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S. Sampath Kumar v. State Of Maharashtra .
Factual and Procedural Background
The petitioner, a Director of Deve Paints Limited (formerly Garware Paints Limited), invoked the provisions of section 482 of the Code of Criminal Procedure seeking to quash and set aside Criminal Case No. 18 of 1996 pending before the Judicial Magistrate F.C, 2nd Court, Thane, Maharashtra. The criminal proceedings originated from a complaint filed by the Provident Fund Assistant Commissioner, alleging that the company and its officers committed offences under sections 405 and 406 of the Indian Penal Code by defaulting on payment of contributions to the family pension fund, despite deducting these amounts from employees' salaries. The proceedings were initiated under the Employees Provident Funds and Miscellaneous Provisions Act, 1952, particularly section 14A, which holds companies and responsible officers liable for offences committed in relation to provident fund contributions.
Legal Issues Presented
- Whether the petitioner, as a Director of the company, can be held liable and prosecuted for the alleged offence under sections 405 and 406 of the Indian Penal Code relating to default in payment of provident fund contributions.
- Whether the criminal proceedings against the petitioner can be quashed under section 482 of the Code of Criminal Procedure on the ground that he was not in charge of or responsible for the conduct of the company’s business at the relevant time.
- The applicability and scope of section 14A of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, in determining liability of company officers for offences under the Act.
Arguments of the Parties
Petitioner’s Arguments
- The petitioner contended that although he was a Director of the company, he was not the person in charge of the establishment nor responsible for conducting its business at the relevant time.
- He relied on the proviso to section 14A(1) of the Employees Provident Funds Act, which provides immunity if the offence was committed without his knowledge or despite due diligence to prevent it.
- He referred to Supreme Court precedents to support the proposition that only the person in charge of the conduct of business at the time of the offence is liable to be prosecuted.
- He invoked section 482 of the Code of Criminal Procedure to quash the proceedings against him, arguing that the complaint and notice specifically identified another person, Mr. P.T. Kulkarni, as the person in charge and responsible.
Respondent’s Position
- The complaint alleged that the company and its officers committed criminal breach of trust for defaulting on provident fund contributions deducted from employees’ salaries.
- The respondent named Mr. P.T. Kulkarni as the person in charge and responsible for the conduct of the company’s business.
- The proceedings were initiated against the company as well as its officers under the relevant provisions of the Employees Provident Funds and Miscellaneous Provisions Act and the Indian Penal Code.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Girdhari Lal Gupta v. D.N Mehta, AIR 1971 SC 2162 | Person in charge of business at time of contravention is responsible under the relevant Act. | The Court applied this principle to hold that liability attaches only to the person in charge of the company’s business at the time of offence. |
| Municipal Corporation of Delhi v. Ram Kishan Rohtagi, AIR 1983 SC 67 | Under section 482 read with section 397 CrPC, proceedings can be quashed against directors not in charge, but not against the manager directly responsible. | The Court relied on this precedent to quash proceedings against the petitioner Director, who was not in charge, while allowing proceedings against the person responsible. |
| Adalat Prasad v. Rooplal Jindal, 2004 (4) Mh. L.J (S.C) 274; J.T 2004 (7) SC 243 | Section 482 CrPC can be invoked even after summons have been issued to quash proceedings instead of recalling summons under sections 202-204 CrPC. | The Court accepted the petitioner’s reliance on this to justify invoking section 482 CrPC at the stage of final hearing. |
| K.M Mathew v. State of Kerala, J.T 1991 (4) SC 464 | Earlier view on recalling summons and invoking section 482 CrPC. | The Court considered this precedent in the context of the more recent Adalat Prasad decision to allow section 482 invocation at a later stage. |
Court's Reasoning and Analysis
The Court analyzed the factual matrix and statutory provisions, particularly section 14A of the Employees Provident Funds and Miscellaneous Provisions Act, which imposes liability on companies and persons in charge of the company’s business at the time of the offence. The Court emphasized that liability cannot be imposed on all directors indiscriminately but only on those who were responsible or consented to the offence. The complaint and show cause notice clearly identified Mr. P.T. Kulkarni as the person in charge and responsible for the business conduct at the relevant time, not the petitioner.
