Legally Bharat

Himachal Pradesh High Court

Sunil Jain vs State Of H.P. And Another on 5 September, 2024

Neutral Citation No. ( 2024:HHC:7945 )

IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA

Cr. MMO No. 232 of 2019

.

Reserved on: 6.8.2024

Date of Decision: 5.9.2024.

    Sunil Jain                                                          ...Petitioner

                                           Versus

    State of H.P. and another


    Coram
                            r                to                         ...Respondents

Hon’ble Mr Justice Rakesh Kainthla, Judge.
Whether approved for reporting?1 No.

For the Petitioner : Mr. Y.P. Sood, Advocate.
For the Respondents : Mr. Prashant Sen, Deputy Advocate
General, for respondent No.1.

Mr. Raman Sethi, Advocate, for
respondent No.2.

Rakesh Kainthla, Judge

The petitioner has filed the present petition for

quashing of FIR No. 170 of 2022, dated 18.6.2018, registered at

Police Station Haroli, District Una, H.P. for the commission of

offences punishable under Sections 406 and 409 of IPC and the

consequent proceedings arising out of the FIR.

1

Whether reporters of Local Papers may be allowed to see the judgment? Yes.

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
2

Neutral Citation No. ( 2024:HHC:7945 )

2. Briefly stated, the facts giving rise to the present

petition are that the informant made a complaint under Section

.

406 and 409 of the Indian Penal Code asserting that M/s

Adinath Rubber (P) Ltd. Nangal Kalan Industrial Area Tahliwal,

District Una, H.P. is an establishment covered under Employees

Provident Fund and Miscellaneous Provisions Act, 1952 (EPF

Act). The employer of the establishment is under a statutory

obligation to deduct the employees’ share of the provident fund

contribution from their wages/salaries each month and deposit

it into the statutory funds. It was found during the inspection of

the establishment that the employer had deducted the

employees’ share of Provident Fund from their wages/salaries

for the period 8/2016, 10/2016 to 4/2016 but failed to deposit the

amount so deducted into the statutory fund. The employer was

guilty of the commission of offences punishable under Sections

406 and 409 of IPC. The police registered the FIR and conducted

the investigation. It was found during the investigation that

Sunil Jain had deposited the whole amount deducted by him. The

police prepared the challan and filed a charge sheet before the

Court.

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
3

Neutral Citation No. ( 2024:HHC:7945 )

3. Being aggrieved from the registration of FIR and

filing of the charge sheet, the petitioner has approached this

.

Court for quashing of FIR and the subsequent proceedings. It has

been asserted that the petitioner was not an employer in relation

to the workers/employees. The money was not entrusted to him.

The criminal proceedings could not have been initiated against

him. M/s Adinath Rubber Private Limited, District Una, H.P. is a

registered Company under the Companies Act. There are other

Directors in the Company. The Company was not doing well in

the business and the amount could not be deposited within time.

The amount has been deposited and documents to this effect

have been submitted to the police. Continuation of the

proceedings against the petitioner amounts to a miscarriage of

justice. Hence, the present petition for quashing of FIR and the

consequent proceedings arising out of the FIR.

4. The petition is opposed by respondent No.1/State

making a preliminary submission regarding lack of

maintainability. The contents of the petition were denied on

merits. It was asserted that the petitioner embezzled the amount

of ₹10,22,358/- towards the employees’ share of the provident

fund. He deposited the amount on 30.7.2018 after registration of

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
4
Neutral Citation No. ( 2024:HHC:7945 )

the FIR. The petitioner was managing the affairs of the Company

and he was responsible for the acts of the Company. The

.

company had deducted the payment of the amount and the

petitioner committed an offence punishable under Sections 406

and 409 of IPC. The police conducted the investigation and

found sufficient reasons to file a charge sheet against the

petitioner before the Court. Learned Trial Court is seized of the

matter; therefore, it was prayed that the present petition be

dismissed.

5. No separate reply was filed by the informant.

6. I have heard Mr Y.P. Sood, learned counsel for the

petitioner, Mr Prashant Sen, learned Deputy Advocate General,

for respondent No.1/State and Mr Raman Sethi, learned counsel

for respondent No.2.

7. Mr. Y.P. Sood, learned counsel for the petitioner

submitted that the FIR was lodged against the employer. The

petitioner is not the employer. The Company is an employer. The

Company is a juristic personm who can be prosecuted for the

commission of the offences. The petitioner being the Director is

not vicariously liable. There are other Directors of the Company.

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
5

Neutral Citation No. ( 2024:HHC:7945 )

Hence, he prayed that the present petition be allowed and the

FIR be ordered to be quashed. He relied upon the judgments of

.

the Hon’ble Supreme Court in ESI Corpn. v. S.K. Aggarwal, (1998)

6 SCC 288: 1998 SCC (L&S) 1480, S.K. Alagh v. State of U.P., (2008)

5 SCC 662 : (2008) 2 SCC (Cri) 686: 2008 SCC OnLine SC 305, Mr.

Shanti Kiran Bulla vs. State of Karnataka 2013 SCC Online Kar 2784,

Ashoke Sadhya and another Vs. State of West Bengal and another,

Cr. Revision No. 259 of 2007, decided on 13.5.2015, Sunil Kumar

Panti & ors. Vs. State of Bengal and ors. 2009 SCC Online Cal 1153,

Satish Kumar Jhunjhunwala Vs. State of West Bengal 2008 SCC

OnLine 189, S.V. Ramaswami Vs. State of Karnataka, Cr. LP No.

3056 of 2013, decided on 15.3.2019, Malhati Tea & Industries Ltd.

and others Vs. State of West Bengal and another 2019 SCC Online

Cal 2274, Sharad Mittersain Jain and others Vs. State of

Maharashtra 2004 (1) Mh. L.J. 776 and Supreme Paper Mills Ltd. Vs.

