Judgment:
ORDER
1. The petitioners seek in this criminal petition quashing of the proceedings on the file of the IVth Additional Chief Metropolitan Magistrate, Bangalore, in C.C. No. 8007/1995. The learned Magistrate took cognizance against the petitioners and issued process for an offence punishable under section 406, IPC for late payment of the contributions due to the E.S.I. Corporation and for late submissions of returns for the months of June to September, 1994.
2. The case of the prosecution is that the petitioners are partners of a firm known as 'Band Box'. The main occupation of the firm consists of Dry Cleaning, Dyeing, Darning and Processing of clothes. The factory of the petitioners is covered under the provisions of the Factories Act and under the Employees' State Insurance Act, 1948. Since the petitioners did not submit the returns or make payment within the stipulated time, the respondent filed a complaint before the learned Magistrate. The learned Magistrate took cognizance and issued process.
3. The case of the petitioners is that they have nothing to do with the day to day business administration and management of the factory. The first petitioner lives in Kerala and is aged about 90 years. The second petitioner is a house-wife and is in no way concerned with the administrative business of the firm. The third petitioner is 73 years old lady residing permanently at Madras. The petitioners are all partners. The day to day business of the factory is managed by Sri A. K. Sharma. The firm has designated Sri A. K. Sharma as the factory Manager under the Factories Act. It is Mr. A. K. Sharma who is directly in-charge of day to day business and administration of the factory. It is also common ground that it is Mr. A. K. Sharma who submits returns under various enactments including the Factories Act and E.S.I. Act. Various documents have been produced before me to show that the factory Manager Mr. A. K. Sharma has been submitting the returns on behalf of the firm and the same has been accepted by the E.S.I. Corporation. It was also submitted that the firm has been complying with all the provisions of the various labour enactments especially E.S.I. Act. There was some delay in submitting the returns for the months of June to September, 1994. However, the returns for the months of June to September were submitted subsequently, and the contributions together with penal interest thereon was also remitted to the E.S.I. Corporation by the Factory Manager Mr. A. K. Sharma. It was submitted notwithstanding this, the respondent has sought to prosecute the partners instead of prosecuting the factory Manager.
4. Learned counsel for the petitioners Mr. S. G. Bhagavan drew my attention to Section 2(17)(i) which describes the 'principal employer' as follows :
'(i) in a factory, the owner or occupier of the factory and includes the managing agent of such owner or occupier, the legal representative of a deceased-owner or occupier, and where a person has been named as the manager of the factory under the Factories Act, 1948 (63 of 1948), the person so named.'
5. Learned counsel relied on a judgment of the Supreme Court, reported in : (1991)IILLJ425SC , in the matter of Employees' State Insurance Corporation v. Gurdial Singh. The Supreme Court in the said decision held that where the company has a factory under an occupier and the factory has been duly named, it is the occupier who should be prosecuted and not the directors. The Supreme Court stated that in the absence of any material the directors cannot be treated as ipso facto as owners and that the directors cannot be held to be liable unless there are specific allegations against the directors.
6. In this case, admittedly, on a perusal of the complaint, there is absolutely no allegation whatsoever except to state the names of the partners. At paragraph 4, then at paragraphs 6 and 7 of the complaint, a reference is made to the principal employer as follows :
'4. That the accused (1) Sri K. K. A. Nambiar; (2) Mrs. Usha Rathnam; (3) Mrs. Rani Rathnam - partners are the principal employers as per the provisions of the E.S.I. Act, 1948.
6. That as per Section 405, IPC read with Explanation II any sum deducted by the principal employer in accordance with the E.S.I. Act, 1948 and not deposited to the funds of the said E.S.I. Corporation, in accordance with and within the time specified in the E.S.I. Act and the Regulations made thereunder will be deemed to have been dishonestly misappropriated and the principal employers will be deemed to have committed criminal breach of trust as defined in Section 405, IPC with regard to the amount so deducted.
