DARPANKUMAR JITENDRABHAI SHAH vs STATE OF GUJARAT

Court: Gujarat High Court
Case type: CRIMINAL REVISION APPLICATION
Decided on: 23-03-2026

<div> R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/CRIMINAL REVISION APPLICATION NO. 272 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE HASMUKH D. SUTHAR ============================================ </div><table><thead><tr><th>Approved for Reporting</th><th>Yes</th><th>No</th></tr></thead><tbody><tr><td></td><td></td><td></td></tr></tbody></table><div> ============================================ DARPANKUMAR JITENDRABHAI SHAH & ANR. </div><table><thead><tr><th>CORAM:</th><th>HONOURABLE MR. JUSTICE HASMUKH D. SUTHAR</th></tr></thead><tbody></tbody></table><div> Date : 23/03/2026 JUDGMENT 1) By way of present revision application under Sections 397 and 401 of the Code of Criminal Procedure, the applicants have sought following relief:- “(A) That this Hon’ble Court may be pleased to admit and allow this Revision Application and call for Record and Proceedings of Criminal Case no.698/2015 from the Court of Additional Judicial Magistrate First Class, Umargam and after perusing the same be pleased to quash and set aside the common order dated 13.10.2017 passed by the Additional Judicial Magistrate First Class, Umargaon, rejecting applications Exhibit 9 and 10 filed by the petitioners seeking discharge from the Criminal Case No.698 of 2015 arising out of offence registered vide CR Page 1 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 No.I – 14/2015 under Sections 405 and 406 of the Indian Penal Code and in turn, be pleased to discharge the petitioners from the Criminal Case No.698/2015 by holding that the petitioners cannot be held vicariously liable for the offence committed by the company / establishment under section 405 of the Indian Penal Code.” 2) It is the case of the applicant that the learned Magistrate ought to have considered that the Investigating Officer has no authority to investigate the offence and no cognizance could have been taken by the learned Magistrate pursuant to the charge-sheet. As the applicants are not vicariously liable for the offence without joining Viraj Polyplast Technologies Pvt. Ltd., (which shall hereinafter be referred to as “ the company ”) which is not arraigned as an accused which is a manifest error on the record committed by the learned trial Court. He has further submitted that the complainant – Divyeshbhai Jayshrikrushna Shukal, has lodged the complaint against the applicants. The company is indulged into the business of building material as well as pre-cast concrete products,. Due to slack in the market of construction and building materials and the fluctuation in the rate of the US Dollar the company could not sustain itself and tried to make efforts of payment of the salaries of its employees and also became irregular and establishment did not resort to retrenchment as a result of which the establishment did not deduct the amount of contribution of the employees from their Page 2 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 salaries towards the Employees Provident Fund (which shall hereinafter be referred to as “ EPF ”) and due to this reason in turn did not deposit the same in the office of EPF and subsequently along with interest the amount came to be paid and deposited. Hence, he has requested to discharge the applicants by allowing the present revision application. 3) Learned APP for the respondent – State has opposed the present revision application and submitted that offences punishable under Sections 405 and 406 of the Indian Penal Code would attract as it is the statutory duty of the employer to deposit the amount and subsequent deposit of contribution amount reveals that at the relevant point of time the offence was committed and amount thereafter the contribution was deposited and therefore the Courts below have not committed error in passing the impugned order and hence requested to dismiss the present revision application. 4) At the outset, it is worth mentioning here that the offence was registered at the instance of the respondent no.2 for the offences punishable under Sections 405 and 406 of the IPC with the allegation that the applicants failed to deposit contribution amount and also failed to perform their statutory obligation to deposit the contribution of the employees towards the EPF. The applicants are Directors of the Company and the said Company Page 3 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 is not joined as an accused in the present case. However, this is not the case wherein the applicant have misappropriated the amount of the contribution of the employees which are already deducted from the salaries of the employees. After receiving the notice and registration of complaint on 04.02.2015, the company has deposited Rs.4,69,252/- and Rs.6,31,060/- in total Rs.11,00,312/- came to be deposited by the company inclusive of the contribution of the employer towards the EPF. The applicant no.1 is the Director and applicant no.2 is the General Manager of the Company and no allegations are there against the applicant that they have deducted the funds form the salaries of employees and did not deposit the same. Further, it is the case of the applicants that in absence of company no prosecution can be initiated and by arraigning the accused they cannot be held vicariously liable. In this regard reference is made to the judgment of the Hon’ble Supreme Court in Employees State Insurance Corporation Vs. S. K. Aggarwal , reported in (1998) 6 SCC 288 . Merely, the present applicants are connected with the management of the company is not a ground to file the proceedings against them. 5) To advert the aforesaid contention, it is worth to refer to provision of section 405 of the IPC, which reads as under: “405. Criminal breach of trust.