deputy General Manager), and Mukul Ranjan (Chief Manager).
• Respondent: Phoenix India (the borrowing firm).
• Transaction: Credit facilities of about Rs. 21.34 crores secured by mortgage; accounts classified as NPA as of 31 December 2002 due to default.

Events Leading to Litigation

1. Bank issued a demand notice under Section 13(2) SARFAESI on 25 March 2007 for overdues (~Rs. 5.09 crores plus interest).
2. On 13 June 2007, a possession notice under Section 13(4) read with Rule 8 of the 2002 Rules was pasted for symbolic possession. Due to a clerical error, the amount was reflected as ~Rs. 56.15 crores instead of ~Rs. 5.61 crores.
3. Borrower issued a legal notice alleging defamation; the Bank promptly issued a clarificatory letter on 7 August 2007 expressing regret and correcting the amount.
4. Despite the clarification, the borrower filed Criminal Complaint No. 6353 of 2007 under Sections 499, 500, 501 IPC. The Magistrate issued process (29 September 2008). The High Court refused to quash under Section 482 CrPC (3 December 2010).

Key Legal Issues

• Whether corporate officers can be prosecuted for IPC offences attributable to the company without impleading the company itself.
• Whether vicarious criminal liability is recognized under the IPC in the absence of express statutory provision.
• Whether Section 32 SARFAESI immunizes bank officers from criminal prosecution for acts done in good faith under the Act, including clerical errors in statutory notices.
• Whether the issuance of process by the Magistrate met the threshold of application of mind under Sections 200 and 202 CrPC.

Detailed Analysis

Precedents Cited and Their Influence

• Aneeta Hada v. Godfather Travels & Tours (P) Ltd. (2012) 5 SCC 661:

  The Court reiterated the principle that when liability is sought to be fastened on corporate officers on account of a company’s acts, the company must be arraigned as an accused. While Aneeta Hada arose in the context of Section 141 of the Negotiable Instruments Act, its core rationale—corporate personality is central to any vicarious attribution—was invoked to emphasize that prosecution of officers without the company is “ex facie impermissible.” The present case treats that structure as a necessary precondition even before considering any officer’s role.

• Maksud Saiyed v. State of Gujarat (2008) 5 SCC 668:

  This case squarely addresses the absence of general vicarious liability under the IPC. The Supreme Court had held that the Penal Code does not impose vicarious liability on managing directors/directors in the absence of a specific statutory provision and that the Magistrate must verify, even if all allegations are taken at face value, whether they disclose personal liability for an offence. The present judgment quotes Maksud Saiyed to reinforce that mere designation or position in a company is insufficient to summon officers for IPC offences like defamation.

• Punjab National Bank v. Surendra Prasad Sinha 1993 Supp (1) SCC 499:

  Emphasizing that judicial process should not become an instrument of oppression or harassment, this precedent urges circumspection in summoning corporate officers. The Court here deploys PNB v. Sinha to characterize the complaint as an abuse of process, insisting that Magistrates ascertain legal responsibility before issuing process, especially in complaints targeting multiple senior officials.

Legal Reasoning

1. No vicarious liability under the IPC absent explicit statutory creation

   The Court underscores a foundational rule: the IPC does not, by default, impose vicarious criminal liability on officers for a company’s acts. Unlike special penal statutes (e.g., Section 141 NI Act; provisions under the Food Safety and Standards Act; the Drugs and Cosmetics Act) that expressly create such liability, the IPC requires proof of an individual’s own culpable act or omission. Thus, simply being CMD/DGM/Chief Manager is not a gateway to criminality.

2. Non-joinder of the company is fatal when the allegation arises from a corporate act

   Even if one were to consider a vicarious model, a threshold condition is that the company—the alleged actor—must be arraigned. The Bank of Baroda (a body corporate) was not made an accused, although the impugned possession notice was issued on its behalf. Extending Aneeta Hada’s rationale, the Court holds prosecution of officers alone is impermissible when the conduct is essentially corporate.

3. Deficiencies in the complaint’s averments

   The complaint lacked “foundational facts” articulating any specific role by each officer that demonstrates authorization, active participation, deliberate omission, or knowledge requisite for the offences under Sections 500 (punishment for defamation) and 501 (printing or engraving matter known to be defamatory). Bald, generalized assertions of responsibility for “day-to-day affairs” cannot justify issuance of process for IPC offences.

4. Section 32 SARFAESI immunity: acts done in good faith

   Section 32 bars suits, prosecutions, or other proceedings against the Reserve Bank, the Central Registry, secured creditors, or their officers for anything “done in good faith” under the Act. The Court found that: (a) the possession notice under Section 13(4) was part of statutory enforcement; (b) the error in the outstanding amount was clerical; and (c) the Bank promptly corrected it and expressed regret. This sequence evidenced bona fide conduct, attracting statutory immunity and independently warranting quashment.

5. Magistrate’s duty to apply judicial mind under Sections 200 and 202 CrPC

   Reaffirming the need for judicious scrutiny before issuance of process, the Court held that the Magistrate failed to frame the correct question—whether, assuming the complaint’s version, any personal criminal liability of the officers was disclosed. This failure, coupled with the High Court’s oversight in Section 482 review, required intervention to prevent abuse of process.

