Holding

Section 10 of the Essential Commodities Act, 1955 allows the company, its person‑in‑charge and any director, manager or officer who consents, connives or neglects the offence to be prosecuted individually or together, and the High Court’s quashing of the proceedings was erroneous.

Summary

The State of NCT of Delhi filed a criminal appeal against D.A.M. Prabhu and others for allegedly violating Clause 17 of the Textile (Control) Order, 1986 by declaring incorrect fibre composition, thereby contravening an order made under Section 3 of the Essential Commodities Act, 1955. The trial court and a special judge had proceeded against the managing director, general manager, executive director and supervisors of Swatantra Bharat Mills, but the Delhi High Court quashed the proceedings on the ground that the company was merely a unit of a larger corporate body and not an association of individuals. The Supreme Court examined the true scope of Section 10 of the Essential Commodities Act, which deems the company, its person‑in‑charge and any director, manager or officer who consents, connives or neglects the offence liable. The Court held that Section 10 expressly allows prosecution of any one or more of these persons independently of the company and imposes no requirement that they be tried only alongside the corporate entity. Consequently, the High Court’s order was set aside and the appeal was allowed, reinstating the criminal proceedings against the officers. The decision clarifies corporate liability and the separate prosecutability of corporate officers under the Act.

Issues considered

Whether Section 10 of the Essential Commodities Act, 1955 permits prosecution of individual officers of a company independently of the company itself
Whether the High Court was correct in quashing the proceedings against the managing director, general manager, executive director and supervisors on the ground that the company is a unit of a body corporate and not an association of individuals
Whether the nature or alleged minor character of the infraction affects the continuance of criminal proceedings

Legislation cited

Code of Criminal Procedure, 1973s. 482
Essential Commodities Act, 1955s. 10, s. 3, s. 7

Subjects

Essential Commodities ActSection 10Corporate liabilityProsecution of officersTextile Control OrderCriminal procedureDirector liability

Judgment

[2009] 3 S.C.R. 165

STATE (GOVT. OF NCT OF DELHI) A
II.
D.A.M. PRABHU AND ANR.
(Criminal Appeal No. 266 of 2009)
FEBRUARY 11, 2009
B
[DR. ARIJIT PASAYAT AND ASOK KUMAR
GANGULY, JJ.]

Essential Commodities Act, 1955:
c
s. 10 - Scope and ambit of - Discussed.

s.10 - Contravention of order made under s.3 by a
company - Prosecution of Managing Director, General
Manager, Executive Director and Supervisors - Held: Each D
~ or any of them may be separately prosecuted or along with
the company - There is no statutory compulsion that the
person-in-charge or an officer of the company cannot be
prosecuted unless they are ranged alongside the company
itself - On facts, High Court was not justified in quashing the
proceedings against them - Textile (Control) Order, 1986 - E
Clause 17 - Code of Criminal Procedure, 1973 - s.482.

" Prosecution case was that SB Mills was declaring
• and stamping wrong fibre composition for the cloth and
thereby was contravening Clause 17 of Textile (Control) F
Order, 1986. This rendered it liable for penal action for
violation of order made under s.3 of the Essential
Commodities Act, 1955. Charge sheet was filed against
one person, who was summoned and released on bail.
A supplementary chargesheet was filed wherein names G
'\ of respondents who were Managing Director, General
Manager, Executive Director and Supervisor were
mentioned. The trial court found them liable for the said
offence and summoned them.
165 H
166 SUPREME COURT REPORTS [2009] 3 S.C.R. ........

A High Court quashed the proceedin!~S against the
,,,.
respondents holding that SB Mills was nothing but a unit
of a body corporate and cannot be called an association
of individuals.

In appeal to this Court, appellant-State contended
B
that the true scope and ambit of Explanation appended
to s.10 of the Act was not kept in view.

Respondent contended that the infraction as alleged ~

was of a very minor nature and therefore continuation of
c the proceedings would not be appropriate.

Allowing the appeal, the Court

HELD: 1. Section 10 of the Essential Commodities
Act, 1955 is plain. If the contravention of the order made
D
under Section 3 is by a company, the persons who may
be held guilty and punished are (1) the company itself,
(2) every person who, at the time the contravention was
committed, was in charge of, and was responsible to, the
company for the conduct of the business of the company
E as the person-in-charge of the company, and (3) any
director, manager, secretary or other officer of the
company with whose consent or connivance or because
of neglect attributable to whom the offence has been
.
committed as an officer of the company. Any one or more
F or all of them may be prosecuted and punished. The
company alone may be prosecuted. Tlhe person-in-
charge only may be prosecuted. The conniving officer
may individually be prosecuted. One, some or all may be
prosecuted. There is no statutory compulsion that the
G person-in-charge or an officer of the company may not
be prosecuted unless he be ranged alongside the /
company itself. Section 10 indicates the persons who
may be prosecuted where the contravention is made by
the company. It does not lay down any condition that the
H person-in-charge or an officer of the company may not
STATE (GOVT. OF NCT OF DELHI) v. D.A.M. PRABHU 167
ANDANR.