State of West Bengal & another and Cr. Revision No. 1638 of 2016,

decided on 21.6.2018 in support of his submission.

8. Mr. Prashant Sen, learned Deputy Advocate General,

for respondent No.1/State submitted that the petitioner is the

Managing Director of the Company. He was responsible for

deducting the amount and depositing it in the statutory funds.

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
6

Neutral Citation No. ( 2024:HHC:7945 )

He failed to do so. The police found sufficient reasons to file a

charge sheet against the petitioner. Therefore, he prayed that

.

the present petition be dismissed.

9. Mr. Raman Sethi, learned counsel for respondent

No.2 submitted that the Directors of the company are liable in

view of Section 14A of the Employees Provident Funds and

Miscellaneous Provisions Act, 1952. The petitioner cannot

escape from the liability. He relied upon the judgment of the

Hon’ble Supreme Court in Shrikanta Datta Narasimharaja Vs.

Enforcement Officer, Mysore (1993) 3 Supreme Court Cases 217.

Therefore, he prayed that the present petition be dismissed.

10. I have given considerable thought to the submissions

made at the bar and have gone through the records carefully.

11. The parameters for exercising jurisdiction under

Section 482 of Cr.P.C. were laid down by the Hon’ble Supreme

Court in A.M. Mohan v. State, 2024 SCC OnLine SC 339, wherein it

was observed: –

9. The law with regard to the exercise of jurisdiction
under Section 482 of Cr. P.C. to quash complaints and
criminal proceedings has been succinctly summarized by
this Court in the case of Indian Oil Corporation v. NEPC
India Limited (2006) 6 SCC 736: 2006 INSC 452 after

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
7
Neutral Citation No. ( 2024:HHC:7945 )

considering the earlier precedents. It will be apposite to
refer to the following observations of this Court in the
said case, which read thus:

.

“12. The principles relating to the exercise of

jurisdiction under Section 482 of the Code of Criminal
Procedure to quash complaints and criminal
proceedings have been stated and reiterated by this

Court in several decisions. To mention a few–
Madhavrao Jiwajirao Scindia v. Sambhajirao
Chandrojirao Angre [(1988) 1 SCC 692: 1988 SCC (Cri)
234], State of Haryana v. Bhajan Lal [1992 Supp (1) SCC

335: 1992 SCC (Cri) 426], Rupan Deol Bajaj v. Kanwar Pal
Singh Gill [(1995) 6 SCC 194: 1995 SCC (Cri)
1059], Central Bureau of Investigation v. Duncans Agro
Industries Ltd. [(1996) 5 SCC 591: 1996 SCC (Cri)

1045], State of Bihar v. Rajendra Agrawalla [(1996) 8

SCC 164: 1996 SCC (Cri) 628], Rajesh Bajaj v. State NCT
of Delhi [(1999) 3 SCC 259: 1999 SCC (Cri) 401], Medchl
Chemicals & Pharma (P) Ltd. v. Biological E. Ltd. [(2000)
3 SCC 269: 2000 SCC (Cri) 615], Hridaya Ranjan Prasad

Verma v. State of Bihar [(2000) 4 SCC 168: 2000 SCC
(Cri) 786], M. Krishnan v. Vijay Singh [(2001) 8 SCC
645: 2002 SCC (Cri) 19] and Zandu Pharmaceutical

Works Ltd. v. Mohd. Sharaful Haque [(2005) 1 SCC
122: 2005 SCC (Cri) 283]. The principles, relevant to our

purpose are:

(i) A complaint can be quashed where the

allegations made in the complaint, even if they
are taken at their face value and accepted in their
entirety, do not prima facie constitute any offence
or make out the case alleged against the accused.

For this purpose, the complaint has to be
examined as a whole, but without examining the
merits of the allegations. Neither a detailed
inquiry nor a meticulous analysis of the material
nor an assessment of the reliability or
genuineness of the allegations in the complaint is

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
8
Neutral Citation No. ( 2024:HHC:7945 )

warranted while examining prayer for quashing a
complaint.

(ii) A complaint may also be quashed where it is a

.

clear abuse of the process of the court, as when

the criminal proceeding is found to have been
initiated with mala fides/malice for wreaking
vengeance or to cause harm, or where the

allegations are absurd and inherently improbable.

(iii) The power to quash shall not, however, be
used to stifle or scuttle a legitimate prosecution.
The power should be used sparingly and with

abundant caution.

(iv) The complaint is not required to verbatim
reproduce the legal ingredients of the offence

alleged. If the necessary factual foundation is laid

in the complaint, merely on the ground that a few
ingredients have not been stated in detail, the
proceedings should not be quashed. Quashing of
the complaint is warranted only where the

complaint is so bereft of even the basic facts
which are necessary for making out the offence.
(v.) A given set of facts may make out: (a) purely a

civil wrong; (b) purely a criminal offence; or (c) a
civil wrong as also a criminal offence. A

commercial transaction or a contractual dispute,
apart from furnishing a cause of action for

seeking remedy in civil law, may also involve a
criminal offence. As the nature and scope of a civil
proceeding are different from a criminal
proceeding, the mere fact that the complaint
relates to a commercial transaction or breach of
contract, for which a civil remedy is available or
has been availed, is not by itself a ground to quash
the criminal proceedings. The test is whether the
allegations in the complaint disclose a criminal
offence or not.

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
9

Neutral Citation No. ( 2024:HHC:7945 )

12. Similar is the judgment in Maneesha Yadav v. State of

U.P., 2024 SCC OnLine SC 643, wherein it was held: –

.

