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M J Antony: Heat in the boardroom

Thanks to a recent Supreme Court judgment, criminal negligence by directors can now lead to conviction - and sentence

M J Antony 

M J Antony

A disaster caused by human error in an industrial unit is soon followed by a blame game. Sacking the night watchman is easier; fixing civil and criminal liability of managers and in charge takes decades.

The embers of the 1984 Bhopal gas catastrophe continue to smoulder in the Supreme Court, which heard the victims' pleas last Monday. Though Bhopal has become a word in dictionaries, the incident did not take the law of torts one bit forward because of the debatable compromise between the government and the American multinational that ran the plant at that time.

Another gas leak soon thereafter caused panic in Delhi and led to a momentous Supreme Court judgment. The court propounded the doctrine of strict liability of the occupier who was engaged in hazardous activity (M C Mehta vs Union of India).

The next milestone in disaster jurisprudence was the judgment in the Dabwali fire tragedy in 2001. More than 400 people, mostly schoolchildren, were charred to death when a fire broke out in an overcrowded hall when festivities were in full swing. The judgment, which was delivered by the Punjab and Haryana High Court, fixed liability on the school management and on the hall's owners. The principles laid down in that judgment were applied by the Supreme Court last week in its 330-page judgment in the Uphaar cinema case, in which an inferno killed 60 people in Delhi 16 years ago.

Criminal liability of executives and has been discussed often in the context of bouncing cheques or fraudulent transactions. However, this judgment is a landmark in that it carries forward the law of and punishment. Unlike the Bhopal litigation, which let the suspects flee the country by night or be charged under diluted provisions of the criminal codes, the Uphaar judgment nails the honchos and awards them jail sentences.

The significance of the Uphaar judgment lies in its broad sweep of culpability: it covers not only "owners" of the property but also its "occupiers". A large corporation is usually an umbrella for several companies engaged in various business activities. The and shareholdings change conveniently in the interwoven companies, which makes it difficult to pin down the persons actually in charge of an establishment when a particular incident occurs. In this case, for instance, it has large interests in real estate, apart from education and entertainment (the latter is looked after by Ansal Theatres and Clubotels Pvt Ltd).

The judgment brought clarity to the law on owners' and occupiers' liability. It is no longer possible to quibble on who the owner - or the occupier - of the premises is. It stated that the onus for an accident and damage is primarily on those who are in control of the premises. Once direct control is established, the directors in charge will be clamped with culpability. It is not even necessary that control must be "full and pervasive".

"We must steer clear of the impression that an occupier must be the owner of the premises," the judgment said, and added: "While it is true that an owner may in a given situation be also the occupier of the premises owned by him, it is not correct to say that for being an occupier one must necessarily be the owner of the premises in question. What is important is whether the premises in question was sufficiently and not exclusively under the control of the accused person, and for being in such control, ownership is not a condition precedent."

Therefore, directors cannot argue now that the company that owned the property was the guilty one, and if it was convicted it should be punished with a fine or other penal action or its offence could be "compounded". The company cannot be sent to jail. Now the persons in charge can be convicted and sentenced to imprisonment. Their direct control can be derived from the facts in individual cases.

In this case, the trial court had found that two directors took at least eight crucial decisions that contributed to the accident. For instance, they created additional seats in the balcony, blocked exit gates and let out various parts of the cinema for commercial use - all are rule violations. The long litigation would have ended last week but for the difference of between the two judges on the question of the guilty directors' sentence. This is another opportunity for lawyers to reopen the arguments before a larger bench in this case. However, for the future, the law is not clouded in smoke; its heat has now reached the boardrooms.

First Published: Tue, March 11 2014. 21:48 IST