PFA – HC MP – Offences by Companies – Cadburys India – Feb 23 -2017

              HIGH COURT OF MADHYA PRADESH
                   BENCH AT GWALIOR
                      SINGLE BENCH
                         PRESENT:
              HON'BLE MR. JUSTICE G.S. AHLUWALIA

         Misc. Criminal Case No. 8057 OF 2009
         Mr. Venketaramanan Ramnath & Anr.
                            -Vs-
                   State of M.P. & Anr.

    Shri Surendra Singh, Senior Counsel with the Saurabh Agrawal,                       
counsel for the applicants.
     Shri G.S. Chouhan, Public Prosecutor for respondent
No.1/State.
                        ORDER

(23/02/2017) This petition under Section 482 of Cr.P.C. has been filed for quashing the criminal complaint filed by respondent no. 2 which is pending before the Court of J.M.F.C., Gwalior in Criminal case no. 2116 of 2007.

The necessary facts for the disposal of the present application in short are that the respondent no.2 has filed a criminal complaint against the applicants and one Madan Mohan. It was alleged that on 3-3-2004, the respondent no.2 visited the shop of M/s Kanhaiyalal Ramkishan owned by Madan Mohan and samples of 25 units of Cadbury Perk XXL (20 gms) and 48 packs of Cadbury Gems (13 gms) were collected and were sent to public Analyst. According to the report of Public Analyst, the Cadbury Gems were found to be adulterated. Since, the applicants are the employees/ Nominees of Cadbury India Limited, therefore, a criminal complaint was filed against the applicants and Madan Mohan.

The Magistrate took cognizance of offence and issued process against the accused persons. Hence, this application has been filed on behalf of the applicants.

A singular submission has been made by the Counsel for the applicants, that undisputedly, the Cadbury Gems which was found adulterated, was manufactured by Cadbury India Limited and therefore, the Cadbury India Limited is the main accused and the applicants have been arraigned as accused only because they are the nominees/employees of the Cadubry India Limited. It is submitted that as Cadbury India Limited has not been arraigned as an accused, therefore, in absence of main accused, the prosecution of the applicants is not maintainable.

Per contra, it is submitted by the Counsel for the State that the applicants are the nominee of the Cadbury India Limited and since, the offence has been committed by the Company, therefore, the applicants are being prosecuted being the nominee of the Company.

Heard the learned Counsel for the parties. The undisputed facts are that the samples of Cadbury Gems were found to be adulterated therefore, complaint has been filed against the applicants and the co-accused. This is also undisputed that the applicants have been arraigned as an accused because they are the nominees of the Cadbury India Limited, which is the manufacturer of the Cadbury Gems. The Cadbury India Limited has not been arraigned as an accused.

Now the moot question is that whether the Primary accused is the Company or not? If the Company is an accused, then whether the prosecution of office bearer of the Company is permissible without arraigning the Company as an accused or not?

Section 17 of Prevention of Food Adulteration Act, reads as under :

“17. Offences by companies.–(1) Where an offence under this Act has been committed by a company–

(a)(i) the person, if any, who has been nominated under sub-section (2) to be in charge of, and responsible to, the company for the conduct of the business of the company (hereinafter in this section referred to as the person responsible), or

(ii) where no person has been so nominated, 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; and

(b) 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 and that he exercised all due diligence to prevent the commission of such offence.

(2) Any company may, by order in writing, authorise any of its directors or managers (such manager being employed mainly in a managerial or supervisory capacity) to exercise all such powers and take all such steps as may be necessary or expedient to prevent the commission by the company of any offence under this Act and may give notice to the Local (Health) Authority, in such form and in such manner as may be prescribed, that it has nominated such director or manager as the person responsible, along with the written consent of such director or manager for being so nominated.

Explanation.–Where a company has different establishments or branches or different units in any establishment or branch, different persons may be nominated under this sub-section in relation to different establishments or branches or units and the person nominated in relation to any establishment, branch or unit shall be deemed to be the person responsible in respect of such establishment, branch or unit.

(3) The person nominated under sub-section (2) shall, until–

(i) further notice cancelling such nomination is received from the company by the Local (Health) Authority; or

(ii) he ceases to be a director or, as the case may be; manager of the company; or

(iii) he makes a request in writing to the Local (Health) Authority, under intimation to the company, to cancel the nomination [which request shall be complied with by the Local (Health) Authority], whichever is the earliest, continue to be the person responsible:

Provided that where such person ceases to be a director or, as the case may be, manager of the company, he shall intimate the fact of such cesser to the Local (Health) Authority:

Provided further that where such person makes a request under clause (iii), the Local (Health) Authority shall not cancel such nomination with effect from a date earlier than the date on which the request is made.