12. We may gainfully refer to the following observations
of this Court in the case of State of Haryana v. Bhajan
Lal1992 Supp (1) SCC 335: 1990 INSC 363:

“102. In the backdrop of the interpretation of the
various relevant provisions of the Code under Chapter
XIV and of the principles of law enunciated by this
Court in a series of decisions relating to the exercise of

the extraordinary power under Article 226 or the
inherent powers under Section 482 of the Code which
we have extracted and reproduced above, we give the
following categories of cases by way of illustration

wherein such power could be exercised either to

prevent abuse of the process of any court or otherwise
to secure the ends of justice, though it may not be
possible to lay down any precise, clearly defined and
sufficiently channelised and inflexible guidelines or

rigid formulae and to give an exhaustive list of myriad
kinds of cases wherein such power should be
exercised.

(1) Where the allegations made in the first

information report or the complaint, even if they
are taken at their face value and accepted in their
entirety do not prima facie constitute any

offence or make out a case against the accused.
(2) Where the allegations in the first
information report and other materials, if any,
accompanying the FIR do not disclose a
cognizable offence, justifying an investigation
by police officers under Section 156(1) of the
Code except under an order of a Magistrate
within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made
in the FIR or complaint and the evidence

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
10
Neutral Citation No. ( 2024:HHC:7945 )

collected in support of the same do not disclose
the commission of any offence ce and make out
a case against the accused.

.

(4) Where the allegations in the FIR do not

constitute a cognizable offence but constitute
only a non-cognizable offence, no investigation
is permitted by a police officer without an order

of a Magistrate as contemplated under Section
155(2) of the Code.

(5) Where the allegations made in the FIR or
complaint are so absurd and inherently

improbable on the basis of which no prudent
person can ever reach a just conclusion that
there is sufficient ground for proceeding against

the accused.

(6) Where there is an express legal bar engrafted
in any of the provisions of the Code or the
concerned Act (under which a criminal
proceeding is instituted) to the institution and

continuance of the proceedings and/or where
there is a specific provision in the Code or the
concerned Act, providing efficacious redress for

the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly

attended with mala fide and/or where the
proceeding is maliciously instituted with an

ulterior motive for wreaking vengeance on the
accused and with a view to spite him due to
private and personal grudge.

103. We also give a note of caution to the effect
that the power of quashing a criminal
proceeding should be exercised very sparingly
and with circumspection and that too in the
rarest of rare cases; that the court will not be
justified in embarking upon an enquiry as to the
reliability or genuineness or otherwise of the
allegations made in the FIR or the complaint and

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
11
Neutral Citation No. ( 2024:HHC:7945 )

that the extraordinary or inherent powers do not
confer an arbitrary jurisdiction on the court to
act according to its whim or caprice.”

.

13. It was stated in the FIR that the employer had

deducted the amount but had failed to deposit the same. It was

laid down by the Hon’ble Supreme Court in S.K. Aggarwal and

others (supra) that the term ’employer’ within the meaning of

Section 2(17) of the Employees’ State Insurance Act does not

include the Director. It was observed:-

“9. In the case of ESI Corpn. v. Gurdial Singh [1991 Supp (1)

SCC 204: 1991 SCC (L&S) 833: 1991 Lab IC 52] this Court
held that the directors of a private limited company were
not personally liable to pay contributions under the
Employees’ State Insurance Act, 1948. The Court was

considering a case where a private limited company was
the owner of the factory and the occupier of the factory
had been duly named under the Factories Act, 1948. The

Court said that the directors did not come within the
definition of clause 1 of Section 2(17) of the Employees’

State Insurance Act. This Court also disapproved of the
decision of a Single Judge of the Bombay High Court
which has been subsequently overruled by the Division

Bench of the Bombay High Court in the case of Suresh
Tulsidas Kilachand v. Collector of Bombay [1984 Lab IC 1614:

1984 LLN 312 (Bom)].

10. Therefore, even if we read the definition of “principal
employer” under the Employees’ State Insurance Act,
1948 in Explanation 2 to Section 405 of the Penal Code,
1860, the Directors of the Company, in the present case,
would not be covered by the definition of “principal
employer” when the Company itself owns the factory and
is also the employer of its employees at the Head Office.”

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
12

Neutral Citation No. ( 2024:HHC:7945 )

14. Similarly, it was held in S.K. Alagh (supra) that a

director cannot be held liable for the offence committed by the

.

Company. It was observed;_

“16. The Penal Code, save and except some provisions

specifically providing therefor, does not contemplate any
vicarious liability on the part of a party who is not
charged directly for the commission of an offence.

17. A criminal breach of trust is an offence committed by a

person to whom the property is entrusted.

18. Ingredients of the offence under Section 406 are:

“(1) a person should have been entrusted with

property, or entrusted with dominion over property;

(2) that person should dishonestly misappropriate or
convert to his own use that property, or dishonestly
use or dispose of that property or wilfully suffer any
other person to do so;

(3) that such misappropriation, conversion, use or
disposal should be in violation of any direction of law

prescribing the mode in which such trust is to be
discharged, or of any legal contract which the person

has made, touching the discharge of such trust.”

19. As, admittedly, drafts were drawn in the name of the
Company, even if the appellant was its Managing

Director, he cannot be said to have committed an an
offence under Section 406 of the Penal Code. If and when
a statute contemplates the creation of such a legal fiction,
it provides specifically therefor. In the absence of any
provision laid down under the statute, a Director of a
Company or an employee cannot be held to be vicariously
liable for any offence committed by the Company itself.
(See Sabitha Ramamurthy v. R.B.S. Channabasavaradhya
[(2006) 10 SCC 581: (2007) 1 SCC (Cri) 621].)”

