Directors can’t be booked just because firm violated law: SC

Directors can’t be booked just because firm violated law: SC

Dhananjay.Mahapatra@timesgroup.com

New Delhi:  06.11.2021

The Supreme Court has asked investigating and prosecuting agencies not to proceed mechanically against directors of erring companies merely because of the post held and said such avoidable prosecution leads to humiliation and loss of reputation in the society.

Quashing prosecution and summons issued to a director of a company which allegedly failed to pay minimum wages to some workmen, a bench of Justices R S Reddy and Sanjiv Khanna said, “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.”

The important clarification will offer relief to persons holding these positions. The SC said 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, manager, secretary, or other officer of the company and not merely because the person holds a responsible post in the company.

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Liability only when offence done with consent: SC

Section 22C of the Minimum Wages Act provided that “if the person committing any offence under this Act is a company, every person who 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 as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly”. The apex court said 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, manager, secretary, or other officer of the company and not merely because the person holds a responsible post in the company. TNN

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 Bench