The Court referred to the explanation to section 405 IPC and the relevant provisions of the Employees Provident Funds Act to underline the necessity of establishing that the accused was in charge and responsible. It also considered Supreme Court precedents which clarified that only the person in charge of business at the time of the offence is liable for prosecution under similar statutory frameworks.
Further, the Court accepted the petitioner’s invocation of section 482 CrPC, supported by the Apex Court’s decision in Adalat Prasad v. Rooplal Jindal, allowing quashing of proceedings even after summons issuance, recognizing the beneficial nature of the legislation and the need to prevent unwarranted harassment of persons not responsible for the offence.
On the basis of these legal principles and the facts before it, the Court concluded that the petitioner was not liable to be prosecuted as he was not in charge of the company’s business at the relevant time and thus the proceedings against him were liable to be quashed.
Holding and Implications
DISPOSED OF
The Court allowed the petition and quashed the criminal proceedings against the petitioner Director only, while permitting the continuation of the case against the company and the person identified as responsible (Mr. P.T. Kulkarni). The interim relief granted earlier was vacated, and there was no order as to costs. This decision directly relieves the petitioner from prosecution under the charges framed but does not establish any new precedent beyond the application of existing legal principles to the facts. The ruling underscores the principle that liability under section 14A of the Employees Provident Funds Act and related IPC provisions attaches only to those in charge and responsible for the conduct of company business at the relevant time.
The petitioner, a Director of the Company, Deve Paints Limited, formerly known as Garware Paints Limited, (hereinafter referred as Company) has invoked the provisions of section 482 of the Code of Criminal Procedure and basically prays to quash and set aside the proceeding of Criminal Case No. 18 of 1996, pending before the Judicial Magistrate F.C, 2nd Court, Thane, Maharashtra.
2. The proceeding arose in pursuance to the complaint dated 18-8-1995/30-8-1995, filed by the Provident Fund, Asstt. Commissioner, Regional P.F Commissioner, Maharashtra and Goa.
3. It has been alleged that the company and its officers have committed offence punishable under sections 405 and 406 of Indian Penal Code by committing the criminal breach of trust as defaulted in the payment of the contribution of the family pension fund, even though deducted from the salary of the employees of the said Company. Criminal breach of trust - section 405 extract is as under:—
“Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust.”
“Explanation 1.— A person, being an employer (of an establishment whether exempted under section 17 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) or not,) who deducts the employees's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.”
4. The person or company is liable to be prosecuted if, defaulted, in making payment of collected contribution under the family pension fund under the Employees Provident Funds and Miscellaneous Provisions Act, 1952 (for short “Act), is the relevant Act under which, the proceedings has been initiated. The basic provision is section 14A of the Act.
“14A. Offences by Companies. — (1) If the person committing an offence under this Act, (the scheme or the pension Scheme or the Insurance Scheme) is a company, every person, who at the time of the offence was committed as 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 pension) Scheme or the Insurance 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.
5. The basic requirement, therefore, to hold the company liable and or to proceed against or punish accordingly, is the persons liable to be prosecuted those who are in-charge of the company and responsible to the company for the conduct of its business. The proviso further provides that the person who wants to claim immunity must establish that the offence had been committed without his knowledge and or in spite of their due diligence, to prevent the offence complained of.
6. Sub-section (2) further provides that the proceeding can be initiated against any director, manager or secretary or other officer of the company, if the said offence has been committed with the consent or connivance or is attributable to, any neglect on the part of such officers. The prosecution, in view of sub-section (2) must discharge initial burden before punishing any officers of the company as contemplated above. The respondents must allege and prove that person charged has committed the offence. Therefore, if respondents has named the persons, others may not be proceeded and prosecuted. This being beneficial Legislation, mens rea is not necessary or essential.
