Vicarious Liability Of Company Directors/Officials Not Automatic; Specific Statutory Provision & Personal Involvement Needed : Supreme Court

The Supreme Court noted that directors/officials cannot be held vicariously liable for a company's illegal actions unless it is demonstrated that the official personally engaged in the conduct directly linking them to the company's liability, and such liability is supported by a specific statutory provision. They further contended that they can't be held vicariously liable for the illegal acts of the company unless their personal involvement is shown, and such liability is supported by a specific statutory provision. Vicarious Liability Arises Only If There Are Specific And Substantiated Allegations Attributing Particular Role Or Conduct To Such Director “At the same time, wherever by a legal fiction the principle of vicarious liability is attracted and a person who is otherwise not personally involved in the commission of an offence is made liable for the same, it has to be specifically provided in the statute concerned. Vicarious Liability would arise only if there are specific and substantiated allegations attributing a particular role or conduct to such director, sufficient enough to attract the provisions constituting vicarious liability and by extension the offence itself.” The Court noted that “the High Court failed to pose unto itself the correct question i.e., as to 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.” The Court also referred to the precedents such as Maharashtra State Electricity Distribution Co. Ltd. v. Datar Switchgear Ltd., Sham Sunder v. State of Haryana, and Sunil Bharti Mittal v. CBI to observe that directors/officers of the company cannot be made accused for corporate offences in the absence of allegations of their active involvement.