Though the CBI had not charge-sheeted the two, the special judge had summoned them using powers under Section 319 of Criminal Procedure Code on the legal premise that since they were directors responsible for functioning of the companies - Bharti Cellular Ltd and Sterling Cellular Ltd -- they were vicariously liable for the companies' alleged wrongdoings in bagging excess spectrum during the NDA regime in 2002.
Mittal and Ruia had argued that they were innocent and had nothing to do with the grant of excess spectrum. Their counsel had also questioned the trial court's logic, saying it had turned upside down the accepted criminal procedure of fastening vicarious liability on companies for alleged wrongdoings of directors.
Accepting the grounds of challenge advanced by Mittal and Ruia, a bench of Chief Justice H L Dattu and Justices Madan B Lokur and A K Sikri said the trial court assumed a wrong legal premise to summon them as accused in the case.
However, the court kept some suspense in store for them by giving liberty to the trial court to summon them as accused if it discovered any fresh evidence connecting them personally to the alleged wrongdoings in the grant of excess spectrum.
Writing the judgment for the bench, Justice Sikri said the special CBI judge had summoned them on an erroneous presumption in law as there was no statutory provision in the country under which vicarious liability of the directors could be imputed automatically when the company was the offender.
"It is stated at the cost of repetition 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 the criminal net," Justice Sikri said in the 58-page judgment.
"We also make it clear that even if at this stage, no such prima facie material is found, but during the trial, sufficient incriminating material against these appellants surfaces in the form of evidence, the special judge shall be at liberty to exercise his powers under Section 319 of the Code to rope in the appellants by passing appropriate orders in accordance with law at that stage," the bench said.
Essar reacted to the judgment by saying, "The verdict is a vindication of our position that we have not violated any law. We welcome the judgment, which will assuage concerns among corporate leaders on 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."
Mittal and Ruia were summoned by the trial court nearly two years ago on March 19, 2013. However, both moved the apex court challenging the trial court order and the SC had in April 2013 stayed trial proceedings against them.
The apex court said it was well established that if a person controlling the affairs of a company committed an offence, then criminality could be imputed to the company but not in reverse situation.
"In the present case, however, this principle is applied in an exactly reverse scenario. Here, company is the accused person and the learned 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 bench agreed that behind every criminal offence by a company, what operated was the mind of its officers, directors or managing director. However, it felt that vicarious liability could not imposed unless a specific act was attributed to the director or any other person allegedly in control and management of the company.
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