Himachal Pradesh High Court
Umesh Phalpher vs State Of H.P. And Another on 4 September, 2024
Neutral Citation No. ( 2024:HHC:7945 )
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA
Cr. MMO No. 206 of 2018
.
Reserved on: 6.8.2024
Date of Decision: 4.9.2024.
Umesh Phalpher ...Petitioner
Versus
State of H.P. and another
Coram
r to ...Respondents
Hon’ble Mr Justice Rakesh Kainthla, Judge.
Whether approved for reporting?1 Yes.
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
respondents No.2 and 3.
Rakesh Kainthla, Judge
The petitioner has filed the present petition for
quashing of FIR No. 57 of 2013, dated 6.4.2013, registered at
Police Station Dhalli, District Shimla, H.P. for the commission of
offences punishable under Sections 406, 409 and 120-B of IPC
and the consequent proceedings against the petitioner in case
1
Whether reporters of Local Papers may be allowed to see the judgment? Yes.
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Neutral Citation No. ( 2024:HHC:7945 )
No. 80-2 of 2014, titled State of H.P. Vs. Umesh Phalpher pending
before learned Additional Chief Judicial Magistrate, Court No.1,
.
Shimla, H.P.
2. Briefly stated, the facts giving rise to the present
petition are that the informant/respondent No.2 made a
complaint to the police asserting that M/s U.G. Hotel and Resorts
Ltd., Shilon Resorts, Village Shilonbagh, P.O. Mundaghat, Tehsil
and District Shimla, H.P. is an establishment covered under the
provisions of Employees Provident Fund and Miscellaneous
Provisions Act, 1952 and schemes framed thereunder. The
employer of the establishment is under an obligation to deduct
the employees’ share from their wages/salaries every month and
to deposit it in the statutory fund along with the employer’s
share. The informant found that the Company had deducted the
employees’ share of contribution from their wages/salaries for
the period 4/2011 to 2/2013 but failed to deposit it in the statutory
fund. The employer was guilty of a criminal breach of trust. The
police registered the FIR for the commission of offences
punishable under Sections 406, 409 and Section 120-B of the
IPC. The police seized the record and found that the petitioner
was the Managing Director of Shilong Bag Resorts. The details of
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Neutral Citation No. ( 2024:HHC:7945 )
the expenses of the Resort were sent to the Managing Director.
The Managing Director made the payment to various persons
.
through cheques. The EPF contribution was deducted from the
salaries of the employees from April 2011 till February 2013 but
this amount was not deposited. The Managing Director failed to
deposit the amount despite repeated calls to him. It was found
that there was no negligence of any other person; hence, Sections
409 and 120-B of the IPC were deleted and a challan was filed
against the petitioner for the commission of an offence
punishable under Section 406 of the IPC.
3. Being aggrieved from the registration of FIR and the
submission of the charge sheet, the petitioner filed the present
petition asserting that the proceedings initiated against him
amount to an abuse of the process of law. The petitioner is the
Director of the Company and he does not fall within the
definition of Employer under the EPF Act. Proceedings cannot be
continued against him. No money was entrusted to him and he
was not liable to deposit any money. The petitioner himself is an
employee of the Company and is drawing a monthly salary. The
Company had employed the employees and they are liable to
deduct the provident fund contribution and deposit the same.
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Neutral Citation No. ( 2024:HHC:7945 )
There is nothing on record to show that the petitioner had
misappropriated the money. He can not be held liable for the
.
commission of an offence punishable under Section 406 of IPC;
hence, it was prayed that the present petition be allowed and the
FIR and consequent proceedings arising out of the same be
quashed.
4. The petition is opposed by filing a reply by respondent
No.1/State making preliminary submissions regarding lack of
maintainability and the petition raising highly disputed
questions of fact. The contents of the petition were denied on
merits. It was asserted that the police conducted the
investigation and a prima facie case was found against the
petitioner; hence, the charge sheet was filed before the Court
against the petitioner. The petitioner was Managing Director of
U.G. Hotel and Resorts Ltd. He failed to deposit the EPF
contribution of the employees and the employer. The challan has
been filed before the learned Trial Court which is seized the
matter. Therefore, it was prayed that the present petition be
dismissed.
