The Supreme Court on Friday quashed the summons issued to corporate giants Sunil Bharti Mittal and Ravi Ruia in the 2G-related cases by holding that Directors and heads of the companies cannot be held “vicariously” liable for wrongs done by their companies — Airtel and Essar. The verdict by a three-judge bench headed by Chief Justice Hl Dattu has come as a big blow to the CBI-investigated excess spectrum case where then Telecom Secretary Shyamal Ghosh and three companies namely Bharti Cellular, Hutchinson Max Telecom and Sterling Cellular are facing trial.
late former Telecom Minister Pramod Mahajan had allegedly awarded excess spectrum at lower rates to allegedly benefit these telecom companies by altering the eligibility criteria from companies having 9 lakh-consumer base to 4-5 lakh. On March 19, 2013, the Special 2G court issued summons to Mittal, Ruia of Sterling Cellular and Asim Ghosh of Hutchinson, holding them to be the “alter ego” and “controlling minds” of the three companies. They were asked to stand trial for the acts attributed to the companies.
Finding this principle to be “incorrect in law”, the apex bench, also comprising Justices Madan B lokur and AK Sikri, said, “When the company is the offender, vicarious liability of the Directors cannot be imputed automatically, in the absence of any statutory provision to this effect…there has to be a specific Act attributed to the Director or any other person allegedly in control and management of the company, to the effect that such a person was responsible for the acts committed by or on behalf of the company.”
The order is bound to weaken the case set up by CBI. The agency had to prove mens rea (intention) and in the absence of individual accused persons who are in charge of the affairs in the three companies, it may become difficult to proceed against the companies. CBI in its evidence showed meetings held between Mittal and then Minister and Shyamal Ghosh and how the public offer of Bharti Cellular benefitted a day after grant of excess spectrum.
The bench said that the order passed by Special Judge did not record “the role played by the appellants, which would bring them within criminal net”. According to the apex court, for a wrong act committed by the Director or person in charge of a company, it was lawful to rope in the company as accused. But the reverse was not true.
Setting aside the summons issued against Mittal and Ruia, the bench observed that the special 2G court ought to have given reason while forming a “prima facie” case against the accused although detailed reasons were not necessary. leaving a ray of hope for CBI, the bench, before concluding, said, “If the Special Magistrate is satisfied (during any stage of trial) that there is enough incriminating material on record to proceed against the appellants as well, he may pass appropriate orders (fresh summons).”