Calcutta High Court
Bhuban Mohan Bose And Ors. vs The State on 21 December, 1989
Equivalent citations: (1991)ILLJ11CAL
JUDGMENT Sengupta, J.
1. The petitioners who were Directors of a Public Limited Company, Calcutta Electric Lamp Works Ltd., were convicted by the Judicial Magistrate under Section 14(1) read with Section 14A(1) of the Employees Provident Funds and Miscellaneous Provisions Act, 1952 for failure to pay the contribution (employee's as well as employer's share) and administrative charges for the month of October, 1977 in contravention of Section 6 of the said Act and Paragraph 38 of the Employees' Provident Fund Scheme, 1952. Each of the petitioners was sentenced to undergo simple imprisonment for three months and to pay a fine of Rs. 1,000/- and in default to undergo a further simple imprisonment for 25 days more. This conviction and sentence was affirmed by the Sessions Judge by his order dated 24th January 1986. This revisional application is directed against the said judgment and order.
2. At the hearing, Mr. Dutt, learned Counsel appearing for the petitioners, has contended that the courts below erred in law in holding the petitioners guilty solely on the ground that the petitioners were Directors of the Company at the material time. Merely because a person is a Director of the Company cannot by itself fasten the liability on him for contravention of the provisions of the said Act and Scheme. He has drawn our attention to several decisions of this Court in support of his contention.
3. Shortly stated, the prosecution case is that the Company is covered under Provident Fund Act and the petitioners amongst others at all material time were in charge and responsible for the conduct of the business and in discharge of such responsibilities took part in the running of the business and they were thus required to comply with the provisions of the said Act. The complainant alleged that being employers they tailed to deposit contributions, both shares, for the month of October, 1977 in contravention of Section 6 of the Act and Paragraph 38 of the Scheme and they further failed to pay the administrative charges for the said period in contravention pf Section 38 of the Provident Fund Scheme and thus they have committed offence under Sections 14(1A) and 14A(1) of the Act. The petitioners, amongst others, during the relevant period, were in charge of the establishment and were responsible to it for the conduct of the business.
4. From the evidence as recorded in the judgment of the learned judicial Magistrate, it appears that P.W.3 Sri Sambhu Nath Maitra was in charge of the relevant area at the relevant time and within the jurisdiction of which the company was situate. It is recorded as follows:
"During his visit he noticed that this company did not pay Provident Fund dues, Provident Fund Administration Charges, contribution of both shares etc for the said period. The company failed to produce necessary papers during his visits. He inspected wage registers, salary registers etc. wherefrom he noticed that the company deducted the dues but did not deposit the same. He initialled these registers. The company submitted statutory returns showing deductions. This is a limited company managed by the Board of Directors jointly and, accordingly, they are jointly liable. The company did not produce any Minute Book of Resolution inspite of requests. He visited the company on several occasions. He found the Directors present there. The company also prayed for time on several occasions in response to Section 7A Notice of the Act. During cross- examination he said that he did not take note of any particular date on which he saw a particular Director in his Note Book. He prepared a report on each and every occasion he visited the company. He has proved Ext.4 for August, 1977. Inspite of compliance of all official procedure, the company did not pay the dues which will be evident from the cash book which is written on the basis of challans. If, the challans are not received cash book is also not filled up. He did not produce the cash book as the same was not called for. He did hot inspect the wage register for the relevant period. He saw the Directors present there, but could not specifically name them. He further added that the Directors neglected to comply with the provisions of the Act by not depositing the dues".
5. The learned Judge proceeded to hold that if the prosecution could prove that the accused persons were Directors and were in charge and direct management of the affairs of the company, they need not prove consent, connivance or neglect on their part. The learned Judge then observed as follows:
"The Prosecution stated categorically in the petition of complaint that they were the Directors and persons responsible and in charge of the company and were fully responsible for the conduct of the business of the company. They have adduced oral evidence to that effect. The Inspector saw these Directors present at the relevant time during his visits."
He then proceeded to hold as follows:
"Next comes the provisions of Section 14(1A) of the Act. According to the learned defence lawyer, the word 'employer' appearing therein does not include Directors in view of Section 2(e)(1) of the Act.
But it cannot be disputed that the Directors are agents of the Company, particularly in such cases where there is no Managing Director or Chairman and where the business of the Company was run by the Board of Directors. An award to which a company is party is also binding upon the Directors. Directors have ready access to the Account Books. They have ultimate control over the establishment. Admittedly all Directors are equally responsible to the Company."
Accordingly, he held that Directors were responsible to the Company for running it at the relevant time and failed to pay contributions and administrative charges. Accordingly, they are found guilty.
6. On appeal, the learned Sessions Judge held the Directors are responsible exclusively for the management of the company. So the Directors cannot avoid their responsibility for non-payment of the Provident Fund dues. He therefore upheld the conviction and sentence passed by the learned Judicial Magistrate.
Section 14A(1) provides as follows:
"If the person committing an offence under this Act, the Scheme or the Family Pension Scheme, 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:
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."
7. The evidence of the material witness, the Officer-in-Charge of the area, being the P.W.3 is that he saw the Directors being present in the Company but it was not said whether any of them was responsible for day-to-day running of the business of the Company. The courts below were of the view that as Directors they are also responsible for the conduct and management of the Company. This approach, in our view, is erroneous. There must be material to hold that the petitioners being the Directors, took part in the running of the business of the Company. Apart from the allegation made in the complaint that the petitioners being employers during the relevant period were in charge of the establishment and were responsible to it in the conduct of its business, no evidence has been adduced how the petitioners or any of them in fact participated in the day-to-day running of the business. The Division Bench of this Court in K.N. Genda and Anr. v. State reported in 1982 Lab. 1C 1777 considered the relevant decisions on this issue and observed that there must be sufficient averments to connect the accused with the alleged offence. Mere allegation that the Directors are in charge of the establishment and are responsible to it in the conduct of business would not be sufficient to initiate the proceeding against the Directors.
8. It cannot be disputed that to make the Directors vicariously liable for the offence committed by the Company it has to be shown that not only such persons were incharge of the Company but they were responsible to the Company in the conduct of its day-to-day business. In absence of such evidence adduced in this case we are unable to sustain the conviction of the petitioners.
9. Reliance may be made to the decision of the Supreme Court in Municipal Corporation of Delhi v. Ram Kishan Rohtagi where a prosecution was launched under the Prevention of Food Adulteration Act against the company, its Directors and Manager. There the Supreme Court held that the Manager of the Company who is directly in charge of the affairs cannot fall in the same category as Directors. The Manager of the company is directly in charge of its affairs. The Director as qua Director cannot be held vicariously liable unless there is evidence to show apart from the presumption drawn by the prosecution that there is any act committed by the Directors from which a reasonable inference can be drawn that they could also be vicariously liable. In our view, whether a Director is liable or not will essentially depend on whether he has participated in the day-to-day running and conduct of the business of the Company. In every company there are officers who are entrusted with different jobs and Directors have overall responsibility in the conduct of the business of the company. But merely because they are Directors, they cannot be vicariously liable for any and every contravention made by the Company unless any one of them is incharge of the day-to-day conduct of the affairs of the company. He must be a person who is directing the unit of the company and must be in actual control of Company's operation.
10. For the foregoing reasons the Rule is made absolute. The order of sentence and conviction is set aside.
11. Be it recorded that petitioner Bhuban Bose has died during the pendency of the proceeding and, accordingly, the rule has abated so far he is concerned.
12. This judgment and order will govern Cr. Rev. Nos. 761 / 86 and 763 / 86 as the facts and circumstances of the cases are identical.
13. I agree.
Hore, J.