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Neutral Citation No. ( 2024:HHC:7945 )
5. The contents of the petition were denied on merits. It
was asserted that the petitioner embezzled the amount of
.
₹5,83,184/- towards the employees’ share of the provident fund.
He deposited ₹5,78,808/- after registration of 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 amount and thereby the petitioner committed an
offence punishable under Sections 406 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.
6. No separate reply was filed by the informant.
7. 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 respondents No.2 and 3.
8. 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
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Neutral Citation No. ( 2024:HHC:7945 )
Company is a juristic person, 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.
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, Cr. Revision No. 1638 of 2016, decided on
21.6.2018 in support of his submissions.
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Neutral Citation No. ( 2024:HHC:7945 )
9. 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.
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.
10. Mr. Raman Sethi, learned counsel for respondents
No.2 and 3 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.
11. I have given considerable thought to the submissions
made at the bar and have gone through the records carefully.
12. The parameters for exercising jurisdiction under
Section 482 of Cr.P.C. were laid down by the Hon’ble Supreme
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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 Courtin the case of Indian Oil Corporation v. NEPC India Limited
(2006) 6 SCC 736: 2006 INSC 452 after 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 criminalproceedings 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) SCC335: 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 IndustriesLtd. [(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
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Neutral Citation No. ( 2024:HHC:7945 )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 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
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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.
13. 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 whichwe have extracted and reproduced above, we give the
following categories of cases by way of illustration
wherein such power could be exercised either toprevent abuse of the process of any court or otherwise
to secure the ends of justice, though it may not bepossible to lay down any precise, clearly defined and
sufficiently channelised and inflexible guidelines or
rigid formulae and to give an exhaustive list of myriadkinds 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,
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Neutral Citation No. ( 2024:HHC:7945 )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
collected in support of the same do not disclose
the commission of any offence ce and make out acase against the accused.
(4) Where the allegations in the FIR do not
constitute a cognizable offence but constitute
only a non-cognizable offence, no investigationis 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 theaccused.
(6) Where there is an express legal bar engrafted
in any of the provisions of the Code or theconcerned Act (under which a criminal
proceeding is instituted) to the institution andcontinuance of the proceedings and/or where
there is a specific provision in the Code or theconcerned 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
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Neutral Citation No. ( 2024:HHC:7945 )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 that the
extraordinary or inherent powers do not confer
an arbitrary jurisdiction on the court to act
according to its whim or caprice.”
14. 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 notpersonally liable to pay contributions under the
Employees’ State Insurance Act, 1948. The Court wasconsidering 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. TheCourt 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
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Neutral Citation No. ( 2024:HHC:7945 )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.”
15. 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 orconvert to his own use that property, or dishonestly use
or dispose of that property or wilfully suffer any otherperson to do so;
(3) that such misappropriation, conversion, use or
disposal should be in violation of any direction of lawprescribing 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
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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].)”
.
16. 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 theEmployees’ State Insurance Act, 1948 and Para 30 of the
Employees’ Provident Funds Scheme, 1952 are parimateria.
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
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Neutral Citation No. ( 2024:HHC:7945 )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 Funds
Scheme and after having gone through the judgment of
the Hon’ble Supreme Court in the matter of S.K. Agrawaland 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 notfall 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 applicableto them. Needless to say, that they could not be said to
have committed a criminal breach of trust.”
17. 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’scontribution 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
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Neutral Citation No. ( 2024:HHC:7945 )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
Prasad Dubey v. Tulsi Das Mundra, (1980) 4 SCC 120. While
expressing the said view Supreme Court quoted withapproval 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
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Neutral Citation No. ( 2024:HHC:7945 )
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 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
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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
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
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Neutral Citation No. ( 2024:HHC:7945 )
natural persons through whom the company committed
the offences in question are liable to be proceeded against
for offences under sections 406 and 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
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Neutral Citation No. ( 2024:HHC:7945 )
(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,
.
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.”
18. 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::: Downloaded on – 05/09/2024 20:30:46 :::CIS
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Neutral Citation No. ( 2024:HHC:7945 )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.
