Directors/ managers can't be prosecuted and punished merely because the Company violated the law

The Hon'ble Supreme Court ("SC") in the matter of Dayle De'Souza v. Government of India [SPECIAL LEAVE PETITION (CRL.) NO. 3913 OF 2020 dated October 29, 2021], held that a person cannot be prosecuted and punished merely because of their status or position as a director, manager, secretary or any other officer in a company unless the offence in question was committed with their consent or connivance or is attributable to any neglect on their part.

Factually, Dayle De'Souza ("the Appellant") is a director of M/s. Writer Safeguard Pvt. Ltd. ("the Company"). In 2009, the Company had entered into an agreement for Servicing and Replenishment of Automated Teller Machines ("ATMs") with M/s. NCR Corporation India Private Ltd. the latter having earlier entered into an agreement with the State Bank of India for maintenance and upkeep of the State Bank of India's ATMs. On February 19, 2014 the Labour Enforcement Officer (Central) had inspected the State Bank of India's ATM and on March 06, 2014, a notice was issued by the Labour Enforcement Officer (Central) to the Appellant and one Vinod Singh, Madhya Pradesh head of M/s. Writer Safeguard Pvt. Ltd. alleging non-compliance with the provisions of the Minimum Wages Act, 1948 ("the Wages Act") and Minimum Wages (Central) Rules, 1950 at the ATM. On April 02, 2014 the Company responded claiming that they neither manage nor work at the ATM. After more than four months, the Labour Enforcement Officer (Central), by letter dated August 08, 2014 informed the Appellant and Vinod Singh that they were required to appear in the court on August 14, 2014. On 14th August 2014, the Labour Enforcement Officer (Central) filed a criminal complaint before the Court of the Chief Judicial Magistrate, Madhya Pradesh under Section 22A of the Wages Act. Moreover only two individuals have been enlisted as accused namely the Appellant and Vinod Singh and The Company is not enlisted as an accused in the complaint and has not been summoned to stand trial.

On the date of presentation of the complaint, the Judicial Magistrate, Madhya Pradesh took cognizance of the offence and issued a bailable warrant against the Appellant and Vinod Singh. On August 01, 2015, the Company submitted a detailed representation to the Deputy Chief Labour Commissioner (Central), Jabalpur, Madhya Pradesh denying the contents of the notice dated March 06, 2014.

Thereafter, on August 01, 2015 the Appellant filed a petition under Section 482 of the Code of Criminal Procedure, 1973 before the Hon'ble High Court of Madhya Pradesh for quashing the complaint. By the impugned order in M.Cr.C. No. 846/2016 dated January 20, 2020. The High Court dismissed the petition as sans merit.

The Hon'ble Supreme Court held that a person cannot be prosecuted and punished merely because of their status or position as a director, manager, secretary or any other officer, in a company unless the offence in question was committed with their consent or connivance or is attributable to any neglect on their part. SC further in light of Section 22C of the Wages Act said that vicarious liability would be attracted only when the offence was committed with the consent, connivance, or is attributable to the neglect on the part of a director and not merely because the person holds a responsible post in the company.

Further, the SC said that arresting directors and officers of a company without them having even any remote role in the perpetration of the alleged violation of law by the company is fraught with serious consequences and must be avoided at all costs. And Initiation of prosecution and summoning of an accused to stand trial has serious consequences. They extend from monetary loss to humiliation and disrepute in society, sacrifice of time and effort to prepare defence and anxiety of uncertain times. Criminal law should not be set into motion as a matter of course or without adequate and necessary investigation of facts on mere suspicion, or when the violation of law is doubtful and it is the duty and responsibility of the public officer to proceed responsibly and ascertain the true and correct facts. Execution of law without appropriate acquaintance with legal provisions and comprehensive sense of their application may result in an innocent being prosecuted. Resultantly, and for the reasons stated above SC allowed the present appeal and quash the summoning order and the proceedings against the present Appellant.