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
13

Neutral Citation No. ( 2024:HHC:7945 )

15. It was held in Noshir Adi Soonawala v. State of

Maharashtra, 2012 SCC OnLine Bom 714 that the definition of

.

principal employer in Employees State Insurance Company and

the definition of employer in Employees Provident Fund

Scheme, 1952 are more or less similar. It was observed:-

“11. The comparison of the definition of “principal
employer” in the Employees’ State Insurance Act, 1948

and the definition of “employer” in the Employees
Provident Funds Scheme, 1952 would show that both the
definitions are more or less similar and the purpose of

definitions is also similar. Section 40 of the Employees’
State Insurance Act, 1948 is more or less similar to the

provisions of Para 30 of the Employees’ Provident Funds
Scheme, 1952. As such provisions of section 40 of the
Employees’ State Insurance Act, 1948 and Para 30 of the

Employees’ Provident Funds Scheme, 1952 are pari
materia.

12. The Single Judge of Calcutta High Court while dealing

with the case in Robin Paul v. State of W.B., reported at
2008 SCC OnLine Cal 192, under the provisions of the

Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952 had occasion to refer to the judgment
of the Hon’ble Supreme Court in the matter ESI

Corpn. v. S.K. Aggarwal. The Single Judge of Calcutta High
Court had come to the conclusion that the definition of
“employer” does not include directors and that launching
of prosecution against the directors of the
establishment/factory was bad in law. The revision
petition of the directors was allowed and proceedings
initiated against them under the Act were quashed.

13. After having gone through the definition of
“employer” of the Act of 1952 and the obligation of
employer under Para 30 of the Employees Provident

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
14
Neutral Citation No. ( 2024:HHC:7945 )

Funds Scheme and after having gone through the
judgment of the Hon’ble Supreme Court in the matter of
S.K. Agrawal and the Calcutta High Court reported at,
2008 SCC OnLine Cal 192, and keeping in view the

.

deeming provision of Explanation 1 to section 405 of the
Penal Code, 1860, I have come to the conclusion that the
petitioners will not fall under the definition of

“employer” and therefore, they were not under
obligation to comply Para 30 of the Employees’ Provident
Funds Scheme, 1952. It, therefore, follows that the
deeming provision will not be applicable to them.

Needless to say, that they could not be said to have
committed a criminal breach of trust.”

16. In Sushil Kumar Bagla v. State, 2003 SCC OnLine Cal 62

it was held that a Director cannot be held liable for non-

depositing of an amount and is not an offence under Sections

406 and 409 the of IPC. It was observed:-

“11. Now explanation-I to section 405 provides that “a
person, being an employer, who deducts the employee’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 for 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”. Once it is
found that the employer deducted amounts from the
wages of the employees for contribution to the Provident
Fund and retaining the same without depositing it with
the fund, an automatic presumption is available against
the employer that he dishonestly used the amount of the
said contribution in violation of a direction of law. The
same view was expressed by the Supreme Court in Harihar

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
15
Neutral Citation No. ( 2024:HHC:7945 )

Prasad Dubey v. Tulsi Das Mundra, (1980) 4 SCC 120. While
expressing the said view Supreme Court quoted with
approval following observation of Madhya Pradesh High
Court in Akharbhai Nazrali v. Md. Hussain Bhai, AIR 1961

.

M.P. 37:–

“…. the mere fact of telling the employees that it is
their contribution to the Provident Fund Scheme

and then making deduction or recovery and
retaining it, constitutes the offence of criminal
breach of trust.”

12. Even before that in J.M. Desai v. State of Bombay, AIR

1960 SC 889, the Supreme Court held that to establish a
charge of the criminal breach of trust, the prosecution is
not obliged to prove precise mode of conversion,

misappropriation or misapplication by the accused of the
property entrusted to him or over which he has dominion.

The principal ingredient of the offence being dishonest
misappropriation or conversion which may not ordinarily
be a matter of direct proof, entrustment of property and

failure, in breach of an obligation, to account for the
property entrusted, if proved, may in the light of other
circumstances, justifiably lead to an inference of

dishonest misappropriation or conversion.

13. In Krishna Kumar v. Union of India, AIR 1959 SC 1390,

the Apex Court held that it is not necessary or possible in
every case to prove in what precise manner the accused
person dealt with or misappropriated the goods of his

master. The question is one of intention and not a matter
of direct proof. In the case of a servant charged with
misappropriating the goods of his master the ingredients
of criminal offence of misappropriation will be
established if the prosecution proves that the servant
received the goods, that he was under a duty to account to
his master and had not done so. If the failure to account
for an accidental loss then the facts being within the
servant’s knowledge, it is for him to explain the loss. It is
not the law of this country that the prosecution has to
eliminate all possible defences or circumstances which

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
16
Neutral Citation No. ( 2024:HHC:7945 )

may exonerate him. If these facts are within the
knowledge of the accused then he has to prove them. If
under the law it is not necessary or possible for the
prosecution to prove the manner in which the goods have

.

been misappropriated then failure of the prosecution to
prove facts it set out to prove the manner of
misappropriation or conversion would be of little

consequence.

14. It may be mentioned in this connection that both the
aforesaid decisions in Krishna Kumar and Harihar Prasad
Dubey (supra) were rendered by the Supreme Court long

before explanation-I was inserted in section 405 I.P.C. by
amendment in 1973. This explanation merely recognises
the law already decided by the Apex Court. The decision of
this court in Putul Chandra Dasgupta’s case appears to be a

judgment per incuriam as it was, rendered without

considering aforesaid three decisions of the Apex Court
and explanation-I to section 405 I.P.C.

