Vicarious liability for criminal breach of trust requires specific allegations and impleading the company.

The applicants, the Director and General Manager of Viraj Polyplast Technologies Pvt. Ltd., were prosecuted under Sections 405 and 406 of the Indian Penal Code (IPC) for failing to deposit Employees' Provident Fund (EPF) contributions.

The company was not arraigned as an accused in the complaint.

While the company was irregular in payments due to market fluctuations, it eventually deposited the outstanding amount of ₹11,00,312/-, including interest, after the complaint was filed.

The applicants filed discharge applications (Exhibits 9 and 10), which were rejected by the Additional Judicial Magistrate First Class, Umargam, on 13.10.2017.

The applicants challenged this rejection via the present revision application, arguing they cannot be held vicariously liable for the company's statutory defaults.

1. Whether the directors or managers of a company can be held vicariously liable for offences under Section 405/406 of the IPC without the company being joined as a primary accused.

2. Whether individual directors fall within the definition of "employer" as per Explanation 2 to Section 405 of the IPC.

3. Whether a prosecution for vicarious liability under the EPF Act can be sustained in the absence of specific averments regarding the accused's day-to-day control over the company's affairs.

Section 405 of the IPC, specifically Explanation 2, which defines the "employer" as the person deemed to be entrusted with deducted contributions.

The Supreme Court precedent in Employees State Insurance Corporation v. S.K. Aggarwal (1998), which established that in a limited company, the company itself—not its directors—is the "employer" for the purposes of Section 405 IPC.

Section 14A of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, regarding offences by companies.

The principle from S.M.S. Pharmaceuticals Ltd v. Neeta Bhalla (2005) and Susela Padmavathy Amma v. Bharti Airtel Limited (2024), stating that vicarious liability requires specific allegations that the accused was "in charge of" and "responsible to" the company for the conduct of its business.

The court reasoned that for a charge under Section 406 IPC (Criminal Breach of Trust) to stand, the prosecution must prove "entrustment" and "dishonest intention," which were absent in this case as the default was a corporate statutory failure rather than a personal misappropriation by the applicants.

It held that the term "employer" in the context of a factory owned by a limited company refers to the company itself; directors cannot be prosecuted singly or collectively as "employers" under the IPC.

The court noted a procedural fatal flaw: the company was not joined as an accused, which is a prerequisite for vicarious liability.

The court observed that the complaint contained only bald statements based on their designations in Form 5A, lacking specific allegations of "consent, connivance, or negligence" required under Section 14A of the EPF Act.

Since the applicants were not shown to be responsible for day-to-day affairs, they could not be held liable.

It held that directors are not vicariously liable for a company’s failure to deposit EPF contributions under Sections 405/406 IPC unless the company is joined as an accused and specific roles are attributed to the individuals.

The court allowed the discharge applications under Section 239 of the CrPC and discharged the applicants from all charges.