Court Finds Lack of Evidence and Improper Vicarious Liability in EPF Contribution Default Case
In a significant judgment delivered on May 1, 2026, the Telangana High Court quashed criminal proceedings against N. Sridhar, the Chairman and Managing Director of M/s Sankhya Infotech Limited, in connection with alleged defaults in Employees' Provident Fund (EPF) contributions. The decision was rendered by Mr. N. Tukaramji, J., in Criminal Petition No. 11796 of 2024, highlighting the improper imputation of corporate liability on individuals without sufficient evidence of direct involvement.
The case arose from a complaint filed by the Enforcement Officer of the Employees' Provident Fund Organisation (EPFO), alleging non-payment of EPF contributions for the period from March 2013 to December 2014. The petitioner, N. Sridhar, faced charges under Section 406 of the Indian Penal Code, 1860, for criminal breach of trust, and Section 14 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952.
Counsel for the petitioner, Mr. S. Ravi, argued that the prosecution failed to provide any specific evidence linking Sridhar to the alleged defaults or demonstrating his active participation in the company's day-to-day affairs. Furthermore, it was pointed out that the principal offender, the company itself, was not charged, which is crucial for establishing vicarious liability on its officers.
The Court, after examining the submissions and evidence, noted that the prosecution lacked substantive material to hold the petitioner accountable. It emphasized that mere designation as a corporate executive does not suffice to fasten criminal liability without clear proof of responsibility and involvement.
The judgment drew upon established legal principles that require proper adjudication of statutory dues and the necessity of demonstrating entrustment and misappropriation to establish criminal breach of trust. The Court found that in the absence of a prima facie case and with the company having settled its liabilities through insolvency proceedings, continuing the prosecution would be an abuse of process.
Citing precedents like State of Haryana v. Bhajan Lal and Pepsi Foods Ltd. v. Special Judicial Magistrate, the Court exercised its inherent jurisdiction under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, to quash the proceedings, thereby upholding the petitioner's rights under Articles 14 and 21 of the Constitution.
This decision underscores the judiciary's role in preventing misuse of legal processes and protecting individuals from unwarranted criminal liability in corporate settings.
Bottom line:-
Quashing of criminal proceedings under Section 528 of Bharatiya Nagarik Suraksha Sanhita, 2023 is justified where corporate liability is improperly imputed to an individual without specific material establishing direct involvement or responsibility in alleged statutory defaults.
Statutory provision(s): Section 528 of Bharatiya Nagarik Suraksha Sanhita, 2023, Section 14 of the Employees Provident Funds and Miscellaneous Provisions Act, 1952, Section 406 of the Indian Penal Code, 1860, Articles 14 and 21 of the Constitution of India.
N. Sridhar v. State of Telangana, (Telangana) : Law Finder Doc id # 2910608
