Purpose of non executive ----vicarious liability ---

Non- Executive Chairman-

 Does not interfere in day to day activities of the company

 Separate post from CEO
 Helps in corporate governance
 Duties typically related to the matters of board

Two test – responsible test (legal) and charge test (factual)

Charge and responsibility test need to be satisfied for vicarious liability

Responsible test- he corporate officers considered as responsible to the company for the
conduct of the business of the company are its managing director, whole time directors,
manager and secretary.

Charge test - he Supreme Court stated that a person would be in charge of the business of the
company if the person is in overall control of the day to day business of the company

KK AHUJA CASE (____________) accused was deputy manager, since he did not come into
any of the categories of responsibly mentioned in the Companies Act—no prima facie case

 Sunil Bharti Mittal v Central Bureau of Investigation, (para 44) 2015 SCC
OnLine SC 18

The Supreme Court held that without statutory backing, the persons in charge of a company
cannot be held criminally liable for the actions of a company. The court was firm in applying
the proposition that there is no special vicariously liability in criminal law without a statutory
exceptions in this regard.

 Kk Ahuja v vk vora CRIMINAL APPEAL NOS.1130-31 OF 2003(SC)

Since the accused did not come into any of the categories of responsibly mentioned in the
Companies Act, 1956, the prosecution was prima facie invalid. There was no further need to
look into the question whether the accused was in charge of the business of the company.
  SMS Pharmaceuticals v/s. Neeta Bhalla, (2007) 4 SCC 70 (para 11-12)

The Delhi High Court observed that the liability depends on the role that the person plays in
the company and not on the designation or status. The court further concluded that the
liability arises on account of conduct, act or omission on the part of a person and not merely
on account of holding an office or a position in a company.

 Everest Advertising Pvt. Ltd. v. State, 2005 SCC OnLine Del 745 (para 8 )

After referring to the various judgments of the Supreme Court. The Court drew the ratio
therefrom in the following words:

If a Director or other officer is necessarily covered by Sub-section (1) of Section 141 he need
not have been mentioned again in Sub-section (2) of that section. It is clear that a Director or
other officer can be prosecuted when he is covered by Sub-section (2) of Section 141. In the
alternative, he can be prosecuted if he is a person in charge of and responsible to the
company but not so simply on account of being a Director, Chairman or Vice Chairman.
In other words, he has to be something more than simply the Director, Chairman or Vice
Chairman. This leads to the conclusion that if a Director or other officer of a company is to
be prosecuted for the offence under Section 138 of the Act, the complainant must show how
the Director or other officer is responsible for the conduct of the day-to-day business of the
company.

purnimaraj@gmsil.co