Vicarious Liability Of Company Directors/Officials Not Automatic; Specific Statutory Provision & Personal Involvement Needed : Supreme Court
The Supreme Court noted that directors/officials cannot be held vicariously liable for a company's illegal actions unless it is demonstrated that the official personally engaged in the conduct directly linking them to the company's liability, and such liability is supported by a specific statutory provision.
“While a company may be held liable for the wrongful acts of its employees, the liability of its directors is not automatic. It depends on specific circumstances, particularly the interplay between the director's personal actions and the company's responsibilities. A director may be vicariously liable only if the company itself is liable in the first place and if such director personally acted in a manner that directly connects their conduct to the company's liability. Mere authorization of an act at the behest of the company or the exercise of a supervisory role over certain actions or activities of the company is not enough to render a director vicariously liable. There must exist something to show that such actions of the director stemmed from their personal involvement and arose from actions or conduct falling outside the scope of its routine corporate duties. Thus, where the company is the offender, vicarious liability of the Directors cannot be imputed automatically, in the absence of any statutory provision to this effect. There has to be a specific act attributed to the director or any other person allegedly in control and management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company.”, the court said.
A bench comprising Justices JB Pardiwala and R Mahadevan was hearing an appeal challenging the Punjab & Haryana High Court's decision to deny the quashing of an FIR filed against the appellants. The FIR alleged violations of Section 4 of the Punjab Land Preservation Act, 1900 (PLPA), involving the illegal uprooting of 256 trees in Gurugram using machinery, which caused environmental damage. The appellants hold managerial positions in Tata Realty and Infrastructure Limited and Tata Housing Development Co. Ltd.
The Appellants argued that they had been wrongly implicated in the criminal case as the complaint lacked specific allegations against their personal involvement in uprooting the trees. They further contended that they can't be held vicariously liable for the illegal acts of the company unless their personal involvement is shown, and such liability is supported by a specific statutory provision.
Setting aside the High Court's decision, the Court observed that mere association with the company is not enough to attract the vicarious liability of its officials. For attracting the corporate official's liability, the complainant needs to make a specific averment showing the liability of the officials because a presumption cannot be taken that every official of the company knows about the company's transaction, the court added.
“It is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so. Thus, an individual who has perpetrated the commission of an offence on behalf of a company can be made an accused, if the statute provides for such liability and if there is sufficient evidence of his active role coupled with criminal intent. The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening criminal liability on an officer of a company, there is no presumption that every officer of a company knows about the transaction in question.”, the court observed.
The Court noted that as per the scheme of the 1990 Act, there is no vicarious liability that can be attached to any of the directors or any office bearers of the company. It also noted that there are no allegations in the complaint that the three appellants are directly responsible for the uprooting of the trees.
Vicarious Liability Arises Only If There Are Specific And Substantiated Allegations Attributing Particular Role Or Conduct To Such Director
“At the same time, wherever by a legal fiction the principle of vicarious liability is attracted and a person who is otherwise not personally involved in the commission of an offence is made liable for the same, it has to be specifically provided in the statute concerned. When it comes to penal provisions, vicarious liability of the managing director and director would arise provided any provision exists in that behalf in the statute. Even where such provision for fastening vicarious liability exists, it does not mean that any and all directors of the company would be automatically liable for any contravention of such statute. Vicarious Liability would arise only if there are specific and substantiated allegations attributing a particular role or conduct to such director, sufficient enough to attract the provisions constituting vicarious liability and by extension the offence itself.”
The Court noted that “the High Court failed to pose unto itself the correct question i.e., as to whether the complaint even if given face value and taken to be correct in its entirety would lead to the conclusion that the appellants herein were personally liable for the offence under Section 4 of the Act, 1900 made punishable under Section 19 of the Act, 1900.”
The Court also referred to the precedents such as Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd. (2010), Sham Sunder v. State of Haryana (1989), and Sunil Bharti Mittal v. CBI (2015) to observe that directors/officers of the company cannot be made accused for corporate offences in the absence of allegations of their active involvement.
Because the complaint lacked specific allegations to establish personal liability, the Court quashed the criminal proceedings against the appellants.
Accordingly, the Appeal was allowed.
Appearance:
For Petitioner(s) Ms. Meenakshi Arora, Sr. Adv. Mr. Sumesh Malhotra, Adv. Mr. Vikas Singh, Adv. Mr. Pawan Bhardwaj, Adv. Mr. Jayesh Yadav, Adv. Mr. Yashvi, Adv. Ms. Russai Sidhu, Adv. Ms. Chitra Singh, Adv. Mr. Lokesh Kumar Choudhary, AOR
For Respondent(s) Mr. Akshay Amritanshu, AOR Ms. Drishti Saraf, Adv. Ms. Pragya Upadhyay, Adv. Ms. Swati Mishra, Adv.
Case Title: SANJAY DUTT & ORS. VERSUS THE STATE OF HARYANA & ANR.
Citation : 2025 LiveLaw (SC) 32