Can Company Directors Be Held Vicariously Liable Without Personal Involvement?

Posted On - 5 February, 2025 • By - Sindhuja Kashyap

The Supreme Court of India (SCI), in Sanjay Dutt & Ors. vs. State of Haryana,[1] reiterated the principles governing the vicarious liability of directors and officials of a company. The case concerned allegations of environmental violations under the Punjab Land Preservation Act, 1900 (PLPA, 1900). The appellants — senior officials of Tata Realty and Infrastructure Limited and Tata Housing Development Co. Ltd. — challenged the High Court of Punjab and Haryana’s (P&H HC) refusal to quash an FIR alleging illegal uprooting of 256 trees in violation of Section 4 of the PLPA, 1900 punishable under Section 19.

The SCI emphasized that corporate directors and officials cannot automatically be held vicariously liable for a company’s wrongful acts. For such liability to arise, there must be a specific statutory provision supporting vicarious liability and substantiated allegations demonstrating the official’s personal involvement. This judgment underscores the necessity for precise and specific pleadings when seeking to attribute criminal liability to company officers.

Key Issues

  1. Whether the FIR disclose specific allegations establishing the personal involvement of the appellants in the alleged offence under the PLPA, 1900?
  2. Whether the P&H HC erred in dismissing the appellants’ plea to quash the FIR, given the lack of statutory and factual grounds for imputing vicarious liability?

Analysis

The SCI analyzed the following:

1. No Automatic Vicarious Liability

The Court clarified that in criminal law, liability for corporate actions cannot be imposed on directors or officials unless it is explicitly provided by law. Simply holding a senior position or authorizing company actions is insufficient to impose criminal responsibility. The liability of a director arises only when the company itself is found guilty of wrongdoing, and there is direct evidence of the director’s involvement in those actions.

2. Lack of Specific Allegations

In this case, the FIR did not include any specific allegations linking the appellants to the offence. It merely identified them by their roles in the company, without describing any personal actions or decisions that contributed to the alleged violation. The Court found no evidence showing that the appellants actively participated in the illegal uprooting of trees or had any intent to commit the offence.

3. Applicability of Judicial Precedents

The Court referred to several precedents, including:

Case NameContext
S.K. Alagh v. State of Uttar Pradesh (2008)[2]Directors or officers of a company cannot be held vicariously liable unless explicitly provided by statute.
Sunil Bharti Mittal v. CBI (2015)[3]For fastening criminal liability, specific and substantiated allegations are necessary to demonstrate active involvement by a company official.
Sham Sunder v. State of Haryana (1989)[4]Criminal liability is not automatically imposed on directors or officers in the absence of personal culpability.

4. Procedural Flaws in the P&H HC’s Ruling

The SCI criticized the P&H HC for failing to address whether the complaint disclosed sufficient grounds to attribute liability to the appellants. It observed:

“The High Court failed to pose unto itself the correct question, i.e., whether the complaint even if given face value and taken to be correct in its entirety would lead to the conclusion that the appellants herein were personally liable for the offence under Section 4 of the Act, 1900 made punishable under Section 19 of the Act, 1900.”

Conclusion

The Supreme Court quashed the criminal proceedings against the appellants, finding that:

  1. The complaint did not contain specific allegations of personal involvement.
  2. There was no statutory provision in the PLPA, 1900 imposing vicarious liability on company directors or officials.
  3. The P&H HC erred in its assessment by not considering the absence of substantive grounds to establish personal liability.

This judgment reaffirms the principle that vicarious liability in criminal law is not automatic and must be expressly provided by statute. It also highlights the necessity for complainants to include specific averments of personal involvement when seeking to hold company officials liable for corporate offences.

[1] CRIMINAL APPEAL No. 11 OF 2025 (@ SLP (Crl) No. 7464/2024)

[2] AIR 2008 SUPREME COURT 1731

[3] AIR 2015 SUPREME COURT 923

[4] 1989 AIR 1982.

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