(4) Notwithstanding anything contained in the foregoing sub-sections, 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, [not being a person nominated under sub-section (2)] such director, manager, secretary or other officer 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;

(b) “director”, in relation to a firm, means a partner in the firm; and

(c) “manager”, in relation to a company engaged in hotel industry, includes the person in charge of the catering department of any hotel managed or run by it.] The opening words of Section 17 of the Prevention of Food Adulteration Act are “where the offence has been committed by Company”. Therefore, it would mean that when the offence has been committed by the Company, then the persons mentioned in Section 17(1)(a)(i) and (ii) shall be deemed to be guilty of the offence. Thus, only because of the legal fiction, the persons mentioned in Section 17(1)(a)(i) and

(ii) shall be deemed to be guilty of committing offence. From plain reading of Section 17 of Prevention of Food Adulteration Act, it is clear that the persons as mentioned in Section 17 of Prevention of Food Adulteration Act have been made Vicariously liable for the offence committed by Company. Therefore, before the vicarious liability gets attracted, the condition precedent in Section 17 of Prevention of Food Adulteration Act, must get fulfilled. Since the liability is penal in nature and therefore, strict interpretation of law is required. Thus, in order to attract the principle of Vicarious Liability, then the prosecution must prove that the offence was committed by a Company. Since, Company is a Juristic person therefore, without arraigning the Company as an accused, the applicant cannot be held Vicariously liable.

The Supreme Court in the case of Aneeta Hada Vs. Godfather Tours and Travels (P) Ltd.(2012) 5 SCC 661 has held as under :

“25. In Halsbury’s Laws of England, Vol. 11(1), in Para 35, it has been laid down that in general, a corporation is in the same position in relation to criminal liability as a natural person and may be convicted of common law and statutory offences including those requiring mens rea.

26. In 19 Corpus Juris Secundum, in Para 1358, while dealing with liability in respect of criminal prosecution, it has been stated that a corporation shall be liable for criminal prosecution for crimes punishable with fine; in certain jurisdictions, a corporation cannot be convicted except as specifically provided by the statute.

27. In H.L. Bolton (Engg.) Co. Ltd. v. T.J. Graham & Sons Ltd. Lord Denning, while dealing with the liability of a company, in his inimitable style, has expressed that: (QB p. 172) “… A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are Directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such.” In certain cases, where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company. The learned Law Lord referred to Lord Haldane’s speech in Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., AC at pp. 713-14. Elaborating further, he has observed that: “… in criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the Directors or the managers will render the company itself guilty.”

28. It may be appropriate at this stage to notice the observations made by MacNaghten, J. in Director of Public Prosecutions v. Kent and Sussex Contractors Ltd.: (All ER p. 124) “… A body corporate is a ‘person’ to whom, amongst the various attributes it may have, there should be imputed the attribute of a mind capable of knowing and forming an intention–indeed it is much too late in the day to suggest the contrary. It can only know or form an intention through its human agents, but circumstances may be such that the knowledge of the agent must be imputed to the body corporate. Counsel for the respondents says that, although a body corporate may be capable of having an intention, it is not capable of having a criminal intention. In this particular case the intention was the intention to deceive. If, as in this case, the responsible agent of a body corporate puts forward a document knowing it to be false and intending that it should deceive, I apprehend, according to the authorities that Viscount Caldecote, L.C.J., has cited, his knowledge and intention must be imputed to the body corporate.”

29. In this regard, it is profitable to refer to the decision in Iridium India Telecom Ltd. v. Motorola Inc. wherein it has been held that in all jurisdictions across the world governed by the rule of law, companies and corporate houses can no longer claim immunity from criminal prosecution on the ground that they are not capable of possessing the necessary mens rea for commission of criminal offences. It has been observed that the legal position in England and the United States has now been crystallised to leave no manner of doubt that the corporation would be liable for crimes of intent.

30. In the said decision, the two-Judge Bench has observed thus: (Motorola Inc. case, SCC p. 98, para 59) “59. The courts in England have emphatically rejected the notion that a body corporate could not commit a criminal offence which was an outcome of an act of will needing a particular state of mind. The aforesaid notion has been rejected by adopting the doctrine of attribution and imputation. In other words, the criminal intent of the ‘alter ego’ of the company/body corporate i.e. the person or group of persons that guide the business of the company, would be imputed to the corporation.”

31. In Standard Chartered Bank, the majority has laid down the view that: (SCC p. 541, para 6) “6. There is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the effect that corporations cannot commit a crime, the generally accepted modern rule is that … a corporation may be subject to indictment or other criminal process, although the criminal act [may be] committed through its agents.”

It has also been observed that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment is mandatory imprisonment and fine.

32. We have referred to the aforesaid authorities to highlight that the company can have criminal liability and further, if a group of persons that guide the business of the companies have the criminal intent, that would be imputed to the body corporate. In this backdrop, Section 141 of the Act has to be understood. The said provision clearly stipulates that when a person which is a company commits an offence, then certain categories of persons in charge as well as the company would be deemed to be liable for the offences under Section

138. Thus, the statutory intendment is absolutely plain. As is perceptible, the provision makes the functionaries and the companies to be liable and that is by deeming fiction. A deeming fiction has its own signification.