15. The next contention of Mr Panja is that the petitioner

is not the employer of the employees whose
wages/salaries, and their contributions towards
Provident Fund were deducted. It is the company, namely,

Hanuman Tea Co. Ltd. which is the principal employer.
Petitioner is merely a Director of the said company. In

view of explanations 1 and 2 of section 405, I.P.C.
petitioner cannot be proceeded against in this case. Only
the company, being the employer, is liable to be

proceeded against in this case. In this regard, it may be
observed here that an FIR cannot be quashed merely on
the ground that the petitioner has been wrongly shown as
an offender in the FIR. If the FIR discloses a prima
facie case of cognizable offence, it cannot be quashed
merely on the ground that someone has been wrongly
arrayed as an accused or that in law no such case is
maintainable against a particular accused though it is
maintainable against some other accused. In such a case
only remedy available to an accused is to pray for
discharge after a charge sheet is filed against him. That

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
17
Neutral Citation No. ( 2024:HHC:7945 )

apart section 14A of the said EPF & MP Act, inter alia,
provides that “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 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.” Sub-
section (2) of section 14A further provides that
“Notwithstanding anything contained in sub-section (1),

where an offence under the Act or 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.”

Therefore, the Director of a company can very well figure
as an accused in an FIR for such offences. Of course,
ultimately if no material is found against the Director in

the course of the investigation about his involvement, he
may not be charge-sheeted. That apart a company cannot

act on its own. It always acts through human agency. A
company being a juristic person is incapable of having a
particular state of mind, namely, the mens rea under

section 405 I.P.C. Essential ingredient of the offence
under section 405 is a particular state of mind, namely,
dishonest misappropriation or conversion or use or
disposal of the property in question. A company, being a
juristic person, is incapable of having such a state of mind
and hence the company cannot be proceeded against for
the offences under sections 406 and 409 I.P.C. where
particular mens rea is an essential ingredient. Therefore,
it is only the natural persons through whom the company
committed the offences in question are liable to be
proceeded against for offences under sections 406 and

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
18
Neutral Citation No. ( 2024:HHC:7945 )

409. It may be pertinent to mention here that mens
rea like dishonest misappropriation or conversion or use
or disposal of the property in question is not an
ingredient for the offences contemplated under the

.

provisions of EPF & MP Act and hence, for offences under
the said Act, a company can be proceeded against though
it cannot be proceeded against for the offences under the

Penal Code, 1860. Therefore, the contention of Mr Panja
that the petitioner being a Director only cannot be
proceeded against and it is the company only which can
be proceeded against for the offences under sections

406/409 sounds like an absurd proposition and the same
is untenable in law. Accordingly same is rejected.

16. However, Mr. Panja referred to a decision of the Apex
Court in Employee’s State Insurance Corporation v. S.K.

Agarwal, (1998) 6 SCC 288: AIR 1998 SC 2676. In the said

decision it was held that in view of the definition of
‘principal employer’ as provided under section 2(17) read
with section 40 of the Employee’s State Insurance Act and
explanation 2 to section 405 I.P.C., it is the company

alone which can be proceeded against for offences under
sections 406/409 and not its Director. But the EPF & MP
Act does not contain any such provision in section 2(17)

and section 40 of the Employee’s State Insurance Act.
However, section 2(e) of EPF & MP Act defines the term

“Employer” which provides that “employer” means–

(i) in relation to an establishment which is a factory,

the owner or occupier of the factory, including the
agent of such owner or occupier, the legal
representative of a deceased owner or occupier and,
where a person has been named as a Manager of the
factory under clause (f) of sub-section (1) of section
7 of the Factories Act, 1948 (63 of 1948), the person
so named; and

(ii) in relation to any other establishment, the person
who, or the authority which, has the ultimate
control over the affairs of the establishment, and
where the said affairs are entrusted to a Manager,

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
19
Neutral Citation No. ( 2024:HHC:7945 )

Managing Director or managing agent, such
Managers, Managing Director or managing agent.

17. As the EPF & MP Act does not contain any such

.

provision similar to sections 2(17) and 40 of the

Employee’s State Insurance Act, there is no justification
to apply the decision of the Apex Court reported in (1998)
6 SCC 288. That apart this decision does not answer the

question as to how a juristic person like a company can be
prosecuted in respect of an offence under the Penal Code
where mens rea or particular state of mind is an essential
ingredient of such an offence. Otherwise, many decisions

of the Apex Court on this point will be rendered devoid of
any application. One can understand that in respect of
offences where mens rea or particular state of mind is not
an essential ingredient like these under the provisions of

the Employee’s State Insurance Act or EPF & MP Act, it

may be possible to prosecute a company. A company
being not a natural person cannot have a mind and hence
it can not have any particular state of mind or mens rea.
For all offences under the Penal Code, mens rea is always

invariably an essential ingredient and hence for such
offences none except natural persons can be prosecuted.
That a juristic person like a company cannot have a mind

is an undeniable fact of natural science and, therefore, on
the strength aforesaid decision of the Apex Court reported

in (1998) 6 SCC 288, I cannot be asked to deny this basic
proposition of natural science.”

17. This position was reiterated in Joydeb Basak v. State of

W.B., 2024 SCC OnLine Cal 5310, wherein it was held:-

“26. On the contrary, Ld. Counsel, Mr. Gupta appearing
on behalf of the opposite party no. 2 relied mainly on the
observation of the Hon’ble Apex Court in the case of
Srikanta Datta (supra) wherein it was held that the
expression ‘in charge of and responsible to the company
for the conduct of business’ is very wide and it includes
not only the owner or occupier but all those who have

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
20
Neutral Citation No. ( 2024:HHC:7945 )

control or are responsible for the affairs of the company.
The declaration, therefore, in form 5A including the
appellant therein as one of the persons in charge and
responsible for the affairs of the company means that he

.

can be prosecuted for violation of any provision of any
scheme.

