The Supreme Court on August 23, 2019, in the case of Shiv Kumar Jatia v. State of NCT of Delhi, has laid down the tests to determine whether a director of a company can be held criminally liable for the acts committed by the company or its employees.
The question for consideration before the Division Bench comprising of Justice Abhay Manohar Sapre and Justice R. Subhash Reddy was whether a director can be criminally held liable if he/she did not play an active role in a criminal act committed by the company and/or its employees.
Background
In this case, a criminal case for negligence was filed by a customer of the Hotel Hyatt Regency in Delhi against: (i) M/s. Asian Hotels (North) Limited (ii) the MD i.e., Mr. Shiv Kumar Jatia; and (iii) the officers of the Entity who were in-charge of the day-to-day affairs of the Hotel. An FIR was registered against the Company, the MD and the officers in charge of the daily affairs of the Entity. The customer had injured himself after falling from the terrace of the Hotel and it was alleged that the Hotel did not place adequate safety precautions on its terrace.
In response to the FIR, Shiv Kumar Jatia filed a petition before the Delhi High Court to quash the FIR stating that he was not involved in the alleged act of negligence. However, Delhi High Court rejected the petition which led him to move the Supreme Court to challenge the High Court’s decision.
In appeal, Shiv Kumar Jatia submitted that he was only chairing the meetings of the Entity and was not involved in the alleged negligence and there was no criminal intent on his part.
Judgment
The Supreme Court held that the director, managing director or chairman of a company can only be accused of a crime committed by a company if there is: (a) sufficient material to prove his/her active role in the crime committed; (b) the same being coupled with a criminal intent on his/her part; and (c) there being a specific allegation against such person.
Further, it was also held that there is no provision in law to hold a director vicariously liable under the Indian Penal Code, 1860, for crimes committed by the company or its employees.
Applying the above test, the Supreme Court quashed the FIR against Shiv Kumar Jatia, stating that the allegations in the FIR were only against the Entity and the officers-in-charge of the daily affairs of the Hotel and there were no specific allegations against him.
Read the judgment below.
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