Penal Code, 1860 – ss.500, 501 – Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – s.32, 13(2), (4) – Security Interest (Enforcement) Rules, 2002 – r.8 – Code of Criminal Procedure, 1973 – s.482 – Loan accounts of respondent No.1-firm were classified as non-performing assets and it was notified to repay the overdue loans with interest – Repeated intimations and demands raised but, the outstanding amounts were not cleared – Eventually, Bank issued a possession notice u/s.13(4), SARFAESI Act r/w 2002 Rules, for taking symbolic possession of the immovable properties mortgaged by respondent No. 1 to secure the credit facilities – Inadvertently, the outstanding amount quoted in the possession notice was mentioned as Rs.56,15,9,294/- instead of Rs.5,61,59,294/- – Respondent No. 1 issued notice to the appellants viz., the Chairman and Managing Director, the Deputy General Manager, and the Chief Manager of the Bank, alleging defamation stating that the Bank had maliciously issued the possession notices reflecting an unrealistic and false outstanding amount of more than Rs.50 crores – Respondent No. 1 filed criminal Complaint u/ss.499, 500 and 501, IPC – Magistrate issued process against the appellants – Quashing petition filed by the appellants, dismissed by High Court – Interference with:
Held: The Bank is a body Corporate – Appellants were arraigned as accused on the principle of vicarious liability being the persons responsible for the day-to-day affairs of the Bank – However, the Bank itself, on whose behalf the alleged defamatory notice had been issued, was not arraigned as an accused in the complaint – Without impleading the company itself, the prosecution against directors or officers alone is impermissible. [Para 16]
1.2 Thus, the prosecution of the appellants, without impleading the Bank as an accused in the proceedings, is ex-facie impermissible and cannot be sustained. [Para 18]
1.3 The appellants were summoned in capacity of the officers of the Bank for the offences punishable under the IPC – However, there is no concept of vicarious liability of the officers or directors for the offences under the IPC as is provided under special Penal Statutes such as The Negotiable Instruments Act, 1881, The Food Safety and Standards Act, 2006, The Drugs and Cosmetics Act, 1940, etc. which specifically creates such liability. [Para 20]
1.4 Accordingly, before any officer of a Bank or a body corporate can be prosecuted for an offence under the IPC on the allegation of having acted on behalf of the institution, it is incumbent upon the complainant to produce unimpeachable material indicating the precise role of the officer in the commission of the alleged offence – Mere bald assertions of vicarious liability, without foundational facts to show active participation, authorization, or deliberate omission on the part of the officer, are insufficient to justify issuance of process in such a situation – The law does not permit automatic prosecution of directors or officers merely because of their designation or official status. [Para 22]
1.5 Hence, in the absence of any specific statutory provision under the IPC creating vicarious liability, coupled with the lack of concrete allegations or material demonstrating the individual role or culpability of the appellants for the alleged defamatory notice, their prosecution cannot be sustained – Continuation of criminal proceedings merely on the basis of their official designation in the Bank would amount to a misuse of judicial process. [Para 24]
1.6 Furthermore, the appellants are entitled to the statutory protection provided u/s.32 of the SARFAESI Act, which expressly prohibits any suit, prosecution, or other legal proceedings against the Reserve Bank, the Central Registry, any secured creditor, or their officers for anything done in good faith pursuant to the provisions of the Act. [Para 25]
1.7 Also, the possession notice was bona fide issued u/s.13(4) of the SARFAESI Act for taking symbolic possession of the mortgaged property on account of default in repayment of outstanding dues – Owing to a clerical error in the drafting of the notice, instead of reflecting the true outstanding amount as Rs.5,61,59,294/-, the recovery notice portrayed the amount as Rs.56,15,9,294/- – Upon realizing this inadvertent mistake, the Bank promptly issued a clarificatory letter expressing regret and rectifying the figure – This sequence of events clearly establishes that the acts/omissions of the Bank and its officials were bona fide, in due discharge of statutory duties under the SARFAESI Act, without any mala fide intention to defame respondent No.1- firm – The prosecution initiated against the appellants-officers of the Bank on the foundation of said clerical error is untenable both in facts as well as in law – Appellants were wrongly impleaded – Impugned order passed by the High Court and consequently, the order issuing process passed by the Magistrate are quashed and set aside – Proceedings of the Complaint quashed in entirety. [Paras 24, 26-28]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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