Liability for vicarious agents cannot automatically be attributed to the managing directors without specific allegations: the Supreme Court suspends criminal proceedings

In an important judgment that underlines the principles of vicarious liability, the Supreme Court of India has dismissed criminal proceedings against the directors of Attica Gold Pvt Ltd. exposed. The case of Shamim Sulthana & Ors. v. State of Tavarekere PS & Anr. (SLP(Crl) No. 20621 of 2024), was heard by a bench Justice BV Nagarathna and Justice Nongmeikapam Kotiswar Singh. The decision sets a crucial precedent in corporate law and protects directors from criminal liability without raising specific allegations of personal misconduct.

Fall background

The case arose after gold items, which were later claimed to have been stolen, were sold or mortgaged by customers at one of the branches of Attica Gold Pvt Ltd, a well-known gold trading company with over 200 branches in five states. The company’s directors were named as defendants based solely on their positions within the company, although no specific information was provided about their personal involvement in the transactions.

The directors disputed their implications and argued that the criminal proceedings were unjustified as they were only implicated because of their role as directors and not because of any direct wrongdoing. They sought relief from the Supreme Court, arguing that directors could not be held vicariously liable for the actions of their employees or their company unless clear allegations of personal involvement were made.

Important legal questions

The Supreme Court’s stay revolves around two crucial legal principles:

1. Vicarious liability of the managing directors: The crux of the petitioners’ argument was that vicarious liability cannot be imposed on directors solely because of their position within a company. To justify this, they relied on several groundbreaking judgments:

– In the case of Maksud Saiyed v. State of Gujarat (2008), the court held that vicarious liability must be expressly provided for by law and cannot be assumed solely based on a person’s business name.

– The petitioners also relied on SMS Pharmaceuticals Ltd. v. Neeta Bhalla (2005), where the Supreme Court held that a director’s liability in a criminal case must be based on specific allegations of involvement in the alleged crime.

– Furthermore, in Aneeta Hada v. Godfather Travels & Tours (2012) ruled that a company’s criminal intent must first be established before liability can be extended to its directors.

2. Criminal liability of companies: A related question was whether criminal proceedings against directors could continue without them being accused of personal intentions or involvement. The plaintiffs’ lawyers, A. Velan (current attorney) and Ms. Navpreet Kaur (attorney), argued that the directors could not be held liable for the company’s actions unless the company was first attributed with criminal intent.

Supreme Court decision

After hearing the arguments, the board ordered the suspension of all criminal proceedings against the directors until further notice. In its preliminary ruling, the court noted that a person’s mere position as a director of a company does not automatically make him or her vicariously liable for the actions of the company or its employees.

The court emphasized that vicarious liability, particularly in criminal cases, cannot be assumed unless there is a clear legal basis or an explicit allegation of personal involvement in the misconduct. The ruling reflects the principle that corporate directors are not automatically criminally responsible for a company’s actions unless concrete evidence suggests otherwise.

Court’s comments

In its decision, the court stated:

“Vicarious liability in criminal law cannot be attributed to a person solely based on their name in the company. The law requires specific allegations linking a person’s actions to the alleged crime before criminal liability can be imposed.”

Attorney and parties involved

– Applicant: Shamim Sulthana and others, Directors of Attica Gold Pvt Ltd

– Respondents: State by Tavarekere Police Station and others

– Attorney for the plaintiffs: A. Velan (current attorney), Ms. Navpreet Kaur (attorney)