In Ravindranatha Bajpe v. Mangalore Special Economic Zone Limited and Others, which was decided on September 27, 2021, the Hon. Supreme Court ("SC") ruled that the chairman, directors, and other key managerial personnel of a company cannot be automatically held vicariously liable for the offences committed by a company unless specific allegations and averments are made against them with respect to their individual roles.
In the instant case titled Ravindranatha Bajpe v. Mangalore Special Economic Zone Limited and Others the issue raised for clarification before the Apex Court was:
In the absence of specific claims regarding their role, can the accused—who are officials of a company—be held accountable for the activities of that company?
With regard to this issue, The SC took note of the reliance the accused made on the ruling in Sunil Bharti Mittal v. Central Bureau of Investigation [(2015) 4 SCC 609], which stated that if there is enough proof of an individual's active participation and criminal intent, they can be made an accused alongside the company that committed the crime. The second circumstance in which he may be held accountable is when a statutory system explicitly includes a provision that attracts the notion of vicarious accountability. In addition, as noted by the SC in the case of GHCL Employees Stock Option Trust v. India Infoline Limited [(2013) 4 SCC 505], the Court held that the learned Magistrate must record his satisfaction about a prima facie case against the accused, who are the Managing Director, Company Secretary, and the Directors of the Company, as well as the role played by them in their respective capacities, which is a requirement for starting criminal proceedings against them. Regarding their roles as Chairman, Managing Director, Executive Director, Deputy General Manager, and Planner & Executor, it can be seen from the averments and allegations in the complaint that none were made specifically. solely due to their positions as chairman, managing director, or executive director.
They cannot be listed as an accuser simply because they are the Chairman, Managing Director/Executive Director, Deputy General Manager, Planner, or Supervisor of Accused Nos. 1 and 6. Without any specific role assigned to them and the role they played in that capacity, they cannot be held vicariously liable for the offences committed by Accused Nos. 1 and 6.
The learned Magistrate was not justified in issuing process against accused nos. 1 to 8 for the offences punishable under the Indian Penal Code, 1860, in the absence of any specific allegations and the specific roles attributed to the accused as Chairman, Managing Director, Deputy General Manager (Civil & Env.), Planner & Executor, Chairman, and Executive Director.
The Court categorically stated that,
" The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused.” 8.3 As held by this Court in the case of India Infoline Limited (supra), in the order issuing summons, the learned Magistrate has to record his satisfaction about a prima facie case against the accused who are Managing Director, the Company Secretary and the Directors of the Company and the role played by them in their respective capacities which is sine qua non for initiating criminal proceedings against them.”