Supreme Court Rules No Vicarious Liability of Company Officers for IPC Offences

The Supreme Court has clarified that officers and directors of companies cannot be held vicariously liable for offences under the Indian Penal Code (IPC) unless there is unimpeachable material showing their specific role in the alleged crime. The Court ruled that unlike special penal statutes such as the Negotiable Instruments Act, 1881, the Food Safety and Standards Act, 2006, or the Drugs and Cosmetics Act, 1940, which expressly provide for vicarious liability, no such principle exists in the IPC.

A Bench of Justices Sanjay Karol and Sandeep Mehta delivered this ruling while setting aside a December 3, 2010 order of the Bombay High Court that had refused to quash criminal proceedings against senior officers of the Bank of Baroda in a defamation case.

No Automatic Prosecution Based on Designation

The Court emphasised that before any officer of a bank or corporate body can be prosecuted for an offence under the IPC, it is essential for the complainant to produce clear and convincing material indicating the precise role of that officer in the commission of the alleged offence. Mere assertions of vicarious liability, without foundational facts to establish active participation, authorisation, or deliberate omission, are not sufficient to justify criminal proceedings.

“The law does not permit automatic prosecution of directors or officers merely because of their designation or official status,” the Bench held.

Case Background

The case arose out of proceedings initiated by Phoenix India against three senior Bank of Baroda officials — Dr. Anil Khandelwal, then Chairman and Managing Director, B.M. Sharma, Deputy General Manager, and Mukul Ranjan, Chief Manager (BCMS).

In 2007, during proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act against Phoenix India, a clerical error led to the possession notice quoting the outstanding amount as ₹56,15,9,294 instead of the correct figure of ₹5,61,59,294.

Phoenix India issued a legal notice to the bank officials alleging that the inflated figure of more than ₹50 crore was malicious and defamatory. In 2008, a judicial magistrate issued process against the officers under Sections 500 and 501 of the IPC. The Bombay High Court in 2010 rejected their plea for quashing, leading to the present appeal.

Supreme Court’s Findings

The Bench noted that the prosecution of the appellants without impleading the Bank of Baroda itself as an accused was legally impermissible. The Bank, being a body corporate, was the entity on whose behalf the alleged defamatory notice was issued. Proceeding against officers alone on the principle of vicarious liability, without arraigning the bank, was unsustainable.

“We are of the firm opinion that the proceedings of the complaint lodged by respondent No. 1-firm and the order issuing process against the appellants tantamount to gross abuse of process of law,” the Bench observed.

The Court pointed out that both the magistrate and the High Court had wrongly assumed that the appellants were responsible for the day-to-day affairs of the bank and could therefore be held answerable for the disputed notice. However, in the absence of a statutory provision in the IPC creating vicarious liability, and without specific allegations establishing their individual role, the officers could not be prosecuted.

The Bench further highlighted that the appellants were entitled to the statutory protection provided under Section 32 of the SARFAESI Act. This provision bars suits, prosecutions, or legal proceedings against the Reserve Bank, the Central Registry, any secured creditor, or their officers for acts done in good faith under the Act.

The Court took note of the fact that the bank had promptly corrected the clerical error and issued a clarificatory letter on August 7, 2007, expressing regret and rectifying the outstanding amount. This demonstrated that the act was bona fide, carried out in discharge of statutory duties under the SARFAESI Act, and not with any intent to defame.

Concluding the matter, the Supreme Court held that continuing criminal proceedings against the officers merely because of their official designations would amount to misuse of judicial process. The absence of concrete material, coupled with statutory protections, made the prosecution untenable both in fact and in law.

“In such circumstances, the prosecution initiated against the officers of the Bank on the foundation of a clerical error is untenable both in facts as well as in law,” the Bench ruled, quashing the proceedings.

• Case Title: Anil Khandelwal Etc vs M/s Phoenix India and Anr

• Date of Judgment: August 28, 2025

• Bench: Justices Sanjay Karol and Sandeep Mehta