Offences by companies [Section 9AA]:

This concept is known as the principle of vicarious liability. Section 9AA of the Act makes every person responsible to and every person in charge of the business of the company at the time of commission of the offence to be guilty of offence besides the company itself. However it will be a defence for such a person that the offence was committed without his knowledge or that he had exercised due diligence to prevent the commission of the offence.

The section also deems any director, manager, secretary or other officer to be guilty where the offence is attributable to their consent or connivance or neglect. The term “company” includes a firm and association of individuals and the term “director” will mean a partner in relation to a firm.

The Delhi High Court has held in Vidya Wati v. State – 1988 (37) E.L.T. 341 that the term “incharge of and responsible to the company” would mean that the person was in overall control of the day-to-day affairs of the company. Only if this can be proved, can the person be deemed guilty of offence.

The person-in-charge of a company can be prosecuted as there is nothing unreasonable about it since company usually acts through such person. [Standard Chartered Bank v. Directorate of Enforcement, 2006 (197) E.L.T. 18 (S.C.)].