- Whoever, being in any manner entrusted with property, or with any Page 4 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 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 willfully suffers any other person so to do, commits “criminal breach of trust”. The essential ingredients of the offense of criminal breach of trust are: (1) The accused must be entrusted with the property or with dominion over it, (2) The person so entrusted must use that property, or; (3) The accused must dishonestly use or dispose of that property or wilfully suffer any other person to do so in violation, (a) of any direction of law prescribing the mode in which such trust is to be discharged, or; (b) of any legal contract made touching the discharge of such trust. Explanation 2.— A person, being an employer, who deducts the employees’ contribution from the wages payable to the employee for credit to the Employees’ State Insurance Fund held and administered by the Employees’ State Insurance Corporation established under the Employees’ State Insurance Act, 1948 (34 of 1948), shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid. "Entrustment" of property under Section 405 of the Indian Penal Code, 1860 is pivotal to constitute an offence under this. The words used are, 'in any manner entrusted with property. So, it extends to entrustments of all kinds whether to clerks, servants, business partners or other persons, provided they are holding a position of 'trust'. A person who dishonestly misappropriates property entrusted to them contrary to the terms of an obligation imposed is liable for a criminal breach of trust and is punished under Section 406 of the Penal Code. Page 5 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 The definition in the section does not restrict the property to movables or immoveable alone.” To make out an offence under Section 406 of the IPC, prosecution must have to prove that the accused was entrusted property or with any dominion or power over it and there was dishonest intention, misappropriation or dishonest conversion or disposal of property in violation of directions of law or legal contract by the accused himself. Herein, in the case on hand, no any iota of evidence or allegation, which suggests entrustment of the property to the applicants and dishonest intention on the part of the accused. In absence of any such contract of transaction or any breach of terms of agreement between the complainant and applicants, no offence is made out. It is needless to say that liability recommends difference between the simple payment of investment of money. In absence of any fraudulent entrustment or dishonest intention, no offence is made out. In explanation (2) to section 405 of the IPC, nowhere word “principal employer” is explained. Hence, it must be understood as in ordinary parlance. In ordinary parlance it is the company which is the employer and not its Directors either singly or collectively and said issue is also considered by the Hon’ble Apex Court in the case of S.K. Aggarwal (Supra) and ESI Page 6 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 Corpn. vs. Gurdial Singh [1991 Supp (1) SCC 204] and the head-note reads as under: “A. Penal Code, 1860 – 1860 – Ss.405 Expln.2 and 406 – Word “employer” occurring in Expln.2 to S.405 – Meaning and scope – Held, does not attract the definition of “principal employer” contained in S.40 of ESI Act – Word “employer” although used in Ss.85-B and 85-C of ESI Act, held, has not been defined in that Act – High Court rightly applied ordinary parlance meaning to the said word – Hence, where the factory in question was owned by a limited company, held, the company, and not its directors singly or collectively, was the employer liable for prosecution under S.406 – Labour Law – Employees’ State Insurance Act, 1948, Ss.40, 2(17) & (15), 85-B and 85-C – Factories Act, 1948, Ss.2(n) (as it then stood) and 100(2) – Words and phrases - “Employer”. B. Labour Law – Employees’ State Insurance Act, 1948 – Ss.40 and 2(17) & (15) – Principal employer – Who is – Where the factory in question was owned by a limited company, held, the owner and not the occupier of the factory would be the principal employer – Further held, S. 2(17) uses the words “owner” and “occupier” disjunctively – Hence, where the factory in question was owned by a limited company, which was also the employer of the employees, the definition of principal employer under the ESI Act even if applied in Expln. 2 to S. 405, IPC, the directors of that company, held, would not be covered by that definition so as to render them liable to prosecution under S. 406 – Penal Code, 1860, Ss. 405 Expln.2 and 406 – Interpretation of Statutes – Subsidiary rules – Conjunctive or disjunctive.” As the Employees’ State Insurance Act does not define the term “employer”, the term “employer” is used in Section 2(17) of the ESI Act, which defines the term “principal employer” as either “owner” or “occupier”. The word “owner” and “occupier” Page 7 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 have used disjunctively where the owner of the factory is a “principal employer”, there is no need to examine as to who is the occupier. The owner will be the “principal employer”. 