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An estimated 3-minute read

SUPREMUS ERRATUM

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In the case of S.K. Alagh Vs. State of U.P. and Ors. reported in (2008) 5 SCC 662 the Hon’ble Supreme Court, at paragraph 20 thereof, observed  as under:

 

“…  We may, in this regard, notice that the provisions of the Essential Commodities Act, Negotiable Instruments Act, Employees' Provident Fund (Miscellaneous Provision) Act, 1952 etc. have created such vicarious liability. It is interesting to note that Section 14A of the 1952 Act specifically creates an offence of criminal breach of trust in respect of the amount deducted from the employees by the company.”

 

For easy reference, the said Section 14A of the Employees' Provident Fund (Miscellaneous Provision) Act, 1952 Act is extracted herein as under:

 

 14A. Offences by companies

(1) If the person committing an offence under this Act [,the Scheme or[the[Pension] Scheme or the Insurance Scheme]] 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, 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 the Act[, the Scheme or[the[Pension] Scheme or the Insurance Scheme]] 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 or manager, secretary or other officer of the company, such director, manager, secretary or other officer shall 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 and other association of individuals; and

(b) "director", in relation to a firm, means a partner in the firm.]

And since Section 405 of the Indian Penal Code defines 'criminal breach of trust' , the said provision is as under:

Section 405-Criminal breach of trust-

Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust".

 

From the bare reading of section 14A of the Employees' Provident Fund (Miscellaneous Provision) Act, 1952 and Section 405 of the IPC,it is interesting to note that there is no semblance of any kind whatsoever between the two aforesaid provisions leading us to the humble conclusion , with due respect to the Hon'ble Supreme Court that its observation   that “It is interesting to note that Section 14A of the 1952 Act specifically creates an offence of criminal breach of trust in respect of the amount deducted from the employees by the company” appears to be incorrect.

Section 14A of the 1952 Act  is a vicarious liability provision akin to provision similar to Section 141 of the Negotiable Instruments Act, 1881 ('NI Act') or Section  140 of the Customs Act, 1962 or Section 85 of the IT Act and does not create any independent offence. It simply extends the liability of such an offence committed by a company under the 1952 Act to every person, who at the time the offence was committed by the company, was in charge of, and was responsible to, the company for the conduct of the business of the company.

In view of art. 141 of the COI such observations have the potential of being  misused by mischievous lawyers and it also adversely affects the general undertstanding of the provision involved.

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