33. In this context, we may refer with profit to the observations made by James, L.J. in Levy, In re, ex p Walton, which is as follows: (Ch D p. 756) “… When a statute enacts that something shall be deemed to have been done, which in fact and truth was not done, the court is entitled and bound to ascertain for what purposes and between what persons the statutory fiction is to be resorted to.”

34. Lord Asquith, in East End Dwellings Co. Ltd. v.

Finsbury Borough Council, had expressed his opinion as follows: (AC pp. 132-33) “If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. … The statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.”

35. In Bengal Immunity Co. Ltd. v. State of Bihar the majority in the Constitution Bench have opined that legal fictions are created only for some definite purpose.

36. In Hira H. Advani v. State of Maharashtra, while dealing with a proceeding under the Sea Customs Act, especially sub-section (4) of Section 171-A wherein an enquiry by the Customs Authority is referred to, and the language employed therein, namely, “to be deemed to be a judicial proceeding within the meaning of Sections 193 and 228 of the Penal Code”, it has been opined as follows: (SCC p. 680, para 37) “37. … It was argued that the legislature might well have used the word ‘deemed’ in sub-section (4) of Section 171 not in the first of the above senses but in the second, if not the third. In our view, the meaning to be attached to the word ‘deemed’ must depend upon the context in which it is used.”

37. In State of T.N. v. Arooran Sugars Ltd. the Constitution Bench, while dealing with the deeming provision in a statute, ruled that the role of a provision in a statute creating legal fiction is well settled. Reference was made to Chief Inspector of Mines v. Karam Chand Thapar, J.K. Cotton Spg. and Wvg. Mills Ltd. v. Union of India, M. Venugopal v. LIC and Harish Tandon v. ADM, Allahabad and eventually, it was held that when a statute creates a legal fiction saying that something shall be deemed to have been done which in fact and truth has not been done, the Court has to examine and ascertain as to for what purpose and between which persons such a statutory fiction is to be resorted to and thereafter, the courts have to give full effect to such a statutory fiction and it has to be carried to its logical conclusion.

38. From the aforesaid pronouncements, the principle that can be culled out is that it is the bounden duty of the court to ascertain for what purpose the legal fiction has been created. It is also the duty of the court to imagine the fiction with all real consequences and instances unless prohibited from doing so. That apart, the use of the term “deemed” has to be read in its context and further, the fullest logical purpose and import are to be understood. It is because in modern legislation, the term “deemed” has been used for manifold purposes. The object of the legislature has to be kept in mind.

* * * * *

59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself. We say so on the basis of the ratio laid down in C.V. Parekh which is a three-Judge Bench decision. Thus, the view expressed in Sheoratan Agarwal does not correctly lay down the law and, accordingly, is hereby overruled. The decision in Anil Hada is overruled with the qualifier as stated in para 51. The decision in Modi Distillery has to be treated to be restricted to its own facts as has been explained by us hereinabove.

In the case of Sharad Kumar Sanghi Vs. Sangita Rane (2015) 12 SCC 781, it has been held as under :

“11. In the case at hand as the complainant’s initial statement would reflect, the allegations are against the Company, the Company has not been made a party and, therefore, the allegations are restricted to the Managing Director. As we have noted earlier, allegations are vague and in fact, principally the allegations are against the Company. There is no specific allegation against the Managing Director. When a company has not been arrayed as a party, no proceeding can be initiated against it even where vicarious liability is fastened under certain statutes. It has been so held by a three-Judge Bench in Aneeta Hada v. Godfather Travels and Tours (P) Ltd. in the context of the Negotiable Instruments Act, 1881.”

This Court by order dated 20.02.2017 passed in M.Cr.C.

No. 1301 of 2011 (Managing Director vs. State of M.P.) has held as under :-

“Thus, as the Marico Industries Limited, Mumbai has not been arrayed as an accused, therefore, the prosecution of the applicant in his official capacity is not permissible because he cannot be vicariously held liable for the offence committed by the Company unless and until, the Company which is a juristic entity is arrayed as an accused.”

Thus, if the facts of the present case are considered in the light of the judgments, then it would be clear that Cadbury India Limited is the manufacturer of the Cadbury Gems, however, the Company has not been made an accused and the applicants are being prosecuted in the capacity of nominee/employees of Company. The applicants cannot be held vicariously liable for offence committed by the Company in absence of prosecution of company. Therefore, this Court is of the considered view that as the Company which is the manufacturer of the Cadbury Gems has not been arraigned as an accused, the applicants cannot be held vicariously liable. There is no allegation against the applicants in their personal capacity. Therefore, the prosecution of the applicants is bad in law.

Hence, this application succeeds and is hereby allowed. The criminal proceedings in Criminal Case No. 2116/2007 pending in the Court of A.C.J.M., Gwalior is hereby quashed.

(G.S. AHLUWALIA) Judge (23.02.2017)

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