6) At this stage, definition of “employer”, as provided in Section 2(e) of the Employees’ Provident Funds And Miscellaneous Provisions Act, 1952, is required to be referred to, which reads as under: “2(e) “Employer” means- (i) in relation to an establishment which is a factory, the owner or occupier of the factory, including the agent of such owner or occupier, the legal representative of a deceased owner or occupier and, where a person has been named as a manager of the factory under clause f of sub-section 1 of section 7 of the Factories Act, 1948 (63 of 1948), the person so named; and (ii) in relation to any other establishment, the person who, or the authority which, has the ultimate control over the affairs of the establishment, and where the said affairs are entrusted to a manager, managing director or managing agent, such manager, managing director or managing agent;” 7) Further, Section 14A of the EPF Act reads 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: Page 8 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 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.] Section 34 of the Drugs and Cosmetics Act, 1940 reads as under: 34. Offences by companies.— (1) Where an offence under this Act has been committed by 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 provided in this Act 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- Page 9 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 section (1), where an offence under this Act 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, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also 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 a body corporate, and includes a firm or other association of individuals; and(b)“director” in relation to a firm means a partner in the firm.” At this stage, section 141 of the Negotiable Instruments Act, 1881 is also relevant to be referred to, which reads as under: “141. Offences by companies. — (1) If the person committing an offence under section 138 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 person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence: Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case Page 10 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 may be, he shall not be liable for prosecution under this Chapter. (2) Notwithstanding anything contained in sub- section (1), where any offence under this Act 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, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also 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 or other association of individuals; and(b)“director”, in relation to a firm, means a partner in the firm. 8) Now, coming back to the provision of section 14A of the EPF Act, the provision is pari materia to section 34 of the Drugs and Cosmetics Act and Section 141 of the Negotiable Instruments Act, 1881 is also required to be considered. 9) Merely because present applicants are the Director and General Manager of the Company, the applicants cannot be held vicariously responsible and prosecuted in aid of Section 14A of the EPF Act. To connect the accused persons with an offence, complainant must have to show that how and in what manner the present applicants being the Director and General Manager of the Company and are answerable for the conduct and business of the Company. Herein, in the complaint, nowhere the Page 11 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 specific role of the present applicants is alleged and merely their names are mentioned in Form No.5A in declaration and by virtue of designation the applicants are arraigned as accused in their individual capacity. The applicants are not full time salaried employees or also not getting any remuneration from the Company and only by virtue of their designation, as a care taker, they are arraigned as accused. To make answerable or responsible the Director or members of the Company for the administration of the Company, complainant must have to show that present applicants were responsible for the day to day affairs of the Company. Mere bald statement in the complaint is not enough for proceeding against the applicants. In this regard, I lay my hand on pari materia provision of section 141 of the Negotiable Instruments Act, 1881 qua responsibility and prosecution against Directors in case of company, firm or association and reference is required to be made to the decision of the Hon’ble Supreme Court in the case of S.M.S. Pharmaceuticals Ltd vs Neeta Bhalla & Anr. reported in (2005) 8 SCC 89 ; Ashoke Mal Bafna vs. M/s. Upper India Steel Mfg. & Engg. Co. Ltd. reported in (2018) 14 SCC 202 and Susela Padmavathy Amma vs. Bharti Airtel Limited reported in 2024 SCC OnLine (SC) 311 wherein, dealing with provisions under Section 34 of the Drugs Page 12 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 and Cosmetics Act, 1940 has observed in paragraph 18 as under: “18. In the case of State of Haryana vs. Brij Lal Mittal and others [(1998)5 SCC 343] , this Court observed thus: “8. Nonetheless, we find that the impugned judgment of the High Court has got to be upheld for an altogether different reason. Admittedly, the three respondents were being prosecuted as directors of the manufacturers with the aid of Section 34(1) of the Act which reads as under: “34. Offences by companies.