27. In our case, a careful perusal of columns 8 and 10 of

form no. 5A under the EPF Scheme, 1952 shows that
petitioner no. 2 has given a self-declaration claiming
himself to be the owner as well as the occupier of the
establishment/petitioner no. 1.

28. Therefore, petitioner no. 2 is the owner and the
occupier of the company/petitioner no. 1 is the employer
within the meaning of Section 2 (e) of the EPF Act and

also explanation 1 to Section 405 of the IPC clearly speaks
that an employer of an establishment who deducts the

employee’s contribution from the wages payable to the
employee for the credit to a Provident Fund 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 aforesaid Act, he shall be deemed to have

dishonestly used the amount of the said contribution in
violation of a direction of law.

29. In the aforesaid view of the matter, I am unable to
quash the proceeding as subsequent payment of the due
amount made by the petitioner does not absolve his

liability which, at best, could be considered as a
mitigating circumstance only at the time of imposition of
sentence.”

18. It was held in Robin Paul v. State of West Bengal, 2008

SCC OnLine Cal 192 that the proceedings initiated against the

Director for non-depositing of the provident fund were liable to

be quashed under Section 482 of Cr.P.C. It was observed:-

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
21

Neutral Citation No. ( 2024:HHC:7945 )

“10. Having heard the learned advocates for the parties I
must say at the outset that criminal proceedings can only
be quashed and that too after submission of a charge
sheet only when it fails to disclose prima fade cognisable

.

offence. The decision in the State of Haryana v. Bhajan
Lal reported in 1992 Supp (1) SCC 335 and R.P. Kapur v. State
of Punjab reported in AIR 1960 SC 866, are the guidelines in

the matter of quashing of criminal prosecution. The only
question that has been argued is as to whether for the
purpose of prosecution of the petitioners under section
406/409 of the IPC, they can be prosecuted in the capacity

of director or not, and no other point has been agitated in
this revisional application. Having considered a good
number of decisions cited by the learned advocates for the
parties, I am clearly of the opinion that the judgment of

the Supreme Court in the case of S.K. Aggarwal (supra),

has given a complete answer to the question and this
court is bound by such decision. It has been held by their
Lordships in the said decision that in neither of
the Explanations under section 405 of the IPC is there

found anything to the effect that the directors of the
company or an establishment may be prosecuted under
section 405 of the IPC for the alleged commission of

criminal breach of trust.

11. In both Explanations 1 and 2 to section 405 of the IPC,

it is the person who is the employer, and who deducts the
employees’ contribution that is responsible for the

commission of the offence. Necessarily the question is
whether the person acting as director can be termed as
“employer” of the establishment and their Lordships in
the Supreme Court in the case of S.K. Aggarwal (supra)
have categorically stated that the word “employer” does
not include director. This decision has been followed by
other High Courts in the decisions which have been
referred to above. And the Supreme Court decision in the
case of Rabindra Chamaria v. Registrar of Companies, West
Bengal (supra) is in a different context. Their Lordships
analysed the persons who are responsible under section

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
22
Neutral Citation No. ( 2024:HHC:7945 )

14A and section 14(1A) of the EPF Act, 1952 for non-
payment of provident fund dues with the provident fund
authority. This decision has no manner of application to
the facts of the present cases. The Special Bench decision

.

is in relation to the case of the Employees’ Provident
Funds and Miscellaneous Provisions Act, 1952, and the
observation of their Lordships of this court in paragraph

66 is virtually an exposition of the word “employer” and
as such that exposition does not help us in any manner
whatsoever. The word “employer” as has been defined in
the EPF Act, 1952, is pari materia the same as in the ESI

Act, 1948, but the definition cannot cover the director
when such director is sought to be prosecuted for an
offence under section 405 of the IPC as it has been held by
the Supreme Court that the word “employer” does not

include director within any of the Explanations 1 and 2 to

section 405 of the IPC. This being the legal position I am
constrained to hold that launching of the prosecution
against the petitioners as directors of the establishment
is completely illegal and bad in law. They could have been

prosecuted under the Special Act but that has not been
done. In the circumstances, I find the revisional
applications are quite maintainable within the guidelines

of State of Haryana v. Bhajan Lal (supra).”

19. Karnakata High Court also took a similar view in S.V.

Ramaswami (supra) and observed as under:-

“5. A reading of the charge sheet indicates that the
alleged offences have been committed by Vishnu Textiles
Limited, Kampalapura, which is a company registered
under the Companies Act. The said company is not made
as an accused. The petitioner herein is prosecuted in his
capacity as the Managing Director of the said company.
The specific allegation in the charge sheet are that the
company has deducted the Employee contribution
amounting to Rs.2,10,665/- and failed to deposit the
same in the Provident Fund and Family Pension Fund.

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
23

Neutral Citation No. ( 2024:HHC:7945 )

There is no allegation that the petitioner herein collected
the said amount and failed to deposit the said amount. In
this context, the exposition of law made by the Hon’ble
Supreme Court in the case of S.K. Alagh Vs. State of Uttar

.

Pradesh and others reported in (2008) 5 SCC 662, referred
to supra would in my view could be squarely applies to the
facts of the case. Dealing with Sections 405 and 406 of

IPC, in the context of the provisions of the Act, in para 20
of the above judgment, the Hon’ble Supreme Court has
held as under:

“20. We may, in this regard, notice that the

provisions of the Essential Commodities Act, the
Negotiable Instruments Act, the Employees’
Provident Funds and Miscellaneous Provisions Act,
1952, etc. have created such vicarious liability. It is

interesting to note that Section 14-A of the 1952 Act

specifically creates an offence of criminal breach of
trust in respect of the amount deducted from the
employees by the company. In terms of the
Explanations appended to Section 405 of the Penal

Code, a legal fiction has been created to the effect
that the employer shall be deemed to have
committed an offence of criminal breach of trust.

