Vicarious Liability under Minimum Wages Act: Supreme Court quashes proceedings against Company Director (29 October 2021)

Date of the Judgment: 29 October 2021
Citation: Criminal Appeal No. of 2021 (Arising out of Special Leave Petition (Crl.) No. 3913 of 2020)
Judges: R. Subhash Reddy, J., Sanjiv Khanna, J. (authored the judgment)

Can a company director be held liable for violations of the Minimum Wages Act, 1948, if the company itself is not prosecuted? The Supreme Court of India recently addressed this critical question, clarifying the scope of vicarious liability in cases involving companies. This judgment emphasizes that a company must be a party to the proceedings before its directors can be held liable for offenses under the Minimum Wages Act, 1948.

Case Background

In 2009, M/s. Writer Safeguard Pvt. Ltd. (the Company), where the appellant, Dayle De’Souza, was a director, entered into an agreement with M/s. NCR Corporation India Private Ltd. to service and replenish Automated Teller Machines (ATMs). M/s. NCR Corporation India Private Ltd. had a prior agreement with the State Bank of India for the maintenance of their ATMs.

On 19th February 2014, a Labour Enforcement Officer (Central) inspected a State Bank of India ATM in Sagar, Madhya Pradesh. Following this inspection, on 6th March 2014, a notice was issued to Dayle De’Souza and Vinod Singh, the Madhya Pradesh head of the Company, alleging non-compliance with the Minimum Wages Act, 1948, and the Minimum Wages (Central) Rules, 1950.

The Company responded on 2nd April 2014, stating they did not manage or work at the ATM. However, on 8th August 2014, the Labour Enforcement Officer (Central) informed the appellant and Vinod Singh that they were required to appear in court on 14th August 2014. On 14th August 2014, a criminal complaint was filed against the appellant and Vinod Singh under Section 22A of the Minimum Wages Act, 1948.

Timeline

Course of Proceedings

The Judicial Magistrate, First Class, Sagar, Madhya Pradesh, took cognizance of the offense on 14th August 2014, and issued a bailable warrant against the appellant and Vinod Singh. Subsequently, the Company submitted a detailed representation to the Deputy Chief Labour Commissioner denying the allegations.

The appellant then filed a petition under Section 482 of the Code of Criminal Procedure, 1973, before the High Court of Madhya Pradesh, seeking to quash the complaint. The High Court dismissed the petition on 20th January 2020, leading to the present appeal before the Supreme Court.

Legal Framework

The core legal provision in this case is Section 22C of the Minimum Wages Act, 1948, which deals with offenses by companies.

Section 22C of the Minimum Wages Act, 1948 states:


“22C. Offences by companies. —
(1) 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:
Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer of the company shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation. — For the purposes of this section —
(a) “company” means any body corporate and includes a firm or other association of individuals; and
(b) “director” in relation to a firm means a partner in the firm.”

Section 22A of the Minimum Wages Act, 1948, provides for the punishment of other offenses, and Section 22B outlines the cognizance of offenses, specifying that no court shall take cognizance of a complaint under Section 22A unless it is made by or with the sanction of an Inspector and within six months of the alleged offense.

Arguments

The complaint alleged that the accused persons were contractors responsible for the employment and payment of laborers and were employers under Part 2(E) of the Minimum Wages Act, 1948. It further stated that their work was regulated under Notification No. S.O. 1284(E) dated 20.05.2009 of the Government of India and that they were Scheduled Employers under the Minimum Wages Act, 1948, and the Minimum Wages (Central) Rules, 1950.

The complaint stated that the inspection revealed violations of Rules 21(4), 22, 25(2), 26(1), and 26(5) due to the failure to maintain and display necessary registers and notices at the worksite.

The appellant argued that the complaint did not contain specific averments that he was in charge of and responsible for the conduct of the company’s business, as required by Section 22C(1) of the Minimum Wages Act, 1948. The appellant contended that the company itself was not made an accused in the complaint.

