Directors can’t be booked just because the firm violated the law: SC

 

The Supreme Court has asked investigating and prosecuting agencies not to proceed mechanically against directors of errant companies merely because of the post held and said such avoidable prosecution leads to humiliation and loss of reputation in society.

 

Quashing prosecution and summons issued to a director of a company, which allegedly failed to pay minimum wages to some workmen, a bench of Justices R S Reddy and Sanjiv Khanna said, “A person cannot be prosecuted and punished merely because of their status or position as a director, manager, secretary or any other officer, in a company unless the offence in question was committed with their consent or connivance or is attributable to any neglect on their part.”

 

The important clarification will offer relief to persons holding these positions.

 

Liability only when offence done with consent, rules SC

 

Section 22C of the Minimum Wages Act provided that “if the person committing any offence under this Act is a company, every person who at the time the offence was committed, was 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”.

 

It said the exact role of the officer proceeded against must be delineated by the prosecution. The SC said vicarious liability would be attracted only when the offence was committed with the consent, connivance, or is attributable to the neglect on the part of a director, manager, secretary, or another officer of the company and not merely because the person holds a responsible post in the company.

 

Justices Reddy and Khanna said that arresting directors and officers of a company, without them having even any remote role in the perpetration of the alleged violation of law by the company, is fraught with serious consequences and must be avoided at all costs.

 

“Initiation of prosecution and summoning of an accused to stand trial has serious consequences. They extend from monetary loss to humiliation and disrepute in society, sacrifice of time and effort to prepare defence and anxiety of uncertain times. Criminal law should not be set into motion as a matter of course or without adequate and necessary investigation of facts on mere suspicion, or when the violation of law is doubtful,” the bench said.

 

“It is the duty and responsibility of the public officer to proceed responsibly and ascertain the true and correct facts. Execution of law without appropriate acquaintance with legal provisions and comprehensive sense of their application may result in an innocent being prosecuted,” it said.