New Delhi: In a major relief to Bharti Cellular Ltd CMD Sunil Bharti Mittal and Essar Group promoter Ravi Ruia, the Supreme Court on Friday set aside the lower court order summoning them as accused in a corruption case related to allocation of additional spectrum during NDA rule in 2002.
Finding fault with the summoning order, a three judge bench headed by Chief Justice H L Dattu said the principle of 'alter ego' has wrongly been applied by the special CBI judge in seeking presence of Mittal and Ruia as accused.
"It is stated...That in the present case, while issuing summons against the appellants, the Special Magistrate has taken shelter under a so-called legal principle, which has turned out to be incorrect in law.
He has not recorded his satisfaction by mentioning the role played by the appellants which would bring them within criminal net," the bench, also comprising justices Madan B Lokur and A K Sikri, said.
Essar Group in a statement said setting aside trial court order summoning its Vice Chairman Ravi Ruia will "assuage concerns of corporate leaders regarding misuse of judicial processes".
"The judgement will assuage concerns among corporate leaders regarding misuse of judicial process. It will help re-instill confidence among investors and corporates, especially at a time when India is looking to attract fresh investments and increase growth," it said in a statement.
The trial court had said that Mittal and Ruia, who were not named as accused in the charge sheet, used to chair board meetings and "were/are prima facie in control of affairs of the respective companies" and "they are/were 'alter-ego' of their respective companies" and hence, criminal acts of firms can be imputed to them also.
Discussing in detail the issue of 'alter ego', Justice Sikri, who wrote the verdict for the bench, said, "It is abundantly clear that the principle which is laid down is to the effect that the criminal intent of the 'alter ego' of the company, that is the personal group of persons that guide the business of the company, would be imputed to the company/corporation.
"The legal proposition that is laid down in the aforesaid judgment is that if the person or group of persons who control the affairs of the company commit an offence with a criminal intent, their criminality can be imputed to the company as well as they are 'alter ego' of the company".
The apex court said, "In the present case, however, this principle is applied in an exactly reverse scenario. Here, company is the accused person and the Special Magistrate has observed in the impugned order that since the appellants represent the directing mind and will of each company, their state of mind is the state of mind of the company and, therefore, on this premise, acts of the company is attributed and imputed to the appellants. It is difficult to accept it as the correct principle of law...".
It said the trial court did not go into the materials on record to satisfy itself that there was sufficient evidence to proceed against the persons summoned as accused.
"The order is liable to be set aside if no reason is given therein while coming to the conclusion that there is prima facie case against accused, though the order need not contain detailed reasons. A fortiori, the order would be bad in law if the reason given turns out to be ex facie incorrect," it said.
"However, there has to be a proper satisfaction in this behalf which should be duly recorded by the Special Judge on the basis of material on record. No such exercise is done. In this scenario, having regard to the aforesaid aspects coupled with the legal position explained above, it is difficult to sustain the impugned order dated March 19, 2013 in its present form insofar as it relates to implicating the appellants and summoning them as accused persons," the bench said.
Initially, the CBI had filed the charge sheet against former Telecom Secretary Shyamal Ghosh and three telecom firms Bharti Cellular Ltd, Hutchison Max Telecom Pvt Ltd (now known as Vodafone India Ltd) and Sterling Cellular Ltd (now known as Vodafone Mobile Service Ltd.
However, the bench, in its 58 page verdict, said the trial court had issued summons on an "erroneous presumption in law", but it can summon Mittal and Ruia if incriminating materials are found against them.
"While parting, we make it clear that since on an erroneous presumption in law, the Special Magistrate has issued the summons to the appellants, it will always be open to the Special Magistrate to undertake the exercise of going through the material on record and on that basis, if he is satisfied that there is enough incriminating material on record to proceed against the appellants as well, he may pass appropriate orders in this behalf.
It also said that even if CBI did not make appellants accused despite having "sufficient material on record", the special judge is "empowered to take cognizance against these persons as well".
Dealing further with application of 'alter ego' principle in the instant case, the bench said it is true that firms act through its officers, but the persons, controlling them, cannot be made accused unless there is "sufficient evidence" on record to prove their criminal intent and active role.
"No doubt, a corporate entity is an artificial person which acts through its officers, directors, managing director, chairman etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. It would be more so, when the criminal act is that of conspiracy.
"However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so.
"Thus, an individual who has perpetrated the commission of an offence on behalf of a company can be made accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Second situation in which he can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision," it said.
When a company is the offendor, "vicarious liability of the Directors" cannot be imputed automatically, in the absence of any statutory provision, it said.
Analysing the trial court order, the bench said it was not the case as to whether there was sufficient material available to summon or not.
The trial court's order does not reflect the fact that it has dealt with material on record against Mittal and Ruia.
"In the present case, the question is not as to whether there is sufficient material against the appellants filed in the trial court to proceed against them. Whether such a material is there or not is not reflected from the impugned order as that aspect is not even gone into.
"The Special Judge has not stated in the order that after examining the relevant documents, including statement of witnesses, he is satisfied that there is sufficient incriminating material on record to proceed against the appellants as well," it said.
The special judge did not mention about "any incriminating material against them (Ruia and Mittal) in the statement of witnesses or documents etc" and only said that they have been made accused as they are the "alter ego" of the accused firms and "were/are" in the control of their affairs.
A magistrate is bound to consider the question as to whether the material brought on record discloses commission of an offence and is required to form an opinion in this respect, it said.
"A wide discretion has been given as to grant or refusal of process and it must be judicially exercised. A person ought not to be dragged into Court merely because a complaint has been filed. If a prima facie case has been made out, the Magistrate ought to issue process and it cannot be refused merely because he thinks that it is unlikely to result in a conviction," it said.
It said that the words "sufficient grounds for proceeding" amply suggest that an opinion is to be formed only after due application of mind that there is sufficient basis for proceeding against the accused.