be separately prosecuted if the company itself is not A
prosecuted. Each or any of them may be separately
prosecuted or along with the company. Section 10 lists
the person who may be h~ld guilty and punished when
it is a company that contravenes an order made under
Section 3 of the Essential Commodities Act. Naturally, B
before the person in-charge or an officer of the company
is held guilty in that capacity it must be established that
there has been a contravention of the order by the
company. [Para 8) [171-E; 172-A]

2. The stand taken by the respondent was essentially C
the defence which is to be considered at the time of trial.
[Para 1OJ [172-E]

Dulichand Laxminarayan v. Commissioner of Income
Tax, Nagpur (1956) SCR 154; Sheoratan Agarwal and Anr. D
v. State of Madhya Pradesh (1984) 4 sec 352 and State of
Punjab v. Kasturi Lal and Ors. (2004) 12 sec 195, relied on.
Case Law Reference:
(1956) SCR 154 relied on Para 7 E
(1984) 4 sec 352 relied on Para 9
(2004) 12 sec 195 relied on Para 9

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal F
No. 266 of 2009.

From the Judgment and Order dated 12.7.2006 of the High
Court of Delhi at New Delhi in Criminal Revision No. 58 of
1994.
G
\ B.B. Singh, Purnima Bhar Kak and D.S. Mahra for the
Appellant.

U.U. Lalit, Bimal Roy Jad and Rajeev K. Bharti for the
Respondent. H
168 SUPREME COURT REPORTS [2009] 3 S.C.R.

A The Judgment of the Court was delivered by ,,.
DR. ARIJIT PASAYAT, J. 1. Leave granted.

2. Challenge in this appeal is to the judgment of a learned
Single Judge of the Delhi High Court quashing the order
B passed by learned Special Judge under the Essential
Commodities Act, 1955 (in short the 'Act').

3. Background facts as noted by the High Court are as
follows:
c On 23.01.1988, a complaint was lodged by the
Enforcement Inspector with the Station House Officer of Police
Station Moti Nagar, New Delhi, alleging that Swatanta Bharat
Mills had, by declaring and stamping wrong fibre compositions
for the cloth, contravened the provisions of the Textile
D Commissioner's notification dated 23.11.1981 and clause 17
of the Textile (Control) Order, 1986 rendering themselves liable
for penal action for violation of the order made under Section
3 of the Act punishable under Section 7 thereof. On 11.02.1988,
an FIR was registered on the basis of the said complaint. On
E 06.05.1988, the charge sheet was filed in court, but there was
only one accused, namely, A.K. Rohtagi, who was shown in
Column No.4 for the offence, inter-alia, under section ·7 of the
said Act. On that date, the Court passed the following order:

F "New challan filed today. It be checked and registered.
Accused person be summoned for 09.06. 1988."

Thereafter, the accused AK. Rohtagi appeared and was
released on bail. On 4.12.1990, a supplementary challan was
filed and the court passed the following order:-
G
"Supplementary challan filed today. It be checke!d and I
registered. Accused be summoned for 18.12.1990 as
main case is already fixed for 18.12.1990."

H In the supplementary charge sheet, the said AK. Rohatgi
STATE (GOVT. OF NCT OF DELHI) v. D.A.M. PRABHU 169
AND ANR. [DR. ARIJIT PASAYAT, J.]

'"- was again shown in Column No.4. However, in Column No.2, A
the respondents along with R.C Kesar and Lala Bansidhar were
shown in Column No.2. It appears that on 18.02.1991,
respondent No.2 V.K. Malhotra appeared in court and on
22.02.1991, the court passed the following order: -
B
"V.K Malhotra mentioned in column No.2 is not required
for the time being. He is being discharged. Only the
accused persons mentioned in Column No.3/4 of the
"' challan u/s 173 of Cr.P.C. was to be summoned and not
those mentioned in Column No.2 of that report."
c
On 24.04.1991, the earlier charge-sheet and the
supplementary charges sheet were consolidated and the court
observed that summons were issued to some of the accused
and that the predecessor court by order dated 22.02.1991 had
mentioned that these persons may not be summoned for the D
... time being. Thereafter, the court directed that the matter should
come up for arguments on 04.06.1991 on the question whether
the persons named in Column No.2. be summoned as accused.
In the order dated 11.2.1994, it is recorded as under:
E
"It appears that in the supplementary challan, four accused
were placed in Column No.2 and have not been
summoned so far probably on the presumption that they
" have not been sent up for trial by the police. However, a
"' perusal of the final report in the supplementary challan
F
...... would show that the police has specifically mentioned that
there was a violation of Clause 17 of the Textile Control
Order, 1986 by Swantantra Bharat Mills which is a
company by virtue of Section 10 of the Act and the
Managing Director, General Manager, Executive Director
(Textile) and Supervisors, Folding Division are liable and G
1, should be summoned."

