Company officers cannot be prosecuted for corporate acts when the company itself is not arraigned as an accused.

The complainant, proprietor of M/s T.K. Engineering Works, was appointed an authorised dealer of Swaraj Tractors for Nalanda district in 2007.

He alleged that the petitioners, officers of Mahindra & Mahindra Ltd., demanded ₹5,00,000 as rangdari, threatened termination of his dealership, altered the dealership area and market-share targets, and appointed another dealer without notice.

He further alleged that the petitioners caused encashment of a bank guarantee of ₹20,98,000, withheld dealership incentives, directed him to sell tractors on credit, and failed to take back spare parts valued at ₹15,00,000.

The complainant instituted Complaint Case No. 849(C) of 2016, in which the Judicial Magistrate, 1st Class, Bihar Sharif, took cognizance under Section 406 IPC on 28 September 2016.

The petitioners sought quashing of the cognizance order under the High Court’s inherent jurisdiction.

Whether the cognizance order was liable to be quashed because the complaint was not supported by an affidavit, contrary to the principle stated in Priyanka Srivastava v. State of Uttar Pradesh.

Whether the criminal proceedings against the petitioners, who were alleged to have acted on behalf of Mahindra & Mahindra Ltd., were maintainable when the company itself was not arrayed as an accused.

Whether the petitioners could be held personally liable for encashment of the bank guarantee by the company in the absence of allegations establishing their individual criminal liability.

The Court considered Section 406 of the Indian Penal Code, concerning criminal breach of trust.

It relied on Priyanka Srivastava v. State of Uttar Pradesh, (2015) 6 SCC 287, for the principle that an application invoking the Magistrate’s process under Section 156(3) CrPC should be supported by an affidavit, thereby ensuring accountability in criminal proceedings.

The Court also relied on Manjula Kapoor v. State of Himachal Pradesh, 2026 LiveLaw (SC) 763, for the principle that where the alleged criminal acts are substantially attributable to a company, prosecution of its officers cannot ordinarily proceed without arraigning the company as an accused.

The Court further recognised that acts such as encashment of a company-held bank guarantee, without more, do not automatically establish personal criminal liability of the company’s officers.

The Court found that the complaint was not supported by the affidavit contemplated in Priyanka Srivastava, which constituted a procedural defect in the institution of the criminal process.

More importantly, the allegations concerning the dealership agreement, bank guarantee, incentives and spare parts were directed substantially against Mahindra & Mahindra Ltd., the company on whose behalf the petitioners allegedly acted.

The complainant’s counsel conceded that the company had not been impleaded as an accused.

Since the company had encashed the bank guarantee and the petitioners were proceeded against in their capacity as its officers, the Court held that the criminal case could not properly continue against them individually without the company being arraigned.

These defects rendered the cognizance order unsustainable.

The Court clarified that the order would not affect any independent legal proceedings concerning recovery of the bank guarantee encashed by Mahindra & Mahindra Ltd.