Calcutta High Court: Juridical Person for a Holding Company is Responsible for the Offences and Liabilities of its Subsidiary Company

Calcutta High Court: Juridical Person for a Holding Company is Responsible for the Offences and Liabilities of its Subsidiary Company

The Calcutta High Court has observed that since the Juridical Person of a holding company has not denied its relation with its subsidiary company, he is responsible for the offences and liabilities of its subsidiary company

The singe judge Justice Rai Chattopadhyay has turned down a plea filed by the financial services company India Infoline Ltd (IIL) (petitioner) to quash proceedings under Sections 163(4), 196(3), 301(5) and 372A (6) of the Companies Act and Sections 467/120B of the Indian Penal Code.

In the present case the petitioner is the juridical person, a company namely, Indian Infoline Limited, incorporated under the Companies Act, 1956.

The petitioner had challenged the proceedings pending in the Court of the Chief Judicial Magistrate, Purba Midnapore. The petitioner/company had prayed for quashing of the entire proceeding pending before the trial Court.

It was the case of the petitioner that a criminal complaint was specifically directed against the ‘subsidiary’ of the present petitioner.

In the complaint it was alleged that, India Infoline Finance Limited (IIFL) and IIL entered into a criminal conspiracy and manipulated the records of IIFL to deny rights of an individual who had purchased two debentures of IIFL. This was done to deny any pecuniary benefit due to him from the profits of the company.

The Counsel appearing for the petitioner submitted before the High Court that being the ‘holding company’, the present petitioner had no manner of business and control as to the accused no.1, i.e., India Infoline Finance Limited (IIFL).

According to him, by no stretch of imagination the petitioner would have been arrayed as an accused in the said case or considered to be involved in any way.

The Counsel submitted that accused no.9, i.e, ‘The President, Indian Infoline Limited’ was an imaginary post/designation and that there was no post as ‘The President’ under the law to have any authority to represent the petitioner/company.

Thus, the counsel for IIL submitted before the High Court that it is a holding company of IIFL but has no role to play regarding the debentures of its subsidiary. The petitioner had also challenged the jurisdiction of the court of the Chief Judicial Magistrate, Purba Midnapore, to hear such a matter.

The Court at the outset remarked that, “The ‘holding company’ and the ‘subsidiary company’ share the assets, profits, benefits as well as the debts and liabilities. This is the settled position of law and by no stretch of imagination can the petitioner validly put forth in this case, its contention of not to be involved in the business of the subsidiary company in any way.”

The extent of share of the profits or liabilities of the ‘subsidiary company’ and the ‘holding company’, would however, depend on the terms entered into between them, in other words, would be a question of fact and a subject matter of evidence and trial, opined the Judge.

The Court observed that, when the relationship between the petitioner and the accused no.1 company as a holding company/and its subsidiary, were not denied and found that the extent of liability was a question of fact to be tested in trial.

The present case by the complainant in a jurisdictional Court where the corporate office of the holding company is situated, cannot be said to be barred by operation of the provision under Section 10 of the Companies Act, 1956, stated the Judge.

Thus, the Court reckoned, “It is found that there is no ground in this case for which this Court’s power under Section 482 of the CrPC, to prevent any abuse of the process of Court or otherwise to secure the end of justice, should be exercised. Instead, the prima facie material found in the complaint dated 03.10.2012, lodged by the opposite party/complainant prompts this Court to dismiss the present case and direct the trial court to commence the proceedings in accordance with law and as expeditiously as possible.”

Accordingly, the revision was dismissed and the Trial Court was directed to expeditiously proceed to adjudicate the matter.