Non-Payment of Dues by Companies: Civil or Criminal Wrong? Insights from Calcutta High Court Ruling

6th November, 2024 - 7:25 am Categories: News & Updates 0 Comments

INTRODUCTION

The Calcutta High Court recently addressed this important question in its judgement in the case of Dasrathbhai Narsangbhai Chaudhary and Another Versus the State of West Bengal and Another. Through this case, the court further clarified the line between civil and criminal wrongs by analysing the facts of the case and reiterating the judgements of the Hon’ble Supreme Court. The conflict involved in this case is one in which an employee of the company sued the Directors of the company for not paying the outstanding dues of salary and performance bonus to him. The offences of criminal breach of trust and cheating were alleged to have been committed by the Company Directors. This blog aims to scrutinize the major points of discussion of the present case and critically analyze the same post the analysis of the judgement.

AN OVERVIEW OF THE CASE

In this case, Debasis Majumdar (hereinafter referred to as “the Complainant) was employed as the CEO of Safal Life Science (P) Ltd. (hereinafter referred to as “the Company”) through an employment letter by the Directors of the Company. The Company, as well as its Directors, are located in Gujarat. It was alleged by him that the directors did not pay him outstanding dues of salary and performance bonus of a total amount of Rs. 1,47,64,833/-. Subsequently, he filed a complaint in the Trial court against the Directors alleging them to have committed offences under sections 420 and 406 read with section 34 of the Indian Penal Code. Both the directors, one of them being Dasrathbhai Narsangbhai Chaudhary (hereinafter referred to as “the Petitioners”) filed a Criminal Revisional Application in the Calcutta High Court requesting the Hon’ble High Court to quash the criminal proceedings under section 482 read with section 402 of the Code of Criminal Procedure, 1973 (hereinafter referred to as “CRPC”) on three primary contentions- that all the dues were cleared, that the trial court had no territorial jurisdiction to try the present case and that if at all any dues lie pending, they would constitute a civil dispute and should be heard by a civil court.

The two main issues in this case were, firstly regarding the non-payment of dues constituting the crimes of criminal breach of trust and cheating and, secondly regarding the territorial jurisdiction of the court to try the case. This blog focuses only on the first aspect.
Throwing light upon the first aspect of the case, the High Court referred to various judgements of the Apex Court to conduct its analysis. The Hon’ble Supreme Court in The State of Kerala v. A. Pareed Pillai and Anr. has held as follows: – To hold a person guilty of the offence of cheating, it has to be shown that his intention was dishonest at the time of making the promise. Such a dishonest intention cannot be inferred from the mere fact that he could not subsequently fulfil the promise.[1]

The Supreme Court in another case of Paramjeet Batra v. State of Uttarakhand recognized that although the inherent powers of a High Court under Section 482 of the Code of Criminal Procedure should be exercised sparingly, the High Court must not hesitate in quashing such criminal proceedings which are essentially of a civil nature.[2]

The High Court also pressed upon the fact that the complainant had not mentioned anywhere in his complaint that the outstanding dues were held with the intention to cheat. It was also not mentioned that they had any dishonest or fraudulent intentions in keeping the dues. No other elements of comprising a criminal offence were pointed out by the Complainant.
The Calcutta High Court upon careful examination of the facts of the case, decisions of the Supreme Court in similar cases and the submissions made by both parties said that it is crystal clear that non-payment of outstanding dues towards Outstanding Salary or Performance Bonus by the company does not amount to Criminal breach of trust.[3] Subsequently, the Calcutta High Court quashed the criminal proceedings.

AN ANALYSIS OF THE JUDGEMENT OF THE COURT:

The judgement given by the court clearly distinguishes between the civil and criminal nature of cases and it also signifies that when cases of a civil nature are given a criminal face, the High Court must not hesitate to use the powers given to it under Section 482 of CRPC to prevent the abuse of process of court and to ensure justice. However, these powers must be subject to limitations mentioned in Section 402 of CRPC.

The court in understanding the nature of the case, distinguished between civil and criminal liability and stated that the absence of any dishonest or fraudulent intention which is a prerequisite for the commission of offences like cheating and criminal breach of trust does not make a person criminally liable for mere non-payment of outstanding dues.
This case is evidence of the fact that employer-employee relationships have a contractual basis and any dispute arising out of the same relation is essentially civil in nature and must be filed in a civil court. These must not be filed in a criminal court unless, of course, criminal elements are involved.

The ruling of the court that “failure of payment of outstanding dues does not amount to criminal breach of trust” is not to have any specific effect on the employer-employee relationship and is not going to discourage employees because this decision merely clarifies the line between civil and criminal jurisdiction. The grievances of the employees or labourers in this context are to be heard and solved through the civil route involving labour courts or by filing civil suits. This case therefore would neither have a negative impact upon employment, nor would it strain employer-employee relations as a consequence.

LEGISLATIVE PROVISIONS:

The employees and labourers have a right to salary. The Bombay High Court has said that workers have the fundamental right to get payment of wages under Article 21 of our Constitution.[4] To ensure timely payment of wages/salaries to the workers various legislations are into force like the Payment of Wages Act of 1936 and the Industrial Disputes Act of 1947. If the wages/salaries are not paid in time, labour courts or tribunals can be approached under the provisions of these Acts. If the salary of the employees are fixed by way of a contract, civil suits can be filed by way of breach of contracts in a civil court for non-payment of outstanding salary or bonuses.

The legislation for redressal of salary disputes is already in force however this case is a reminder for the need of salary specific laws which ensure that timely salary is given to employees, and in cases where the same is not given in time, a quicker method of relief is the need of the hour. Civil proceedings can often be costly, and for employees litigating for unpaid salaries, there is a pressing need for better, more accessible solutions.

CONCLUSION:

Summarizing the above discussions, this ruling of the Calcutta High Court is of paramount importance in understanding the line between civil and criminal litigations and separating the two so as to prevent unnecessary burdens on the justice system. While these discussions encourage filing of disputes of salary related disputes in a civil court, this case also throws light upon the urgent need for specific laws ensuring quick redressal of grievances of employees relating to unpaid salaries.

This case, however, by reinforcing the principle that non-payment of outstanding dues does not automatically amount to criminal breach of trust, the court has set a clear judicial standard that future cases can reference.

Author: Aarushi Mishra, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

[1] State of Kerala v. A. Pareed Pillai and Anr. [ (1972) 3 SCC 661]

[2] Paramjeet Batra v. State of Uttarakhand [(2013) 11 SCC 673]

[3] Dasrathbhai Narsangbhai Chaudhary v. The State of West Bengal & Another [2024 Latest Caselaw 5124 Cal]

[4] A workers right to get wages: https://nyaaya.org/nyaaya-weekly/a-workers-right-to-get-wages/#:~:text=The%20Bombay%20High%20Court%20has,Article%2021%20of%20our%20Constitution