7. The question remains to be decided on facts of each case, that who are the persons liable to be prosecuted and punished. There is no doubt that the scheme of the Act and section contemplate the necessary facts and proof, before proceeding against any officer or against Company. Any director or manager, secretary or all the officers of the company, unless they fall within the ambit of section 14, sub-section (2) of the Act cannot be prosecuted by the respondent department.
8. On the face of the complaint as well as show cause notice itself, if it is a positive case of the department, that particular person or officer or director or manager is responsible as he is in-charge of and responsible to the company for the conduct of its business, in such case, the only named officer or such person should be proceeded and punished accordingly. Therefore, the person or the director or the officer who is not in charge and who is not responsible to the company for the conduct of its business at the relevant time need not be prosecuted.
9. The Supreme Court has laid down in Girdhari Lal Gupta v. D.N Mehta reported in AIR 1971 SC 2162, while considering the similar provisions under the Foreign Exchange Regulations Act and held that the person who was in charge of the conduct of the business at the time of contravention is responsible under the said Act. In Municipal Corporation of Delhi v. Ram Kishan Rohtagi, Delhi, AIR 1983 SC 67, by invoking the provisions of section 482 read with section 397 of Code of Criminal Procedure, the Apex Court, while dealing with the provisions of Prevention of Food Adulteration Act, of similar in nature, quashed and set aside the proceeding against the Directors, but not against the Manager, as the Manager of the company was directly in-charge of the affairs of the company.
10. From the notice in question respondent made it clear as referred in paras 6, 7, 8 that Mr. P.T Kulkarni was the person in-charge of the establishment and responsible for the conduct of the business of the aforesaid company/establishment. There is no doubt that these proceedings are initiated against the Company also.
11. The statement in the notice dated 18/30-8-1995 in paras 6, 7 and 8 are reproduced as under:
Request were made to the responsible person vide Provident Fund Inspection remark book on 13-7-1995 to pay the said amount, but they have failed to do so.
I state that person mentioned in para 2 Shri P.T Kulkarni is the person in-charge of the establishment and is responsible for the conduct of the business of the aforesaid company/establishment.
I state that by not paying the employees share as mentioned above, the above stated person has committed offence under section 406 of Indian Penal Code read with explanation I added to the section 405 of Indian Penal Code.
12. It is clear, as per about contents, without going into further details of the matter, that the petitioner, even though, was Director of the Company at the relevant time was not a person in-charge of the establishment and or responsible for conducting the business and affairs of the establishment.
13. Mr. Shah has also relied on the judgment of 2004 (4) Mh. L.J (S.C) 274 : J.T 2004 (7) SC 243, Adalat Prasad v. Rooplal Jindal. This recent decision of the Apex Court has considered the earlier view of K.M Mathew v. State of Kerala, reported in J.T 1991 (4) SC 464 and held that the parties can invoke the provisions of section 482 of Criminal Procedure Code, even after issuance of the summons by the Magistrate, instead of applying for recalling of the said summons. Therefore, to approach the Magistrate for recalling of the summons under sections 202, 203, 204 may not be the only procedure, and it may not be adopted in each and every case.
14. In view of this position, and as there is no point in sending this matter back at this stage of final hearing, as the present petition itself has been pending since 18th September, 1998, with interim relief in terms of prayer clause (b).
15. In view of the provision of the Act, which is reproduced above, the basic principle of invoking the prosecution is not only against the company, or against all the officers or Manager or Directors of the Company, but basically against the person who is/are in-charge at the relevant time or who is or are conducting the affairs of the company. In view of the averment made in the complaint itself, this proceeding initiated against the present Director cannot be continued. The initiation of the proceeding against the petitioner is liable to be quashed and set aside. No offence, as contemplated under section 405 of Indian Penal Code explanation (1), has been made out against the petitioner. This is therefore, fit case to grant relief under section 482 of Criminal Procedure Code, as prayed.
16. For the reasons recorded above, the present petition is allowed in terms of the prayer clause (a) in respect of and restricted to the petitioner only. Rest of the criminal case/proceeding No. 18/1996 be continued in accordance with the law. Interim order as granted is also vacated. There is no order as to costs.
Petition allowed.
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