Date of the Judgment: 23 August 2019
Citation: 2019 INSC 852
Judges: Abhay Manohar Sapre, J., R. Subhash Reddy, J.
Can a Managing Director be held criminally liable for negligence at a hotel, simply by virtue of their position? The Supreme Court of India addressed this crucial question in a case involving an accident at the Hyatt Regency Hotel. The court examined the extent to which a Managing Director can be held responsible for the actions of a company and its staff, specifically in cases of negligence. The bench comprised Justices Abhay Manohar Sapre and R. Subhash Reddy, with the majority opinion authored by Justice R. Subhash Reddy.
Case Background
On October 17, 2013, a case was registered following an incident where Gaurav Rishi, a resident of Delhi, was admitted to Fortis Hospital with a history of falling from stairs. Initial investigations suggested a fall from the terrace of the Hyatt Regency Hotel. The investigation revealed that Mr. Rishi had been with two American guests, Ms. Rebecca and Ms. Margarita, at the hotel’s executive lounge on the 6th floor. The group had been consuming food and wine and frequently stepping out onto an adjacent terrace for smoking. The prosecution alleged that the terrace was dark, lacked proper lighting, and that the hotel management had failed to take necessary safety measures, allowing guests access to an unsafe area.
Timeline
| Date | Event |
|---|---|
| 17.10.2013 | Case registered for offence under Section 308 of the Indian Penal Code (IPC) after Gaurav Rishi was admitted to Fortis Hospital with a history of fall from stairs. |
| 16.10.2013 | Gaurav Rishi visited the Hyatt Regency Hotel to meet Ms. Rebecca and Ms. Margarita. They were in the executive lounge on the 6th floor and went to the terrace for smoking. |
| 19.10.2013 | FIR No. 390 of 2013 was registered at Police Station, R.K. Puram. |
| 16.03.2015 | Chargesheet filed against multiple individuals, including Shiv Kumar Jatia and Aseem Kapoor, under Sections 336, 338 read with Section 32 of the IPC, and Section 4 of the Cigarettes and Other Tobacco Products Act (COTPA), 2003. |
| 16.05.2015 | Metropolitan Magistrate, Patiala House Court, New Delhi, passed summoning order. |
| 21.08.2015 | Joint Commissioner of Police rejected Ms. Gauri Rishi’s representation regarding the renewal of the hotel’s license. |
| 18.05.2018 | High Court of Delhi at New Delhi passed a common order in Crl. M.C. Nos. 2209, 2208 and 3480 of 2015, declining to quash the proceedings but allowing the accused to appear through an advocate. |
| 23.08.2019 | Supreme Court of India delivered the judgment. |
Course of Proceedings
The accused, including Shiv Kumar Jatia (Managing Director) and Aseem Kapoor (General Manager), filed criminal miscellaneous cases before the High Court of Delhi under Section 482 of the Code of Criminal Procedure (Cr.P.C.) seeking to quash the chargesheet and summoning order. The High Court declined to quash the proceedings, opining that it was not appropriate to do so, and allowed the accused to appear through an advocate. Aggrieved by this order, the accused appealed to the Supreme Court. The complainant also appealed, challenging the High Court’s decision to allow the accused to appear through an advocate.
Legal Framework
The case involves the following key legal provisions:
- Section 336 of the Indian Penal Code, 1860 (IPC): This section deals with acts that endanger human life or personal safety due to rash or negligent behavior. It states, “Whoever does any act so rashly or negligently as to endanger human life or the personal safety of others, shall be punished with imprisonment of either description for a term which may extend to three months, or with fine which may extend to two hundred and fifty rupees, or with both.”
- Section 338 of the IPC: This section addresses causing grievous hurt by an act that endangers life or personal safety. It states, “Whoever does any act so rashly or negligently as to cause grievous hurt to any person, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine which may extend to one thousand rupees, or with both.”
- Section 32 of the IPC: This section defines acts referred to in the code. It states, “In every part of this Code, except where a contrary intention appears from the context, words which refer to acts done extend also to illegal omissions.”
- Section 4 of the Cigarettes and Other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003 (COTPA): This section prohibits smoking in public places. The relevant part states, “No person shall smoke in any public place: Provided that in a hotel having thirty rooms or a restaurant having seating capacity of thirty persons or more and in the airports, a separate provision for smoking area or space may be made.”
Arguments
The arguments presented by both sides are summarized below:
Arguments by the Appellants (Accused):
- Shiv Kumar Jatia (Accused No. 2):
- Argued that as the Managing Director of M/s Asian Hotels (North) Limited, he cannot be held liable for the incident.
- He was overseas during the incident and is neither the occupier, owner, nor licensee of the hotel.
- There were no specific allegations of negligence with criminal intent against him.
