Criminal proceedings can't be initiated against office bearers without impleading company as accused: Jammu and Kashmir High Court

The High Court of Jammu & Kashmir and Ladakh recently ruled that criminal proceedings cannot be initiated against office bearers of a company for acts done by the company, unless there are specific allegations against the office bearers and the company is arraigned as an accused [Sandeep Singh & Ors V/s Nisar Ahmad Dar]..Single-judge Justice Sanjay Dhar quashed the complaint and cheating proceedings initiated against office bearers of a company 'Aizen Communication Pvt. Ltd.' for allegedly duping one Nisar Ahmad Dar of ₹3 crores in Jammu and Kashmir's Anantnag. .The complaint against company's officer bearers comprising chief managing director, managing director, manager and clerk was filed before the Chief Judicial Magistrate, Anantnag, alleging that they had entered into a criminal conspiracy by forming the company Aizen Communications Pvt. Ltd. to cheat the respondent/complainant.The complaint stated that complainant/respondent was introduced by petitioner no. 2 (managing director) to other petitioners who were on tour to Kashmir valley to promote the business of the company. Subsequently, a meeting was held by the petitioners with the respondent/complainant at Anantnag and the respondent was invited to invest money in the company and the company, in return, assured to pay double the amount within a span of three years with bonus.Petitioners published notices in national as well as local media thereby making false representations in the name of the company with an intention to cheat the public in general and the respondent/complainant in particular, it added.It was further alleged that in one of the advertisement notices, it was provided that if anybody pays 51 installments of ₹4000 in one go, the company would return double the amount within three years and will further pay an amount of ₹1836 per working day for 200 days with a foreign tour of package of 7 days at the company's expense.The complainant's case was that he was duped of ₹3 crores after he believed in these representations. The petitioners, after collecting huge wealth, stopped communication and fled from the valley thereby committing the offence of cheating, the complainant alleged. .The counsel for the petitioners Siddant Gupta raised the following two grounds while challenging the complaint and proceedings initiated against the office bearers of company under Sections 420 (cheating and dishonestly inducing delivery of property) and 120B (conspiracy) of Indian Penal Code (IPC):1. One that the complaint as against the petitioners cannot proceed without impleading the company as an accused;2. Second that the petitioners/accused are residing beyond the limits of local jurisdiction of the trial Magistrate, as such, it was not open to the learned Magistrate to issue process against them without conducting enquiry/investigation in terms of Section 202 of the Code of Criminal Procedure (CrPC)..Gupta further contended that the order passed by the Magistrate whereby process was issued against the petitioner should be set aside because the same was passed without following the mandatory provisions contained in Section 202 of the CrPC..In this regard, he placed reliance upon the judgment of the Supreme Court in the case of Sharad Kumar Sanghi v. Sangita Rane wherein it was held that when a company has not been arrayed as an accused, the criminal proceedings initiated against the managing director are liable to be quashed..The High Court said that there can be no quarrel with the proposition that vicarious liability of managing director, director or any other office bearer of a body corporate would arise only if there exists any provision regarding the same in the statute. It is also a settled law that even where vicarious liability is fastened under certain statutes, without impleading company as a party, no proceedings can be initiated against its director/officer bearers, the Court said. ."It is clear that Penal Code does not contain any provision for attaching vicarious liability on the office bearers of a company. Unless there are specific allegations against the office bearer of the company and the company is made an accused, the criminal proceedings against its office bearers cannot be initiated," the Court said. .The High Court further stated that the Magistrate before issuing process against the petitioners who were residing beyond the limits of his territorial jurisdiction, did not conduct enquiry/investigation in the case, which is mandatory in terms of Section 202 of the CrPC. Therefore, the order passed by the Magistrate issuing process deserves to be quashed, the Court ordered. .[Read Judgment]