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Karnataka High Court · body

2014 DIGILAW 143 (KAR)

Naseer Ahmed v. Director, ESI Corporation

2014-02-13

RAM MOHAN REDDY

body2014
Judgment 1. Petitioner, one of the directors of M/s Bombay Rayon Fashions Limited-Unit 16, (for short 'company'), a Company incorporated under the Companies Act, 1956 and registered in the State of Karnataka, when accused of commission of offence of failure to pay contribution under The Employees' State Insurance Act, 1948 ('the Act' for short) which he was liable to pay under Section 85(A) of the Act, in C.C. No. 176/2013 before the Special Court Economic Offences, Bangalore, instituted by the respondent, and over which cognizance was taken and summons issued, has presented this petition for a writ of certiorari to quash the criminal prosecution. 2. The Department of Factories and Boilers, in the State of Karnataka, under the Factories Act, 1948 (for short 'Factories Act'), issued a licence, Annexure-A, to the company, to carry on its business at the factory located in Bangalore, followed by renewal of the said licence for the year 2013, Annexure-B, in Form No.2 under Rules 4(1), 7 (2) and 12 of the Factories Act and Rules 1948. indicating that one Saravanan, the 4th accused, is the Manager of the factory for the purposes of the Factories Act, while Uday C.Mogre, the 2nd accused, as its Director. 3. The respondent-Employees' State Insurance Corporation (for short 'ESIC'), sought for details of ownership of the company in the format issued by it whence the company submitted the format duly filled up, dated 19.02.2013, and acknowledged on the same day, Annexure-C. In the said form against column Mo.3 "particulars of owner", the name is shown as 'Uday C. Mogre', and against "status", as 'Director'. As against column No.5, the "particulars of Manager/' occupier, if registered under the Factories Act'', the name of 'Saravanan' mentioned, and as against column No.6, the same name is mentioned as the person in charge of all matters and responsible for conducting the business of the Factory. Enclosed to Annexure-C is the list of names and particulars of all the Directors of the Company; including the name of the petitioner. 4. Uday C. Mogre, submitted 'return of contribution' dated 15 J 12010, Annexure-D, indicating the contributions of both employer and employees for the period April 2010 to September 2010; for the period October 2010 to March 2011, Annexure-E; for the period April 2011 to September 2011, Annexure-F; for the period October 2011 to March 2012, and April 2012 to June 2012, Annexures-G and H, respectively. For the period October 2012 to March 2013, Uday C. Mogre, submitted the return, Annexure-J. 5. The Director of ESIC, is said to have by order dated 20.08.2013 accorded sanction under Section 86A(1) of the Act to prosecute the Company and its Directors for commission of offence under Section 85(A) of the Act, alleging that the petitioner and others being 'Principal Employer' were responsible and liable to pay the contributions for the period July 2012 to January 2013 6. The respondent, on the basis of the sanction order of the directoi" presented a complaint petition invoking Section 200 of the Code of Criminal Procedure, 1898 registered as C.C. No. 176/2013, Annexure-K, over which the Presiding Officer, Court for Economic Offences, Bangalore, took cognizance and directed the issue of summons dated 06.09.2013, Annexure-L to all the accused, including petitioner to appear in person on 17.10.2013. 7. According to the petitioner, along with him Uday C. Mogre is another Director while Saravanan is the Manager, arraigned as accused No.3, and accused Nos.2 and 4 respectively, while the company as accused No. l. Accused Nos.2 and 4, on receipt of summons, appeared before the Court, which recorded their plea of guilt and when imposed with fine, paid Rs.5,000/- each, under challan dated 12.11.2013, Annexure-N. Hence this petition to quash the said proceeding. 8. Petition is opposed by filing statement of objections of the respondent, inter-alia contending that petitioner along with another director and the manager of the company are accused of commission of offence under Section 85(A) of the Act, being the 'Principal Employer' for the purpose of Section 86-A of the Act, hence liable to be prosecuted. In addition, it is asserted that C.C. No. 178/2013 pertains to the Companies Unit No. 114 and not to the Company in question, hence has no relevance to the lis brought before Court. 9. Heard the learned counsel for the parties and perused the pleadings. Regard being had to the definitions of the terms 'Occupier' under Section 2(15) of the Act as assigned in Section 2(n) of the 'Factories Act', read with definition of the term 'Principal Employer' under Section 2(17) of the Act, there can be no dispute that under Section 40 of the Act the "Principal Employer' is liable to pay the contribution under the Act. It is not in dispute that the factory is run by a company and as such the owner of the factory is the company. The owner when sought to be prosecuted, is arraigned as the 1st accused in C.C. No. 176/2013, as the Principal Employer. However, in view of Section 86-A of the Act, providing for prosecution of others in the case of a company, as vicariously liable, at the threshold, the complaint petition must disclose an allegation that they were in charge of and responsible for the conduct of the business of the company when the offence was committed. 