- The injured party’s actions were the cause of the incident.
- Aseem Kapoor (Accused No. 4):
- Argued that as the General Manager, he cannot be held vicariously liable.
- He was also out of the country during the incident.
- The incident was due to the injured party’s negligence.
Arguments by the Respondent (Complainant):
- Gauri Rishi (Sister of the Injured):
- Argued that the Managing Director and General Manager cannot escape responsibility for negligence.
- There was a violation of license conditions, which led to the incident.
- The High Court erred in granting exemption from personal appearance.
The arguments were supported by various case laws, with the appellants emphasizing the lack of direct involvement and the respondent highlighting the negligence and violation of license conditions.
| Main Submission | Sub-Submissions | Party |
|---|---|---|
| No direct liability of Managing Director (Accused No. 2) | Overseas during the incident | Shiv Kumar Jatia |
| Not the occupier, owner, or licensee of the hotel | Shiv Kumar Jatia | |
| No specific allegations of negligence with criminal intent | Shiv Kumar Jatia | |
| No vicarious liability of General Manager (Accused No. 4) | Overseas during the incident | Aseem Kapoor |
| Incident due to injured party’s negligence | Aseem Kapoor | |
| Not the licensee of the hotel | Aseem Kapoor | |
| Responsibility of Managing Director and General Manager | Negligence and violation of license conditions | Gauri Rishi |
| High Court erred in granting exemption from personal appearance | Gauri Rishi |
Issues Framed by the Supreme Court
The Supreme Court considered the following issues:
- Whether the charges against the Managing Director (Accused No. 2) and General Manager (Accused No. 4) under Sections 336, 338 read with Section 32 of the IPC and Section 4 of the COTPA, 2003, are sustainable.
- Whether the High Court was correct in allowing the accused to appear through an advocate.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Brief Reason |
|---|---|---|
| Whether the charges against the Managing Director (Accused No. 2) under Sections 336, 338 read with Section 32 of the IPC are sustainable. | Charges quashed | No direct evidence of negligence with criminal intent. Mere position as MD not sufficient. |
| Whether the charges against the General Manager (Accused No. 4) under Sections 336, 338 read with Section 32 of the IPC are sustainable. | Charges not quashed | General Manager is responsible for day-to-day affairs of the hotel. |
| Whether the charges against the Managing Director (Accused No. 2) and General Manager (Accused No. 4) under Section 4 of COTPA 2003 are sustainable. | Charges quashed | No evidence that the hotel did not have a designated smoking area. |
| Whether the High Court was correct in allowing the accused to appear through an advocate. | Upheld | High Court has the power to do so under Section 482 of the Cr.P.C. |
Authorities
The Supreme Court considered the following authorities:
| Authority | Court | How it was used |
|---|---|---|
| Sushil Ansal vs. State Through CBI [1(2014) 6 SCC 173] | Supreme Court of India | Distinguished. The court held that in the present case, unlike the Uphaar Cinema case, there were no specific allegations against the Managing Director, and the case was not applicable. |
| Sunil Bharti Mittal vs. Central Bureau of Investigation [2(2015) 4 SCC 609] | Supreme Court of India | Applied. The court reiterated that a Director or Managing Director can be made an accused only if there is sufficient material to prove their active role coupled with criminal intent. |
| Maksud Saiyed vs. State of Gujarat [3(2008) 5 SCC 668] | Supreme Court of India | Applied. The court held that the Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is a Company, unless specifically provided in the statute. |
| Sharad Kumar Sanghi vs. Sangita Rane [4(2015) 12 SCC 781] | Supreme Court of India | Applied. The court held that vague allegations against the Managing Director can be a ground for quashing the proceedings under Section 482 of Cr.P.C. |
| Pooja Ravinder Devidasani vs. State of Maharashtra [5AIR 2015 SC 675] | Supreme Court of India | Cited in support of the case. |
| TGN Kumar vs. State of Kerala & Ors. [6(2011) 2 SCC 772] | Supreme Court of India | Cited in support of the case. |
| Madan Mohan vs. State of Rajasthan [7(2018) 12 SCC 30] | Supreme Court of India | Cited in support of the case. |
| State of Haryana v. Bhajan Lal [81992 Supp.(1) SCC 335] | Supreme Court of India | Cited to invoke inherent powers under Section 482 of Cr.P.C. |
Judgment
The Supreme Court analyzed the submissions and authorities as follows:
| Submission | Court’s Treatment |
|---|---|
| Managing Director (Shiv Kumar Jatia) cannot be held liable merely for his position. | Accepted. The court held that there was no direct evidence linking his position to the negligence. |
| General Manager (Aseem Kapoor) cannot be held vicariously liable. | Partially accepted. The court quashed charges under Section 4 of COTPA 2003 but upheld charges under Sections 336 and 338 of IPC. |
| The incident was due to the injured party’s negligence. | Not a deciding factor. The court focused on the hotel’s responsibility for safety. |
| There was a violation of license conditions. | To be examined during the trial. |
| The High Court erred in granting exemption from personal appearance. | Rejected. The court upheld the High Court’s decision. |
The Supreme Court viewed the authorities as follows:
- Sushil Ansal vs. State Through CBI: The court distinguished this case, stating that unlike the Uphaar Cinema case, there were no specific allegations against the Managing Director.