The prosecution argued that the director was liable under Section 22C(1) of the Minimum Wages Act, 1948, as he was in charge of and responsible for the conduct of the business of the company and that the proviso to Section 22C(1) places the onus on the accused to prove that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. Whether the complaint satisfied the requirements of Section 22C(1) of the Minimum Wages Act, 1948, to hold the director vicariously liable, and whether the company must be arraigned as an accused for proceedings against the director to be valid.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court relied on the following cases and legal provisions:

Judgment

The Supreme Court analyzed the submissions and authorities, and came to the following conclusions:

The Court viewed the authorities as follows:

✓ S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla and Another [CITATION]*: The Court used this case to explain the nature of the proviso to Section 22C(1) of the Minimum Wages Act, 1948.

✓ Aneeta Hada v. Godfather Travels and Tours Private Limited [CITATION]*: The Court relied on this case to emphasize that the company must be arraigned as an accused for proceedings against the director to be valid. This case **overruled** the position in *Sheoratan Agarwal* and *Anil Hada* that a director could be prosecuted without the company being an accused.

✓ Girdhari Lal Gupta v. D.H. Mehta and Another [CITATION]*: The Court used this case to define the meaning of “in-charge” and “responsible for” in the context of a company’s business.

✓ State of Karnataka v. Pratap Chand and Others [CITATION]*: The Court approved and applied the interpretation of “in-charge and responsible for” from Girdhari Lal Gupta.

✓ Municipal Corporation of Delhi v. Ram Kishan Rohtagi and Others [CITATION]*: The Court used this case to highlight that a complaint must have specific averments and cannot rely on presumptive guilt based on the position of the director.

✓ Municipal Corporation of Delhi v. Purshottam Dass Jhunjhunwala and Others [CITATION]*: The Court distinguished this case from *Ram Kishan Rohtagi*, noting that a clear averment regarding the active role played by the respondents and the extent of their liability was present.

✓ National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another [CITATION]*: The Court used this case to summarize the principles for vicarious liability.

✓ State of Madras v. C.V. Parekh and Another [CITATION]*: The Court cited this case to emphasize that the liability of persons in charge of a company arises only when the contravention is by the company itself.

✓ Sheoratan Agarwal and Another v. State of Madhya Pradesh [CITATION]*: The Court acknowledged this case but noted that it was **overruled** by *Aneeta Hada*.

✓ Anil Hada v. Indian Acrylic Ltd. [CITATION]*: The Court acknowledged this case but noted that it was **overruled** by *Aneeta Hada*.

✓ Anil Gupta v. Star India Private Limited and Another [CITATION]*: The Court relied on this case to support the proposition that proceedings against an individual cannot continue if the company is not a party.

✓ Sharad Kumar Sanghi v. Sangita Rane [CITATION]*: The Court cited this case to support the proposition that when a company has not been arrayed as an accused, no proceeding can be initiated against its director.

✓ Himanshu v. B. Shivamurthy and Another [CITATION]*: The Court relied on this case to reiterate that for maintaining a prosecution under Section 141 of the Negotiable Instruments Act, 1881, arraigning of a company as an accused is imperative.

✓ Hindustan Unilever Limited v. State of Madhya Pradesh [CITATION]*: The Court relied on this case to apply the principle in *Aneeta Hada* to a similar provision in the Prevention of Food Adulteration Act, 1954.

✓ Directorate of Revenue and Another v. Mohammed Nisar Holia [CITATION]*: The Court cited this case to emphasize the right not to be disturbed without sufficient grounds.

✓ M/s. Hindustan Steel Ltd. v. State of Orissa [CITATION]*: The Court cited this case to emphasize that penalties should not be imposed mechanically.

✓ National Small Industries Corporation Limited v. State (NCT of Delhi) and Others [CITATION]*: The Court cited this case to explain the reasoning behind the exemption from recording pre-summoning evidence when a private complaint is filed by a public servant.

