Supreme Court Ruling: Are Company Directors Free from Criminal Liability?

Directors Not Vicariously Liable for Crime of Company – Supreme Court

M/s. Thermax Ltd. & Ors. Vs. K.M. Johny & Ors. (Supreme Court)

In the appeal case 'M/s Thermax Ltd vs K M Johny', the Supreme Court stated that "though civil law recognizes the principle of 'vicarious liability' of directors of companies, the concept is not acknowledged in criminal law."

In this case, the company was accused of criminal offences, and the directors were also named in the complaint case moved by a contracting party due to disputes over the termination of the agreement.

Earlier, the Bombay High Court had allowed the prosecution to proceed.

On appeal, the Supreme Court quashed the complaint and set aside the High Court order.

The Supreme Court stated that there was no specific allegation against the members of the board of directors or senior executives, but they have been roped in for being in the management of the company.

The offence of cheating and misappropriation of property could be filed only against the company and not against the persons in such circumstances, the court said. Provisions of the Negotiable Instruments Act and the Industrial Disputes Act cannot be imported into the offences under the Indian Penal Code, the judgment explained.

Regards,
Kamal

This will become a landmark decision of the Apex Court. Rajan Associates, please see https://www.citehr.com/285737-legal-...-industry.html.

In the above case, there has been no direct connection between the company accused of the crime and its director (as per the Supreme Court observation). The reason the case must have been lost is that the malice in the intention of the directors of the company could not be proved.

I doubt if this has set a right precedent. I am sure a strong case of a similar nature will be decided by the bench, and then this judgment of the Supreme Court will be quashed. However, much cannot be said as there is no copy of the judgment available.

Regards,
Octavious

This judgment is very good for an employer as it helps top management to concentrate/focus on important issues and relieves them of getting entangled in legal cases over which they normally have no control.

Thermax has its plant in Baroda, and the management appears good to me. The infrastructure was also fine. I interviewed for an administrative position two years ago.

Anyways, thanks for the post.

Regards,
Manish S. Joshi

Dear Pon1965, the judgment is not confusing because it states that the director is not vicariously liable for the company's actions due to a lack of evidence demonstrating a connection between the company and its director.

This judgment does not imply that no director is liable. Rather, it signifies that no director is vicariously liable for the company's actions, particularly regarding the intent of the directors and its relation to the company's conduct, which cannot be proven.

Regards,
Octavious

Mr. Octavious is right. This is what the judgment actually means. I am going through the judgment, then I will be in a position to explain clearly.

Regards,
Kamal

A good topic/case study for discussion in this forum. Like Octavious mentioned, what the Supreme Court judgment was trying to do—at least to the extent I can understand it—was to differentiate between a 'carte blanche' linking of any/all director(s) with the actions of the company through the executives and the directors actually involved in the day-to-day operations of the company. This aspect came out clearly in the Satyam case after Ramalinga Raju's confession, when many directors staying in the USA were brought into the picture. Please do share the details of the judgment.

Regards,
TS

Please consider the following question and answer my questions:

A written complaint has been filed by the canteen contractor of a company with the police against the company. Consequently, the Factory Manager and Senior Manager-Personnel (Head of the user department since the canteen falls under Personnel) have applied for anticipatory bail in court. However, their bail plea was subsequently rejected by the High Court.

1. What will be the consequence?
2. Is this case against the individuals or their positions? What will happen if the Factory Manager resigns at this juncture?

Liability of Factory and Personnel Managers in Legal Complaints

Since the Factory Manager and Personnel Manager hold positions responsible for the day-to-day affairs of the company, the person holding the position is accountable for the decisions taken during their tenure. Therefore, a complaint is filed against the person, not against the post. Even if they resign, they will have to appear before the court when the date for the hearing is fixed by the court. In the case of absence on the date of the hearing, if they remain absent in court for a criminal complaint, the Judge may order the issuance of a non-bailable warrant against them.

Regards,
Rdw