- Sunil Bharti Mittal vs. Central Bureau of Investigation: The court applied this case, reiterating that a Director or Managing Director can be made an accused only if there is sufficient material to prove their active role coupled with criminal intent.
- Maksud Saiyed vs. State of Gujarat: The court applied this case, holding that the Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is a Company, unless specifically provided in the statute.
- Sharad Kumar Sanghi vs. Sangita Rane: The court applied this case, holding that vague allegations against the Managing Director can be a ground for quashing the proceedings under Section 482 of Cr.P.C.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the principle that a Managing Director cannot be held criminally liable for corporate negligence solely based on their position. The court emphasized the need for direct evidence linking the individual’s actions to the alleged criminal intent. The court also took into account the fact that the Managing Director was not present at the scene of the incident and that there were no specific allegations of negligence against him. The court also considered that the hotel had a designated smoking area, and there was no evidence that the hotel had violated the COTPA Act.
| Sentiment | Percentage |
|---|---|
| Emphasis on Individual Liability and Direct Evidence | 40% |
| Distinction between Managing Director and General Manager | 30% |
| Lack of Evidence for COTPA Violation | 20% |
| Adherence to Legal Precedents | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
The court’s reasoning was based on the following points:
- The court emphasized that there should be a direct link between the accused’s actions and the alleged offence.
- The court relied on the principle of vicarious liability, stating that a Managing Director cannot be held liable unless there is a specific statutory provision or direct evidence of their involvement.
- The court distinguished the case from the Uphaar Cinema case, where the accused were directly responsible for the violations.
- The court held that the charges under Section 4 of COTPA were not sustainable as there was no evidence that the hotel did not have a designated smoking area.
The court quoted the following from the judgment:
- “The liability of the Directors /the controlling authorities of company, in a corporate criminal liability is elaborately considered by this Court in the case of Sunil Bharti Mittal2.”
- “By applying the ratio laid down by this Court in the case of Sunil Bharti Mittal2 it is clear that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent.”
- “From a reading of the above Section 4 of the Act it is apparent that it prohibits smoking in any public place. However, as per the proviso, a hotel having 30 rooms or a restaurant with a seating capacity of 30 persons or more and in the airports, a separate provision for smoking area or space may be made.”
The court held that the Managing Director could not be held liable simply by virtue of his position. The court also held that the charges under Section 4 of COTPA were not sustainable. The court upheld the High Court’s decision to allow the accused to appear through an advocate.
Key Takeaways
The key takeaways from this judgment are:
- A Managing Director cannot be held criminally liable for corporate negligence solely based on their position.
- There must be direct evidence linking the individual’s actions to the alleged criminal intent.
- The principle of vicarious liability does not automatically apply to Managing Directors.
- Charges under Section 4 of COTPA require evidence that the hotel did not provide any designated smoking area.
- High Courts have the power to allow accused persons to appear through an advocate under Section 482 of Cr.P.C.
This judgment clarifies the extent of a Managing Director’s liability in cases of corporate negligence and sets a precedent for similar cases in the future. It emphasizes the need for specific allegations and direct evidence to hold individuals liable for corporate actions.
Directions
The Supreme Court did not issue any specific directions other than setting aside the order of the High Court in respect of the Managing Director and quashing the charges under Section 4 of COTPA against the General Manager.
Development of Law
The ratio decidendi of this case is that a Managing Director cannot be held criminally liable for corporate negligence solely based on their position, and there must be direct evidence linking the individual’s actions to the alleged criminal intent. This judgment reinforces the principle of individual liability in corporate criminal matters and clarifies the scope of vicarious liability. It also clarifies that the mere fact of being a Managing Director is not sufficient to attract criminal liability.
Conclusion
In conclusion, the Supreme Court quashed the charges against the Managing Director of M/s Asian Hotels (North) Limited, holding that there was no direct evidence linking his position to the alleged negligence. The court partly allowed the appeal of the General Manager, quashing the charges against him under Section 4 of COTPA but upholding the other charges under Sections 336 and 338 of the IPC. The court also upheld the High Court’s decision to allow the accused to appear through an advocate. This judgment clarifies the extent of a Managing Director’s liability in cases of corporate negligence and reinforces the need for direct evidence and specific allegations.