Noting that “the concept of ‘vicarious liability’ is unknown in criminal law”, the Supreme Court ruled that criminal proceedings are not maintainable in the absence of any specific allegation against the members of the board of directors or senior executives of a company.
Ruling for the appellant in M/s Thermax Ltd & Ors v KM Johny & Ors, a two-judge bench of the court held that Bombay High Court was wrong in allowing a lower court to call for a criminal report in a dispute that contained flavours of a civil dispute.
The dispute in the case centred on a contract between Thermax and two companies, owned by KM Johny, that built tanks for liquefied petroleum gas. Thermax cancelled the contract in May 1995 allegedly after the companies failed to deliver on the contract.
[ihc-hide-content ihc_mb_type=”show” ihc_mb_who=”3″ ihc_mb_template=”2″ ]
In May 2000, KM Johny filed a criminal complaint against Thermax alleging non-payment of dues. This was followed up with a subsequent criminal complaint against Thermax in 2002 that resulted in a judicial magistrate ordering a criminal investigation into the matter.
Thermax responded with two criminal writ petitions to Bombay High Court that prompted the court to intervene. However, as the Thermax could do little to rid itself of the criminal investigation launched, it filed a petition to the Supreme Court.
While allowing the petition, the Supreme Court held that the distinction between a mere breach of contract and the offence of cheating is a fine one. A mere breach of contract cannot give rise to a criminal prosecution for cheating without evidence that there was fraudulent or dishonest intention when the offence was committed.
[/ihc-hide-content]
The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.