7. That as per Regulation 3 of the E.S.I. (General) Regulations, 1950 enacted under the powers conferred by Section 97 of the E.S.I. Act 1948, a principal employer who is liable to pay the contributions in respect of any employee shall pay those contributions within 21 days of the last date of the wage period in which the contributions fall due and as per Regulation 26 read with Regulation 29 the evidence of payment of such contribution shall be rendered to the E.S.I. Corporation by way of submission of return in form 6 within the time limit specified as referred to in the said application.'
From the perusal of the complaint there is only a mention of the partners' names. However, as far as the liability is concerned, the complaint speaks about the principal employer, who was admittedly in this case, one Sri A. K. Sharma. There is absolutely no allegation as against the partners. When the principal employer is not being prosecuted the partners cannot be prosecuted without any specific allegation. Even if there was slightest suggestion in the complaint that the partners were actively involved in the business of the firm along with the principal employer then the respondent would be justified in prosecuting the partners. In the absence of any such averment, it is difficult to hold that the partners in the facts and circumstances of the case can be prosecuted while the principal employer is not prosecuted. Under Section 2(17)(i) the principal employer is the Manager of the factory under the Factories Act. In this case the Manager of the factory is the said Sri A. K. Sharma and not the partners.
7. Learned counsel for the petitioners relied on a judgment in : 1989CriLJ2201 , in the matter of Sham Sunder v. State of Haryana. The Supreme Court at paragraph 9, held as follows :
'9. It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partnership. They may not know anything about the business for the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub-section (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition mentioned in sub-section (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted. We, therefore, reject the contention urged by counsel for the State.'
Reliance was also placed on a Division Bench Judgment of this Court in ILR (1992) Kant 3380 : (1993 Cri LJ 255), in the matter of E.S.I.C. v. B. S. Narayana Rao. This Court held in paragraph 7 as follows :
'7. It is now necessary to consider the liability of the present respondent in the light of the decisions referred to above. Again going back to the definition of the term 'occupier' under the Factories Act as it stood before insertion of the proviso in the year 1987 the person who had ultimate control over the affairs of the factory was the Occupier. In our view, therefore, it is necessary for the complainant to allege and prove who exactly was in ultimate control over the affairs of the factory, if at all one is sought to be made liable as an occupier. As we have already pointed out from the definition of 'principal employer', there may be Managing Agent appointed by the Occupier or the Owner, there may be legal representatives of a deceased-owner or occupier and where a person has been named as Manager of the Factory the person so named. Therefore, the complainant cannot ask the Court to fit the accused into any one of the categories and say that he was responsible for obeying any of the requirements under the statute. As we have already pointed out the evidence of PW 1 the Inspector is totally silent in this behalf. What all he stated was that the respondent was a Managing Director and nothing more. The term 'principal employer' does not include in its definition the Managing Director. He does not say who was the Occupier of the Factory. He does not say who was having ultimate control over the affairs of the factory and does not even say that the respondent was the Principal Employer. Therefore, it is not possible to make out from the complaint and muchless even from the evidence as to the capacity in which the respondent was sought to be prosecuted.'
8. Learned counsel for the respondent Mr. Papanna strenuously submitted that Section 2(17) the definition of a Principal Employer is not confined to the Manager of the factory under the Factories Act. It has wider implications, and will include the partners of the firm. However, his submission cannot be accepted for the simple reason that there has been no averment in the complaint in implicating partners except to describe them as partners. I have already extracted the averments in the complaint earlier. Learned counsel for the respondent relied on a Judgment of the Supreme Court, reported in : [1985]1SCR719 , in the matter of Sheoratan Agarwal v. State of Madhya Pradesh However, the facts of this case will have no application to the present case.
9. While the principal employer will be strictly liable, the partners can be made liable if there are averments in the complaint that they have also participated in the commission of the offence. No such averments have been made in the complaint. Mr. Papanna, learned counsel for the respondent was not able to show from the complaint that there were specific averments against the partners. In the peculiar facts and circumstances of the case the continuation of the trial against the partners without prosecuting the principal employer, is in my view is misdirected and is an abuse of the process of law. In these circumstances the prosecution as against the partners stands quashed. The proceedings in C.C. No. 8007/95 on the file of the IVth Additional Chief Metropolitan Magistrate, Bangalore are accordingly quashed. This petition is allowed.
10. Petition allowed.