Whereas a person in charge of the affairs of the
company and control thereof has been made

vicariously liable for the offence committed by the
company along with the company but even in a case

falling under Section 406 of the Penal Code
vicarious liability has been held to be not
extendable to the Directors or officers of the
company.”

As the prosecution is launched only against the petitioner
in his capacity as the Managing Director of the said
company, in my view, the facts alleged in the charge sheet
do not make out the offences under Sections 406 and 409
of IPC. Consequently, the prosecution initiated against
the petitioner cannot be sustained.”

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
24

Neutral Citation No. ( 2024:HHC:7945 )

20. Mr. Raman Sethi, learned counsel for respondent

No.2 heavily relied upon the following paragraph of S.K. Alagh

.

(supra), which reads as under:-

“20. We may, in this regard, notice that the provisions of

the Essential Commodities Act, the Negotiable
Instruments Act, the Employees’ Provident Funds and
Miscellaneous Provisions Act, 1952, etc. have created such
vicarious liability. It is interesting to note that Section 14-

A of the 1952 Act specifically creates an offence of
criminal breach of trust in respect of the amount
deducted from the employees by the company. In terms of
the Explanations appended to Section 405 of the Penal

Code, a legal fiction has been created to the effect that the

employer shall be deemed to have committed an offence
of criminal breach of trust. Whereas a person in charge of
the affairs of the company and control thereof has been
made vicariously liable for the offence committed by the

company along with the company but even in a case
falling under Section 406 of the Penal Code vicarious
liability has been held to be not extendable to the

Directors or officers of the company. (See Maksud
Saiyed v. State of Gujarat [(2008) 5 SCC 668 : (2007) 11 Scale

318] .)”

21. He submitted that the Hon’ble Supreme Court has

recognized the vicarious liability of the Director in view of

Section 14A of the Act. He also relied upon the judgment of the

Hon’ble Supreme Court in Shri Kanta (supra) in support of his

submission. This submission is not acceptable. The complaint

has not been filed under the provisions of the PF Act but under

Section 406 read with Section 409 of IPC. It was also held by the

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
25
Neutral Citation No. ( 2024:HHC:7945 )

Bombay High Court in EPFO Vs. State of Maharashtra 2018 SCC

Online Bombay 21291 that where the person was not being

.

prosecuted under the EPF Act but under the provisions of IPC,

the principle of vicarious liability cannot be incorporated. It was

observed:-

“11. I have carefully gone through the impugned order
and the judgments cited by the two sides and the ones

referred to by the learned Magistrate in the impugned
order. In my considered view, the foremost fact that
needs to be borne in mind is that admittedly, the

respondents are not being sought to be implicated for any
offence provided for under the EPF Act and are merely

sought to be prosecuted under the general law for
allegedly committing offences punishable under
Sections 406 and 409 of the IPC. The purpose for

emphasising this aspect is that the offence provided for
under Section 14A of the Employees Provident Fund Act
being a special statute is a technical offence. It seeks to

punish for violation of various provisions of the Act and
would therefore, need not have any mens rea on the part

of the persons responsible for committing such breach.

Whereas the offences punishable under
Sections 409 and 406 of the IPC essentially require the

existence of mens rea. Suffice for the purpose to
respectfully refer to and rely upon the observations of the
Supreme Court in the case of S.K. Alagh (supra) in
paragraph no. 20, which read as under:

“20] We may, in this regard, notice that the
provisions of the Essential Commodities Act, the
Negotiable Instruments Act,
the Employees’ Provident Funds and Miscellaneous
Provisions Act, 1952, etc. have created such
vicarious liability. It is interesting to note that
Section 14-A of the 1952 Act specifically creates an

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
26
Neutral Citation No. ( 2024:HHC:7945 )

offence of criminal breach of trust in respect of the
amount deducted from the employees by the
company. In terms of the Explanations appended to
Section 405 of the Penal Code, a legal fiction has

.

been created to the effect that the employer shall be
deemed to have committed an offence of criminal
breach of trust. Whereas a person in charge of the

affairs of the company and control thereof has been
made vicariously liable for the offence committed
by the company along with the company but even
in a case falling under Section 406 of the Penal

Code vicarious liability has been held to be not
extendable to the Directors or officers of the
company.”

12. As can be seen, these observations refer to the

provisions of the special enactments including the

Employees’ Provident Funds Act 1952 and even by
referring to the Explanation appended to Section 405 of
the IPC, it has been observed that a person in charge of
the affairs of the company has been made vicariously

liable for the offence committed by the company but in a
case falling under Section 406 of the IPC, the vicarious
liability is not extendable to the Director or Officer of the

company. The observations of the Supreme Court in the
earlier decision in the case of Maksud Saiyed v. State of

Gujrat, (2008) 5 SCC 668 are referred to while arriving at
such a conclusion. It is to be noted that though these

observations in the case of S.K. Alagh pertain to the
Director of a Company registered under the Companies
Act, the facts in the matter in hand do not make material
difference merely because the respondent no. 1 is a
factory registered under the Maharashtra Cooperative
Societies Act 1960. By virtue of Section 36 of that Act,
such a factory/society is also a body having perpetual
succession and a common seal and is a legal entity like a
company registered under the Companies Act. Therefore,
at first blush, the fact situation in the matter in hand can

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
27
Neutral Citation No. ( 2024:HHC:7945 )

be said to be governed by the decision of the Supreme
Court.

