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Andhra High Court · body

2005 DIGILAW 915 (AP)

N. P. S. Shinh v. State Of A. P.

2005-09-28

A.GOPAL REDDY

body2005
( 1 ) THIS criminal petition is filed under Section 482 Cr. P. C. for quashing the fir No. 189 of 2005 registered by the sanathnagar Police Station, Cyberabad district for the alleged offence punishable under Sections 406 and 409 IPC on the complaint made by the Provident Fund enforcement Officer. ( 2 ) SRI Vedula Venkataramana, learned Counsel for the petitioner contends that petitioner being the Managing Director of M/s. Bakelite Hylam Limited, which is a sick Company and registered as such in case No. 356 of 2001 with the Board for industrial and Financial Reconstruction (BIFR) in which rehabilitation package was under consideration by BIFR and it passed an order dated 10-11-2004 ordering that there should be change in the management of the Company or in the alternative the Company should go for winding up. Against the said order, Company preferred an appeal before the Appellate authority for Industrial and Financial reconstruction under Section 25 of the Sick industrial Companies (Special Provisions) act, 1985, which is pending. Since the company has become sick as early as in 2001, it is unable to pay salaries and provident fund contribution amounts in time and the same is under consideration of the appellate authority in which draft rehabilitation scheme was circulated to all the concerned including the P. F. authorities inviting objections on the complaint lodged by the Enforcement officer. Therefore, registering the case against the petitioner is nothing but an abuse of process of law. Further it was contended that the Company is the employer but not the Managing Director of the company. In the absence of any mens rea, the Managing Director cannot be prosecuted for the offence, which is liable to be quashed. ( 3 ) PER contra, learned Counsel for the 2nd respondent-complaint contends that when once the petitioner failed to contribute the P. F. amounts deducted from the salaries of its employees, numbering 640, under the provisions of the Employees Provident funds and Miscellaneous Provisions act, 1952 (for short the Act) it amounts to Criminal Breach of Trust within the meaning of Section 405 IPC and punishable under Section 409 IPC, thus contended that complaint lodged by the 2nd respondent cannot be quashed. In view of explanations (1) and (2) to Section 405 IPC and the definition of "employer" under Section 2 (exii) of the Act, it is the Managing Director who will have the control over the affairs of the company deemed to have been entrusted with the amount so deducted by the employer and in default in payment of such contribution to the Fund shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law. Therefore, petitioner is liable to be proceeded for the said amount and the same cannot be quashed at the threshold. ( 4 ) IN reply to the said submission, learned Counsel for the petitioner contended that when the Company is a juristic person, at the most it can be punished with fine, but the Managing Director of the Company cannot be imprisoned unless the Statute provides mandatory sentence of imprisonment and no prosecution can be launched against the Managing Director. ( 5 ) IT is convenient to consider these submissions made in the context of the word "employer" defined under Section 2 (3) (ii) of the Act and explanations (1) and (2) of section 405 IPC, which read thus: 2 (e) (ii) 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 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 (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 manager, managing director or managing agent. Section 405 Criminal Breach of Trust : whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so do to, commits "criminal breach of trust". Explanation1 A person, being an employer of an establishment whether exempted under Section 17 of the employees" Provident Funds and miscellaneous Provisions Act, 1952 (19 of 1952) or not who deducts the employee s contribution 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. Explanation2 A person, being an employer, who deducts the employee s contribution from the wages payable to the employee for credit to the Employees State insurance Fund held and administered by the Employees State Insurance Corporation established under the Employees State insurance Act, 1948 (34 of 1948), shall be deemed to have been entrusted with the amount of 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 Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid. ( 6 ) THE employer as defined under the act is the person who 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 manager, managing director or managing agent shall be deemed to be the employer for the purpose of the Act. ( 6 ) THE employer as defined under the act is the person who 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 manager, managing director or managing agent shall be deemed to be the employer for the purpose of the Act. ( 7 ) IN view of amendment to explanations (1) and (2) of Section 405 IPC a person being an employer who deducts the employee s contributions from the wages payable to the employee for credit to a provident Fund or Family Pension Fund 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 Act, shall be deemed to have dishonestly used the amount of the said amount in violation of a direction of the act. ( 8 ) ADMITTEDLY, petitioner being the managing Director of the Company has the ultimate control over the affairs of the establishment. Whether the said affairs are entrusted to the manager or managing agent or not is a matter which cane be made known only during the course of investigation. If it is established that the petitioner has the ultimate control over the affairs and management and was entrusted with the affairs of the company, he is deemed to be an employer as per explanations (1) and (2) of Section 405 IPC and shall be deemed to have been dishonestly used the amount of the said contribution so deducted from the employees and failed to credit the same to the Fund. ( 9 ) PRIMA facie, the complaint do discloses a cognizable offence. At this stage the Court cannot go into the question and enquire whether the Managing Director has over all control and liable to be proceeded or not. However, it is too early to contend that the Managing Director is not liable for the alleged offence and complaint needs to be quashed, as the case do not fall under any of the exceptions enumerated in bhajanlal v. State of Haryana, 1992 Supp. (1) SCC 335 = AIR 1992 SC 604 . ( 10 ) CRIMINAL petition is accordingly dismissed.