A director cannot be criminally liable solely by designation absent allegations of individual involvement.

The dispute arose from a 7 July 2010 agreement between M/s Symbiosis Electronics Pvt. Ltd. and M/s Mindview Technologies Pvt. Ltd., represented by its directors, for the sale of industrial scrap.

The informant alleged that Rs. 1.75 crore was paid, but the scrap was not made available and the amount was not refunded; the petitioner’s case was that the dispute concerned performance of the commercial agreement.

The police filed a final form concluding that the dispute was civil and contractual, but the Chief Judicial Magistrate took cognizance against the petitioner under Sections 406, 420 and 506 IPC on 20 September 2016.

The petitioner sought quashing of that order.

1. Whether the allegations and materials disclosed the ingredients of the offences under Sections 406, 420 and 506 IPC against the petitioner, or instead concerned a contractual dispute.

2. Whether the petitioner could be prosecuted on the basis of his position as a company director without allegations disclosing his individual involvement.

Sections 406, 420 and 506 IPC were the offences for which cognizance had been taken.

The Court relied on S.K. Alagh v. State of Uttar Pradesh, (2008) 5 SCC 662, for the principle that, absent a statutory provision creating vicarious criminal liability, a company director or employee is not liable merely by virtue of that position; liability must rest on the individual’s own acts.

It also referred to Vesa Holdings (P) Ltd. v. State of Kerala, (2015) 12 SCC 781, for the principle that cheating requires fraudulent or dishonest intention at the inception of the transaction, which is not established merely by failure to perform a contract.

It also referred to Medmeme, LLC v. M/s Ihorse BPO Solutions Pvt. Ltd., (2018) 13 SCC 374, for the principle that criminal proceedings should not continue where a contractual dispute does not disclose the essential ingredients of the alleged offences.

The Court viewed the allegations principally as concerning non-refund of money and the alleged sale or removal of scrap in breach of the agreement.

It concluded that the materials indicated a dispute over the agreement’s execution and that the petitioner’s designation as a director, without allegations establishing his individual involvement, was insufficient to sustain criminal prosecution.

Applying the cited principles, the Court held that continuing the proceedings would amount to an abuse of the process of the Court.

It quashed the cognizance order dated 20 September 2016 in G.R. No. 326 of 2012, arising from Kotwali P.S. Case No. 36 of 2012, and allowed the application.