Directors Onus Expanded

For instance, if gas leaks from a factory and causes injury or death, the men at the helm in the company can no longer say that they were not in direct control of the operations or that they have taken all precautions to prevent such accidents.

A few weeks ago, the Supreme Court allowed the trial of the chairman and managing director of the Union Carbide India Ltd to proceed for the 1984 Bhopal gas catastrophe. In an equally significant ruling last week, the court laid down that a director should be named the occupier of the premises under the Factories Act. He shall be personally liable along with the manager for violation of the safety precautions (J K Industries vs Chief Inspector of Factories).

 

The strict liability principle, under which directors of a company are vicariously held responsible for the wrongs of the company, can be found not only in the Companies Act, but also in other statutes concerning the industry, food adulteration, and prevention of pollution.

In these fields, it is not the employee on the spot alone who is answerable, but also those who are in ultimate control of the firm. They could be liable both under civil and criminal law. The omission and commission of a rule of safety itself is an offence.

Such offences are called absolute offences or public welfare offences, according to the new coinage. They are not criminal offences in a real sense but acts which are prohibited in the interest of the welfare of the people. A large number of companies had challenged Section 2(n) of the Factories Act, which made a nominated director personally responsible for the companys wrongs. They argued that it was violative of their fundamental rights. The high courts have been giving contrary rulings on this point. The Supreme Court has now given the seal of approval to the absolute liability principle.

The only escape route now available to a company whose director is going to be prosecuted is found in Section 101. It can establish in the court that the occupier-director is not the real offender but some other person who should be punished. It must also be proved that the occupier had been diligent, and the offence was committed without his knowledge, consent or connivance.

The hitch is that all these have to be proved with the highest degree of evidence and the employee who is the new accused can cross examine the director and establish his innocence. The employee might, however, find it very difficult to fight his case with his own company against him, with all its financial and legal resources.

He still has another escape route when the company turns against him. According to the provision, if he cannot be brought to the court for three months, the trial will proceed against the director. Therefore, ones advice to technocrats working in hazardous industries is to keep their suitcases ready and disappear for three months if disaster strikes.