M J Antony: Vicarious liability tangle

A complaint for criminal negligence must name the director or officer who was specifically in charge of operations

M J Antony / New Delhi August 11, 2010, Business Standard

The normal assumption is that no one is criminally liable for the act of another. But an exception, which haunts company directors and top executives these days, is the rule of vicarious liability. It can ensnare anyone in the corporate ladder, whether it is in a mass disaster like Bhopal or a food adulteration case against a pizza chain. The trauma of defending oneself in a court of law for the fault of a low-ranking employee can be worse than the punishment itself.

This is an issue that comes up very often in all courts, civil or criminal, because many statutes have an identical provision which fixes responsibility on individuals for the wrongs committed by the company. Last week, the Supreme Court dealt with such a provision in the Insecticides Act, where an executive of the Reckitt & Coleman of India was in the dock (State of NCT vs Rajiv Khurana). The regional technical director of the company handling quality control of the firm’s products was facing prosecution for selling products below the Bureau of Indian Standards’ specifications. The Delhi High Court quashed the summons issued to him, but the Delhi government pursued him up to the Supreme Court. However, the government’s appeal was dismissed.

The typical provision, which is the nightmare of the honchos, reads: “Whenever an offence under this law has been committed by a company, every person who at the time of the offence … was in charge of, or 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.” The punishment is imprisonment and fine.

Thus, when a cheque issued by a company bounces for want of sufficient fund in the bank, the hunt is for the person who was “in charge of, or was responsible for the conduct of business”. The signatory of the cheque is clearly liable for the offence. In a leading case, the Supreme Court has stated that the managing director and the joint managing director are responsible under Section 141 of the Negotiable Instruments Act (SMS Pharmaceuticals Ltd vs Neeta Bhalla).

Though every partner in a firm is liable for its acts, there is no presumption that each of them knows about the transactions. Therefore, when a complaint is filed against a partner, it should be specifically asserted that he was in charge of the affairs of the firm (Monaben vs State of Gujarat).

The food inspector of the Delhi Municipal Corporation prosecuted the company, three of its directors and the manager for selling “Morton” brand toffees under the Prevention of Food Adulteration Act in 1983. The Delhi High Court quashed the prosecution because the Corporation could not show that those persons named were in charge of the company’s affairs.

The Supreme Court dealt with a case under the Drugs and Cosmetics Act in the State of Haryana vs Brij Lal Mittal (1998) case. It said that simply because a person was a director of the company, it did not necessarily mean that he was in charge of and responsible to the company for the conduct of its business. On the other hand, without being a director a person could be in charge of and responsible to the company for the conduct of its business.

The Delhi High Court dealt with the Vishnu Prakash Bajpai vs Sebi case which involved offences under the Sebi Act. The defendant submitted that he was a promoter of the company and was not even a director. The court directed that the facts must be ascertained before fixing the responsibility on him.

Last year, in the K K Ahuja case, the Supreme Court stated: “There may be many directors and secretaries who are not in charge of the business of the company at all. A person may be a director and thus belong to the group of persons making the policy, but yet may not be in charge of the business of the company; a person may be a manager who is in charge of the business but may not be in overall charge of the business; and a person may be an officer who may be in charge of only some part of the business.” This is especially so when currently there is a strong westerly wind of “job title inflation” sweeping the corporate field (Chief Receptionist Officer, Chief Blog Officer, Vice President-Transport…).

Though the law seems rather clear, it can still lead to long litigation and consequent harassment as well as hardships to accused persons. A Supreme Court judge said last week that the Bhopal case took 25 years to fix responsibility on the convicts; it may take another 25 years if it starts all over again and “none of the victims would be alive by then”.

http://www.business-standard.com/india/news/m-j-antony-vicarious-liability-tangle/404133/

For a more humane view

Chairman of the National Human Rights Commission (NHRC) and former Chief Justice of India K. G. Balakrishnan’s recent defence of the death penalty is bewildering. His “deterrent effect” argument is starkly at odds with the near universal understanding that the fundamental right to life implies, among others, the abolition of the death sentence. In the 1951 A. K. Gopalan case, the Supreme Court of India effectively allowed unlimited restrictions on the right to life and liberty, so long procedures prescribed by law were followed. In the Maneka Gandhi case some three decades later, however, the court limited the scope to those procedures that were “right, just and fair,” not “arbitrary, fanciful and oppressive.” Significantly, in a 1985 ruling where execution by public hanging was declared unconstitutional, the court made the stinging observation that “a barbaric crime does not have to be met with a barbaric penalty.” This is the sequence of illustrious verdicts that culminated in the apex court’s landmark judgment limiting the award of the death penalty to the “rarest of rare cases.” To be sure, the letter and spirit of that ruling has largely informed judicial opinion and public debate on capital punishment ever since. The Supreme Court has displayed sagacity and restraint in its appellate jurisdiction, even if the lower courts have tended to hand down the death penalty more readily. Recall the initial verdict and the subsequent pronouncements in the Rajiv Gandhi assassination case.

It should be fairly obvious to Justice Balakrishnan, more than to others, that his sanguine view on the legal safeguards for the death penalty is not borne out by facts on the ground. The accused in serious offences are often unable to get proper representation during trials; investigative agencies often resort to torture to extract confessions; and the complex web of corruption coupled with the suppression of evidence does not offer the assurance that no innocent person would be convicted. And, appealing to the higher judiciary is beyond the pale of the ordinary citizenry because of the huge cost. The cost-benefit analysis in terms of the “deterrent value” of capital sentence in the reduction of heinous crimes repudiates the very notion of punishment as a reformative process. The country’s premier body vested with the protection of human rights is expected to take a humane and sympathetic view to soften the law’s hard edges, and the right course for it would be to steer the public debate towards abolition.

http://www.thehindu.com/opinion/editorial/article562946.ece