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 andresponsible 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 thatan 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 bedeemed to have been entrusted with the amount of the
contribution so deducted by him and if he makes default inthe 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 inviolation 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.”
19. It was held in Robin Paul v. State of West Bengal, 2008
SCC OnLine Cal 192 that the proceedings initiated against the
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Neutral Citation No. ( 2024:HHC:7945 )
Director for non-depositing of the provident fund were liable to
be quashed under Section 482 of Cr.P.C. It was observed:-
.
“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 sheetonly 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 inthe 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 capacityof 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), hasgiven 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 ofthe Explanations under section 405 of the IPC is there
found anything to the effect that the directors of thecompany 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::: Downloaded on – 05/09/2024 20:30:46 :::CIS
23
Neutral Citation No. ( 2024:HHC:7945 )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.
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 tothe 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 paragraph66 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 ESIAct, 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 tosection 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 iscompletely illegal and bad in law. They could have been
prosecuted under the Special Act but that has not beendone. In the circumstances, I find the revisional
applications are quite maintainable within the guidelines
of State of Haryana v. Bhajan Lal (supra).”
20. 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::: Downloaded on – 05/09/2024 20:30:46 :::CIS
24
Neutral Citation No. ( 2024:HHC:7945 )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. 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’bleSupreme 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 Actspecifically creates an offence of criminal breach of
trust in respect of the amount deducted from the
employees by the company. In terms of theExplanations appended to Section 405 of the Penal
Code, a legal fiction has been created to the effectthat 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
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Neutral Citation No. ( 2024:HHC:7945 )
of IPC. Consequently, the prosecution initiated against the
petitioner cannot be sustained.”
21. Mr. Raman Sethi, learned counsel for respondents
.
No.2 and 3 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 andMiscellaneous 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 theemployees 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 thecompany 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 Section406 of the Penal Code vicarious liability has been held to
be not extendable to the Directors or officers of thecompany. (See Maksud Saiyed v. State of Gujarat [(2008) 5
SCC 668 : (2007) 11 Scale 318] .)”
22. 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 EPF Act but under
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Neutral Citation No. ( 2024:HHC:7945 )
Section 406 of IPC. It was held by the 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 referredto 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 beingsought to be implicated for any offence provided for under
the EPF Act and are merely sought to be prosecuted underthe general law for allegedly committing offences
punishable under Sections 406 and 409 of the IPC. The
purpose for emphasising this aspect is that the offenceprovided for under Section 14A of the
Employees Provident Fund Act being a special statute is a
technical offence. It seeks to punish for violation ofvarious provisions of the Act and would therefore, need
not have any mens rea on the part of the personsresponsible for committing such breach. Whereas the
offences punishable under Sections 409 and 406 of
the IPC essentially require the existence of mensrea. 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 20:30:46 :::CIS
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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 theaffairs of the company and in 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 ofthe 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 incharge 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 be said to be governed by the
decision of the Supreme court.
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Neutral Citation No. ( 2024:HHC:7945 )
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 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
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Neutral Citation No. ( 2024:HHC:7945 )
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 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 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 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.”
23. 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
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
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Neutral Citation No. ( 2024:HHC:7945 )
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 incharge 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 punishedaccordingly.
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 havebeen 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 liabilityis unknown to criminal jurisprudence unless specifically
provided in the statute itself. As the Penal Code does notprovide 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’ shareof provident fund before the provident fund authority,
without making the company also an accused in the case.”
24. Therefore, the respondents cannot take advantage of
the provision of Section 14A of EPF Act. First, there was no
complaint under the EPF Act and secondly, the petitioner being
the Director of the Company cannot be prosecuted without
prosecuting the Company.
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Neutral Citation No. ( 2024:HHC:7945 )
25. 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.
26. Hence, the present petition is allowed and FIR No. 57
of 2013, dated 6.4.2013, registered at Police Station Dhalli,
District Shimla, H.P. for the commission of offence punishable
under Sections 406, 409 and 120-B of IPC and the consequent
proceedings arising out of the same are ordered to be quashed
qua the petitioner.
(Rakesh Kainthla)
Judge
4th September, 2024
(Chander)
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