Accordingly, the court came to the view that the
respondents alongwith other two mentioned in Column No.2,
namely, R.C. Kesar and Lala Bansidhar be also summoned. H
170 SUPREME COURT REPORTS [2009] 3 S.C.R.

A The basic stand before the High Court was that the ,,,.
deeming provision of Section 10 of the Act cannot be applied
to the facts of the case.

The High Court found that Swatantra Bharat Mills was
B nothing but a unit of the body corporate known as DCM Ltd.
But it cannot be called to be an association of individuals. So
holding, the proceedings so far as the respondents are
concerned were quashed. '

4. Learned counsel for the appellant-State submitted that
C true scope and ambit of Explanation appended to Section 10
has not been kept in view.

5. Learned counsel for the respondents on the other hand
supported the judgment. Additionally, it is submitted that the
0 infraction as alleged is of a very minor nature and, therefore,
continuance of the proceedings shall not be appropriate. r

6. To appreciate rival submissions it would be necessary
to take note of Section 10 of the Act. The said provision reads
as follows:
E
"( 1) If the person contravening an order made under
Section 3 is a company, every person who, at the time the
contravention was committed, was in charge of, and was
responsible to, the company, shall be deemed to be guilty
F of the contravention and shall be liable to be proceeded
against and punished accordingly:

Provided that nothing contained in this sub-section
shall render any such person liable to any punishment if
he proves that the contravention took place without his
G knowledge or that he exercised all due diligence to prevent
t
such contravention. '
(2) Notwithstanding anything contained in sub-section (1),
where an offence under this Act has been committed by a
H company and it is proved that the offence has been
STATE (GOVT. OF NCT OF DELHI) v. D.A.M. PRABHU 171
AND ANR. [DR. ARIJIT PASAYAT, J.]
..... committed with the consent or connivance of, or is A
attributable to any neglect on the part of, any director,
manager, secretary or other officer of the company such
director, manager, secretary or other officer shall also be
deemed to be guilty of that offence and shall be liable to
, be proceeded against and punished accordingly. B
Explanation - For the purpose of this section,-

... (a) "company" means any body corporate, and includes a
firm or other association of individuals; and
c
(b) "director" in relation to a firm means a partner in the
firm."

7. In Dulichand Laxminarayan v. Commissioner of
~ Income Tax, Nagpur ( 1956 SCR 154) it was inter-alia
... observed that the expression 'person' has not been defined and D
applying the definition under the General Clauses Act, 1872 (in
short the 'General Clauses Act') body of individuals can be
covered under the expression 'person'. Sub-Section (42) of
• Section 3 of the General Clauses Act has been statutorily
'
incorporated by way of an Explanation under Section 10. E

8. The section appears to our mind to be plain enough. If
... the contravention of the ordet made under Section 3 is by a
. company, the persons who may be held guilty and punished are
(1) the company itself, (2) every person who, at the time the F
contravention was committed, was in charge of, and was
responsible to, the company for the conduct of the business of
the company whom, for short, we shall describe as the person-
in-charge of the company, and (3) any director, manager,
secretary or other officer of the company with whose consent G
I I
or connivance or because of neglect attributable to whom the
offence has been committed, whom, for short, we shall
describe as an officer of the company. Any one or more or all
of them may be prosecuted and punished. The company alone
may be prosecuted. The person-in-charge only may be
H
172 SUPREME COURT REPORTS [2009] 3 S.C.R.

A prosecuted. The conniving officer may individually be
,,.,
prosecuted. One, some or all may be prosecuted. There is no
statutory compulsion that the person-in-charge or an officer of
the company may not be prosecuted unless he be ranged
alongside the company itself. Section 10 indicates the persons
B who may be prosecuted where the contravention is made by
the company. It does not lay down any condition that the person-
in-charge or an officer of the company may not be separately
prosecuted if the company itself is not prosecuted. Each or any +
of them may be separately prosecuted or along with the
c company. Section 10 lists the person who may be held guilty
and punished when it is a company that contravenes an order )

made under Section 3 of the Essential Commodities Act.
Naturally, before the person in-charge or an officer of the
...
company is held guilty in that capacity it must be established
that there has been a contravention of the order by the company. ,
D
9. The above position was highlighted in Sheoratan
.
Agarwal and Anr. v. State of Madhya Pradesh (1984 (4) SCC
352) and State of Punjab v. Kasturi Lal and Ors. (2004 (12)

E
sec 195) ...•
10. Added to that, the threshold interference does not
appear to be in order. The stand as taken by the respondents
was essentially the defence whicl't is to be considered at the #
time of trial. The impugned judgment is unsupportable and is
F set aside.
11. The appeal is allowed.

D.G. Appeal allowed.

I
I