✓ Pepsi Foods Ltd. and Another v. Special Judicial Magistrate and Others [CITATION]*, GHCL Employees Stock Option Trust v. Indian Infoline Ltd. and Others [CITATION]*, and Krishna Lal Chawla and Others v. State of Uttar Pradesh and Another [CITATION]*: The Court cited these cases to emphasize that the initiation of prosecution and summoning of an accused has serious consequences.

What weighed in the mind of the Court?

The Supreme Court’s decision was significantly influenced by the principle that vicarious liability under Section 22C of the Minimum Wages Act, 1948, requires the company itself to be a party to the proceedings. The Court emphasized that a director cannot be held liable unless the company is also prosecuted, as the liability of the director is secondary to the company’s.

The Court also considered the importance of specific averments in the complaint, highlighting that a director cannot be presumed guilty merely because of their position. There must be clear allegations that the director was in charge of and responsible for the conduct of the company’s business at the time of the offense.

Furthermore, the Court was mindful of the serious consequences of initiating criminal proceedings and emphasized the need for authorities to act responsibly and ensure that prosecutions are not initiated without adequate investigation and a proper understanding of the legal provisions.

The Supreme Court’s reasoning for the issue is as follows:

The Court rejected the argument that the proviso to Section 22C(1) shifts the burden to the accused to prove lack of knowledge or due diligence, stating that the proviso only applies after the prosecution has established the requirements of Section 22C(1).

The Court also considered the fact that the complaint did not specify the nature of activity and involvement of the Company’s workers at the ATM site, which was necessary to establish the violation.

The Supreme Court highlighted the need to balance law enforcement with the protection of citizens from injustice, emphasizing that penalties should not be imposed mechanically.

The Court emphasized that the initiation of prosecution and summoning of an accused has serious consequences and should not be done without adequate investigation and a proper understanding of the legal provisions.

The Court quoted from the judgment:

“The proviso being an exception cannot be made a justification or a ground to launch and initiate prosecution without the satisfaction of conditions under sub-section (1) of Section 22C of the Act.”

“The legal position has undergone further elucidation in a number of judgments. However, for the present decision, we would refer to the summarisation in National Small Industries Corporation Limited v. Harmeet Singh Paintal and Another, to the following effect:…”

“The issue of process resulting in summons is a judicial process that carries with it a sanctity and a promise of legal propriety.”

The Court allowed the appeal and quashed the summoning order and proceedings against the appellant. The Court also extended the benefit of this order to the other accused, Vinod Singh.

Key Takeaways

• A company must be arraigned as an accused for proceedings against its directors under Section 22C of the Minimum Wages Act, 1948, to be valid.
• Complaints must contain specific averments that the director was in charge of and responsible for the conduct of the company’s business.
• The proviso to Section 22C(1) does not shift the initial burden of proof from the prosecution to the accused.
• Authorities must act responsibly and ensure that prosecutions are not initiated without adequate investigation and a proper understanding of the legal provisions.

Directions

The Supreme Court quashed the summoning order and the proceedings against the appellant and the other accused, Vinod Singh.

Development of Law

The Supreme Court reaffirmed the position that for maintaining a prosecution under Section 22C of the Minimum Wages Act, 1948, the company must be arraigned as an accused. This judgment clarifies the scope of vicarious liability under the Act and emphasizes the need for specific allegations and proper investigation before initiating proceedings against directors. The Supreme Court **overruled** the position in *Sheoratan Agarwal* and *Anil Hada* that a director could be prosecuted without the company being an accused.

Conclusion

The Supreme Court’s judgment in this case provides clarity on the application of vicarious liability under the Minimum Wages Act, 1948. It underscores the principle that a company must be a party to the proceedings before its directors can be held liable for offenses. This ruling protects company directors from being prosecuted without proper grounds and ensures that authorities act responsibly and judiciously when enforcing labor laws.

Category: Minimum Wages Act, 1948