—(1) Where an offence under this Act has been committed by 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 provided in this Act 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.” It is thus seen that the vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a director a person can be in charge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except a bald statement that the respondents were directors of the manufacturers, there is no other allegation to indicate, even prima facie, that they were in charge of the Page 13 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 company and also responsible to the company for the conduct of its business.” 10) Further, dealing with section 138 read with Section 141 of the Negotiable Instruments Act, 1881, considering the decision of Hon’ble Supreme Court in the case of S.M.S. Pharmaceuticals Ltd. (Supra) , the Hon’ble Supreme Court paragraph 20 observed thus: “20. In the case of S.M.S. Pharmaceuticals Ltd. (supra), this Court was considering the question as to whether it was sufficient to make the person liable for being a director of a company under Section 141 of the Negotiable Instruments Act, 1881. This Court considered the definition of the word “director” as defined in Section 2(13) of the Companies Act, 1956. This Court observed thus: “8. ……. There is nothing which suggests that simply by being a director in a company, one is supposed to discharge particular functions on behalf of a company. It happens that a person may be a director in a company but he may not know anything about the day-to-day functioning of the company. As a director he may be attending meetings of the Board of Directors of the company where usually they decide policy matters and guide the course of business of a company. It may be that a Board of Directors may appoint sub- committees consisting of one or two directors out of the Board of the company who may be made responsible for the day-to-day functions of the company. These are matters which form part of resolutions of the Board of Directors of a company. Nothing is oral. What emerges from this is that the role of a director in a company is a question of fact depending on the peculiar facts in each case. There is no universal rule that a director of a company is in charge of its everyday affairs. We have discussed about the position of a director in a company in order to illustrate the point that there is no magic as such in a particular word, be it Page 14 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 director, manager or secretary. It all depends upon the respective roles assigned to the officers in a company. …..” 11) Further, the principle of vicarious liability is inserted to make sure that the real perpetrators of the offence are punished. The Courts while recognizing the principle of vicarious liability in criminal jurisprudence have time and again laid down some ratio so as to prevent the misuse of the principle. The Hon’ble Supreme Court has also laid down guidelines to prevent the misuse of the section. One of the foremost requirement is the presence of specific averment. In the case of SMS Pharmaceuticals (Supra) and other all cases referred above, the Hon’ble Supreme Court has held that “ with a view to make the Director of a Company vicariously liable for the acts of the company, it was obligatory on the part of the complainant to make specific allegations and in the absence of same, the complaint should not be entertained” . Merely simply stating that the accused in charge of the firm or company will not satisfy the contours of the Act. To launch a prosecution, it has to be showcased that accused were involved and this has to be done in a clear and unambiguous manner. The test of “factual and legal requirement” is that, accused “was in charge of, and was responsible to the company for the conduct of the business of Page 15 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 the company”. To impose vicarious liability on an individual, “person should fulfill the ‘legal requirement’ of being a person in law (under the statute governing companies) responsible to the company for the conduct of the business of the company and also fulfill the “factual requirement’ of being a person in charge of the business of the company”. In the same case, while referring to sub-clause 2 of the same section, the Apex Court had reiterated that, to impose liability under the said sub-clause, it has to be showcased that there is some “consent, connivance or negligence” on the part of the accused which led to the commission of the offence. 12) Similarly, in view of order dated 11.09.2024 passed by this Court in Criminal Misc. Application No.9538 of 2012, the present revision application deserves consideration and the order passed by Court below is required to be quashed and set aside. 13) Accordingly, the present revision application is disposed of being allowed . The common order dated 13.10.2017 below Exhibits 9 and 10, in Criminal Case No.698 of 2015, passed by the Additional Judicial Magistrate First Class, Umargam, is quashed and set aside and the discharge applications under Section 239 of the Code of Criminal Procedure, filed by the applicants is hereby allowed and the applicants are discharged from the Page 16 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026 R/CR.RA/272/2018 JUDGMENT DATED: 23/03/2026 charges levelled against them. 14) Record and proceedings, if any, be sent back to the concerned Court forthwith. (HASMUKH D. SUTHAR,J) ANKIT JANSARI Page 17 of 17 Uploaded by ANKIT YOGESHBHAI JANSARI(HCW0109) on Wed Mar 25 2026 Downloaded on : Wed Mar 25 17:56:43 IST 2026</div>