10. Regard being had to the meaning of the term 'Principal Employer', it is needless to state that it includes the owner or occupier, the managing agent of such owner or occupier, the legal representatives of a deceased owner or occupier of the factory and where a person is named as a Manager of the factory under the 'Factories Act' the person so named. There is no dispute that the Company is issued with a licence, Annexure-A for the factory under the 'Factories Act', indicating the names of all the Directors of the company and a renewal of licence for the year 2013, Annexure-B, accepting Uday C. Mogre, Director as the occupier of the factory and Saravanan as its Manager. 11. The ESIC issued a format to the company to furnish 'Details of ownership to be sent to the Sub-Regional Office, in duplicate', Annexure-C, whereunder, as against column no.l, whether the factory is run by the owner or lessee, it is mentioned as 'run by owner', and against column No.3, 'particulars of the owner", the name of Uday C. Mogre is mentioned and status as Director. Column No.5, reads thus: "5. If registered under the Factories Act, particulars of Manager/occupier", while column No.6 reads thus: "Particulars of the persons mentioned above who are in charge of ail matters and responsible for conducting the business of the Esst/Fty'. Against column Nos.5 and 6, the name and other particulars of Saravanan are mentioned. The Social Security Officer, none other than the respondent, acknowledged receipt of the said form on 19.02.2013, along with the list of 10 Directors, from amongst whom are the petitioner at Sl.No.6 and Uday C. Mogre at Sl.No.4. Against column Nos.5 and 6, the name and other particulars of Saravanan are mentioned. The Social Security Officer, none other than the respondent, acknowledged receipt of the said form on 19.02.2013, along with the list of 10 Directors, from amongst whom are the petitioner at Sl.No.6 and Uday C. Mogre at Sl.No.4. The return of contributions under the 'Act' for the period April 2010 to March 2013, Annexures-D to J are submitted by Uday C. Mogre. 12. Thus, Uday C. Mogre, Director is the 'occupier' of the factory owner by the company, while Saravanan is its 'Manager', hence 'Principal Employer', though along with other directors. 13. There are a catena of decisions of the Apex Court arising under other statutory enactments, over Manager, by the nature of his duties, could be safely inferred to be vicariously liable for offences, while directors are concerned, in the absence of a statement or evidence to show apart from the presumption, that there was any act committed by the directors from which a reasonable inference can be drawn that they could vicariously be liable, criminal proceeding could be quashed against the Directors but not against the Manager. Reference may be made to the decisions in Municipal Corporation of Delhi vs. Ram Kishan Rohtagi ( AIR 1983 SC 67 ), and T.J. Stephen Vs. Parle Bottling Co. (P) Ltd. ( AIR 1988 SC 994 ) 14. In W.S. Industries (India) Ltd. Vs. Inspector of Factories (1990) 2 Kar.L.J.186), this Court while examining the definition of the term 'occupier' under Section 2(n) of the Factories Act, observed that in the case of a company, a director shall be deemed to be an occupier., though the main clause provides that the 'occupier' shall be trie one who has ultimate control of the affairs of the company, hence a director can also be liable, provided the liability is established. 15. Therefore, in order to sustain a criminal prosecution under Section 86-A against a director of a company, for commission of an offence under Section 85A of the Act, there must be prima-facie material or material on record to establish that the director at the time the offence was committed was in charge of and was responsible to the company for the conduct of the business of the company. If none is available, tantamount to non-disclosure of any offence against the director and cannot be prosecuted merely because he is a director of the company. 16. In the facts and circumstances of this case supra, the factory is owned by the 1st accused company, while accused No.3 is its Director, the occupier of the factory and accused No.4 is its Manager, though petitioner is one amongst other Directors in the list of Directors enclosed to the format, Annexure-C. Accused Nos.3 and 4 have, on the plea of guilty; when punished, paid the fine amount of Rs.5,000/- each, Annexure-N. 17. The averment in the complaint petition, Annexure-K, that petitioner being a director of the 1st accused company was in charge of and was responsible to the company for the conduct of the business of the company when the offence was committed, hence deemed guilty of the offence under Section 85(A) of the Act and liable to be punished, is insufficient to connect the petitioner with the alleged offence. There is no material worth the while, placed by the respondent to prima-facie, indicate that petitioner-accused No.2 was in charge of and responsible for the conduct of the business of the company when the offence was committed. It would be travesty of justice to prosecute the petitioner, in the absence of any such proof and cannot be convicted. 18. In the result, this petition is allowed. The criminal prosecution in C.C. No. 176/2013, Annexure-K filed by the respondent, against the petitioner arraigned as accused No.2, for commission of alleged offence under Section 85(A) of the Act, and the taking of cognizance by issuing summons dated 17.09.2013, Annexure-L of the Court for Economic Offences, Bangalore, are quashed.