13. For that matter, even the observations of the Supreme

.

Court in the case of Employees State Insurance

Corporation v. S.K. Aggarwal, (1998) 6 SCC 288: AIR 1998 SC
2676 are broadly on the same lines. Though in that matter
the case was pertaining to the Employees’ State Insurance

Act, 1948 where the directions of a public limited
company were prosecuted for the offence punishable
under Section 406 of the IPC on their failure to deposit
the contribution deducted from the employees’ pay. It

was held that the Directors of the Company were not
covered by the definition of ‘principal employer’ as
defined under Sub Section 17 of Section 2 of that Act and
the proceeding was quashed by the High Court and was

sustained by the Supreme Court. It was also held that

when the owner of a factory is a company, it is the
company which is the principal employer and not its
Director. It was further observed that Section 40 of the
Employees’ State Insurance Act used the words ‘owner’

and ’employer’ disjunctively. The Supreme Court also
relied upon the Division Bench decision of this Court in
the case of Suresh Tulsidas Kilachand v. Collector of

Bombay, (1980) 2 LLJ 81 holding that the Director of a
company by virtue of being a Director is not principal

employer contemplated by Sub Section 17 of Section 2 of
the Employees’ State Insurance Act and would not be

personally liable to pay employer’s contribution under
that Act.

14. In view of such consistent decisions of the Supreme
Court, apparently no fault can be found with the
impugned order passed by the learned Magistrate by
referring to and relying upon the decision of the Supreme
Court in the case of S.K. Alagh (supra).

15. True it is that in the case of Sushilkumar Bagla (supra),
the learned Judge of the Calcutta High Court has refused
to rely upon the decision in the case of S.K.
Aggarwal (supra) by holding it to be per incuriam and in

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
28
Neutral Citation No. ( 2024:HHC:7945 )

doing so he has observed that the decision was rendered
without considering the statutory provisions and the
decisions of the Supreme Court. According to the learned
Judge, the decision in the case of S.K. Aggarwal referred to

.

the definition of ‘principal employer’ contained under
Sub Section 17 of Section 2 and Section 40 of the
Employees’ State Insurance Act but the EPF Act does not

contain similar provisions. It is observed that unlike the
offence under the I.P.C. mens rea is not a necessary
ingredient for the offence under the provisions of the EPF
Act.

16. In the matter in hand, as is pointed out at the
inception the respondents are not being sought to be
prosecuted for any offence punishable under the
provisions of the EPF Act and are being simply prosecuted

for the offences punishable under

Sections 406 and 409 of the IPC. The former may not
require but the latter would essentially require the
existence of such mens rea. Precisely for these reasons,
one cannot look into the definitions of ’employee’ and

’employer’ of a factory laid down under Clause 2(e) and
2(k) of the E.P.F. Act respectively. Had the respondents
been prosecuted for violation of some provisions of that

Act, certainly those definitions could have been gone into
and the role attributable to the respondents Directors and

office bearers could have been assessed. Since they are
being implicated merely for the offence under the

Sections of the IPC, in the absence of any mens rea on
their part, they cannot be allowed to face the trial. The
learned Magistrate has correctly appreciated the matter
in controversy and has rightly allowed the application
discharging the respondents. I find no infirmity in the
impugned order.”

22. Moreover, Section 14A makes the Company as well as

the person in charge not responsible to the Company for its

conduct liable. In the present case, the Company has not been

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
29
Neutral Citation No. ( 2024:HHC:7945 )

arrayed as an accused. It was held by Calcutta High Court in

Buddhadev Acharya vs. State of W.B., 2023 SCC OnLine Cal 2759

.

that when the Company was not prosecuted, it is not permissible

to prosecute the Managing Director. It was observed:-

“38. Accordingly under Section 14A of the
Employees’ Provident Funds & Misc. Provisions Act, 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.

39. Thus it is the company ‘Amritapur Tea Company Ltd.’
herein who is the ’employer’ in respect of its employees
and not the petitioner who is a director.

40. Thus the prosecution initiated against the director of
the company in his official capacity without arraying the
company itself as an accused cannot continue as no

offence under Section 406/409 IPC can be said to have
been committed by the director in his official capacity

without the company being made an accused with the
liability of the offence. It is trite law that vicarious
liability is unknown to criminal jurisprudence unless

specifically provided in the statute itself. As the Penal
Code does not provide for such provision, the
director/petitioner cannot be held responsible for any act
of the company who is the employer and is liable for
depositing the employees’ share of the provident fund
before the provident fund authority, without making the
company also an accused in the case.”

23. Therefore, the respondents cannot take advantage of

the provision of Section 14A of the EPF Act. First, there was no

::: Downloaded on – 05/09/2024 20:32:01 :::CIS
30
Neutral Citation No. ( 2024:HHC:7945 )

complaint under the EPF Act and secondly, the petitioner being

the Director of the Company cannot be prosecuted without

.

prosecuting the Company.

24. Consequently, the submission that the petitioner is

not liable for the non-deposit of the provident fund contribution

has to be accepted as correct. The continuation of the

proceedings against the petitioner, in these circumstances

would amount to abuse of the process of the Court.

25. Hence, the present petition is allowed and FIR No.

170 of 2022, dated 18.6.2018, registered at Police Station Haroli,

District Una, H.P. for the commission of offences punishable

under Sections 406 and 409 of IPC and the consequent

proceedings arising out of the same are ordered to be quashed

qua the petitioner.

(Rakesh Kainthla)
Judge
5th September, 2024
(Chander)

::: Downloaded on – 05/09/2024 20:32:01 :::CIS

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *