Ravindranath Bajpe (Appellant)  -vs-  Mangalore Special Economic Zone Limited &  Others(Respondent) (SC)

Legal sections and provisions involved:

The case was decided on the basis of the principles of vicarious liability and the Companies Act, 2013. The court referred to Sections 149 and 166 of the Companies Act, 2013 which deal with the roles and responsibilities of the Board of Directors and the Chairman of the company. The court also referred to various judicial precedents on the issue of vicarious liability, including the landmark judgment in Standard Chartered Bank v. Directorate of Enforcement.

Introduction

In the case of Ravindranatha Bajpe v. Mangalore Special Economic Zone Limited and Others, the Supreme Court examined the issue of whether company officials, such as the chairman, directors, and key managerial personnel, can be held responsible for offenses committed by the company. The court held that simply because an individual holds a position of authority in a company, it does not mean that they can be held vicariously liable for the company's actions.

In order to impose vicarious liability on company officials, specific allegations and affirmation must be made against them individually, with respect to their role in the commission of the offense. The court noted that vague and general allegations against company officials are not sufficient to hold them accountable for the company's actions.

The court's decision emphasizes the importance of individual accountability in corporate misconduct cases. It also highlights the need for specific and detailed allegations against company officials, rather than holding them responsible based solely on their position in the company.

Brief  Facts

Ravindranatha Bajpe filed a private complaint against 13 accused in the Court of the Judicial Magistrate in Mangalore. Bajpe was the owner of certain immovable property called Schedule Properties. Accused no. 1 and no. 6 were companies incorporated under the Companies Act, and accused nos. 2 to 4 were the Chairman, Managing Director, and Deputy General Manager of accused no. 1. Accused no. 5 was the planner and executor of the project work. Accused nos. 7 to 9 were the Chairman, Executive Director, and Site Supervisor of accused no. 6. Accused no. 10 was a sub-contractor under accused no. 6, and accused nos. 11 to 13 were employees of accused no. 10.

The complaint alleged that accused no. 1 intended to lay a water pipeline beside the Mangalore-Bajpe Old Airport Road, adjacent to the Schedule Properties, and had obtained permission from the Department of Public Works, Mangalore, for the same. Accused no. 2 appointed accused no. 6 as the contractor for executing the project of laying the water pipeline. Accused no. 9 was appointed as Site Supervisor, and accused no. 10 engaged accused nos. 11 to 13 as laborers.

It was alleged that accused nos. 2 to 5 and 7 to 13 had conspired with the intention of laying the pipeline beneath the Schedule Properties belonging to Bajpe without any lawful authority or right. They allegedly trespassed on the Schedule Properties, demolished the compound wall, cut and destroyed valuable trees, and laid the pipeline beneath the Schedule Properties. Bajpe was allegedly out of station when the incident occurred, and he noticed the damage when he returned.

It was contended that the accused had no right to commit trespass on the Schedule Properties and that each of the accused had the common intention of damaging Bajpe's property to lay the pipeline. It was further contended that the accused committed criminal trespass and caused damages and that they were jointly and severally liable to compensate Bajpe for his loss.

The Magistrate ordered the case to be registered against all the accused. The accused then filed a Criminal Revision Petition in the Sessions Court, which quashed and set aside the Magistrate's order. Bajpe then filed revision applications before the High Court of Karnataka, which dismissed the applications. Bajpe then approached the Supreme Court.

Issue

Whether the Chairman, Directors, and other key managerial personnel of a company can be held vicariously liable for the offences committed by the company.

Arguments

The petitioner in the case argued that the Chairman, Directors, and other key managerial personnel of the Company should be held vicariously liable for the encroachment committed by the Company. It was contended that they were responsible for the management and control of the affairs of the Company, and therefore, should be held accountable for the actions of the Company.

The respondents, on the other hand, argued that the allegations against the individuals were vague and general in nature. It was submitted that in the absence of specific allegations and averments/affirmation against them with respect to their individual role, they cannot be held vicariously liable for the acts of the Company.

SC Decision

The Hon’ble Supreme Court of India held that unless a specific statute makes the company directors vicariously liable and unless there are specific allegations and averments/affirmation against them with respect to their individual role, they cannot be vicariously held liable merely because the complainant thinks so.

The Companies Act, 2013 stipulates the duties of directors. A director of a company must act in accordance with the Articles of Association of the Company and in good faith to promote the objects of the company for the benefit of its members, employees, shareholders, the community, and for the protection of the environment. A director must also exercise his duties with due and reasonable care, skill and diligence, and exercise independent judgement.

The Supreme Court referred to its earlier judgement in Pepsi Foods Limited –vs- Special Judicial Magistrate (1998-5-SCC749) and held that the Criminal Law cannot be set into motion as a matter of course. The Magistrate must apply his mind to the facts of the case and the law applicable thereto before summoning the accused. The nature of allegations made in the complaint and the evidence, both oral and documentary, must be examined to find out if any offence is prima-facie committed by all or any of the accused.

The Supreme Court concluded that company directors cannot be automatically held vicariously liable merely because of their positions. They can only be held liable if there are specific allegations and averments/affirmation against them with respect to their role. The Court dismissed the appeals filed by the complainant/appellant and allowed the learned Magistrate to proceed with the complaint against the accused on its own merits in accordance with the law.

Legal Mantra.net View

The Supreme Court judgment, as discussed in the article, emphasizes the principle of vicarious liability and the need for specific allegations and averments against individual directors for them to be held liable. The judgment reinforces the importance of applying due process in criminal cases and the need for a magistrate to carefully scrutinize the evidence before summoning the accused.

Overall, the judgment is seen as significant in terms of clarifying the liability of company directors and reinforcing the importance of due process in criminal cases. It also underscores the importance of individual responsibility and the need for specific allegations against individual directors for them to be held liable.