Impact and Prospective Significance

• Corporate criminal prosecutions under the IPC: The decision tightens the gateway for summoning corporate officers in IPC offences, particularly defamation. Prosecutors and complainants must (i) arraign the company, and (ii) plead precise, officer-specific acts reflecting criminal intent or knowledge. Designation-based roping-in is discouraged.
• Banking enforcement under SARFAESI: Borrowers are less likely to weaponize criminal defamation to thwart or chill SARFAESI actions. Clerical or inadvertent errors in notices—when promptly corrected—will generally fall within Section 32 immunity.
• Magisterial discipline: Magistrates are reminded to apply exacting scrutiny when multiple senior officers are arrayed, ensuring that the complaint discloses individual culpability and that corporate arraignment requirements are satisfied.
• Forum discipline and appropriate remedies: The ruling implicitly reinforces that disputes over SARFAESI measures are to be ventilated primarily before the Debt Recovery Tribunal via Section 17 SARFAESI, not through collateral criminal proceedings absent clear evidence of personal criminality.
• Defamation jurisprudence: Publication of statutory enforcement notices, by itself, will not morph into defamation where the conduct is bona fide and within statutory contours; exaggerated or clerical errors, if timely rectified, do not convert enforcement into a criminal wrong.

Complex Concepts Simplified

• Defamation under IPC (Sections 499–501):
  • Section 499 defines defamation as making/publishing any imputation concerning a person intending to harm, or knowing/ having reason to believe it will harm, their reputation—subject to ten statutory exceptions.
  • Section 500 prescribes punishment.
  • Section 501 targets printing/engraving matter known to be defamatory.
  • Key takeaway: Intent, knowledge, or reasonable belief about harm is central; mere inadvertent mistakes, especially in statutory notices, do not readily fit this mould.
• Vicarious criminal liability:

  In criminal law, a person is generally liable for their own acts/omissions with requisite mens rea. Vicarious liability (one person liable for another’s act) is exceptional and must be expressly provided by statute (e.g., NI Act Section 141). The IPC does not create a general vicarious regime for corporate officers.

• Corporate arraignment requirement:

  When an offence is alleged arising out of a company’s act, the company itself—as the primary actor—must be made an accused. Only then can liability, if any, be considered for officers who are shown to be in charge and directly responsible, with specific allegations of their role.

• SARFAESI enforcement workflow:
  • Section 13(2): Demand notice to discharge liabilities within 60 days.
  • Section 13(4): Measures upon default, including taking possession of secured assets. Rule 8 contemplates a possession notice, often pasted on the property and published.
  • Section 32: Immunity for acts done in good faith by secured creditors and their officers under SARFAESI.
• “Good faith” in statutory immunity:

  While definitions can vary across statutes, courts typically look for honest conduct in the course of statutory duty, absence of malice, and reasonable diligence. Prompt correction of an inadvertent error is strong evidence of good faith.

• Issuance of process (Sections 200/202 CrPC):

  Upon receiving a complaint, the Magistrate must examine the complainant and witnesses (Section 200) and, if necessary, inquire/investigate (Section 202) to decide whether there is sufficient ground to proceed. This is not a mechanical exercise; application of mind to the statutory ingredients and the accused’s alleged role is essential.

Practical Notes and Guidance

• For complainants: If alleging corporate wrongdoing, arraign the company and plead the specific role, knowledge, and intent of each officer. For SARFAESI grievances, prefer the statutory DRT route under Section 17.
• For banks and secured creditors: Maintain robust review processes for statutory notices. If an error occurs, issue immediate clarificatory communications and keep documentary proof—these will be pivotal to demonstrating good faith and attracting Section 32 protection.
• For Magistrates: Demand particularization of officer roles and scrutinize the presence of mens rea for IPC offences before issuing process, especially when the complaint targets senior management based on their designation alone.
• For defence counsel: In IPC prosecutions premised on corporate acts, test (i) whether the company is arraigned; (ii) whether the complaint discloses officer-specific culpability; and (iii) whether statutory immunities (such as Section 32 SARFAESI) apply.

Conclusion

This judgment crystallizes a coherent boundary between corporate governance, statutory financial enforcement, and criminal process. The Supreme Court’s message is threefold: criminal law is personal—not vicarious—unless Parliament says otherwise; you cannot pursue corporate officers for a company’s act without making the company stand trial; and statutory enforcement done honestly under SARFAESI is protected from collateral criminalization.

The decision will likely curb tactical defamation complaints used to pressure banks during asset recovery, promote disciplined pleading standards in corporate criminal cases, and reinforce magisterial rigor at the summoning stage. For financial institutions, it offers assurance that bona fide SARFAESI actions—backed by diligence and prompt corrections of inadvertent errors—will not expose officers to criminal harassment.

Key takeaways:

• No general vicarious criminal liability under the IPC; special statutes must create it.
• Corporate arraignment is a prerequisite where liability is based on a company’s acts.
• Officer-specific roles and mens rea must be pleaded with particularity; designations are not enough.
• Section 32 SARFAESI confers robust immunity for acts done in good faith; prompt correction of errors evidences good faith.
• Courts must guard against the criminal process being used as an instrument of harassment.