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March 15, 2016

Dynamics Of Vicarious Liability


amit-wadhwa

Vicarious Liability is the liability arising out of acts done by one person inflicting responsibility upon another because of a relationship which could be of Employer-Employee, Master-Servant, Principal-Agent etc.

The term “Liability” has gained significance as the economy is growing and the world has turned into a global market with strong interdependence. Liability as such is a broad term and in general, the term means accountability, responsibility, and burden. In all other types of liability, vicarious liability is one of the most complex type of liability. The term vicarious liability is the liability arising out of acts done by any other person inflicting responsibility upon another because of a relationship which could be of Employer-Employee, Master- Servant, Principal-Agent etc. The aspect of vicarious liability is based on the Legal maxim “respondeat superior” which denotes “Let the master answer”.

The complexity for the vicarious liability deepens when the act involved is done by a juristic body like a company and not a natural person and it is difficult to evaluate and ascertain the liability. The vicarious liability can be of civil or criminal

nature. For a civil issue, the theory of alter ego is in use wherein the corporate veil is lifted to ascertain the person responsible but it becomes complex when the act is of criminal nature. There are different views for different prepositions and ultimately the most crucial and instrumental factor to determine the liability is the knowledge, supervision, control over management and failure to take reasonable caution which one is supposed to take while acting as an important functionary in the company.

The liabilities which a company may face are broadly divided into following categories:

a) Statutory Liability - Contract Labour (Abolition & Regulation) Act, Minimum Wages Act, Shop & Establishment Act, Provident Fund Act, The Company Act, and The Income tax Act.

b) Contractual Liability - Obligations arising out of commercial agreements.

c) Strict or Absolute Liability - The Environment Act, unfortunate event of Bhopal Gas tragedy has given a need for affixing such liability wherein public at large is at risk due to hazardous activities of a factory.

d) Vicarious Liability - Liability imposed not by personal acts but by the act of another person in jural relationship. E.g. an accident caused by a thief in stolen vehicle will not impose the liability on owner of the vehicle subject to no fault liability envisaged under the Motor Vehicles Act.

The Bhopal gas tragedy has turned a new phase wherein the concept of vicarious liability changes to strict liability for the industries engaged in hazardous activities. This also gave a reason for introducing the “The Public Liability Insurance Act 1991,” wherein any person involved in hazardous goods is mandated to have insurance so that compensation in event of any mishap can be assured, its violation being punishable with fine or imprisonment or both.

The apex court while deciding the compensation for victims of Uphaar tragedy1, has categorically held that where the rights under Article 21 of Constitution are violated, the liability is not vicarious but strict and mentioned that, “Courts have held that due to the action or inaction of the State or its offices, if the fundamental rights of citizens are infringed then the liability of the state, its officials is strict”. So, the paradigm of liability for an act, omission or negligence is widening not only towards the private persons running the companies but also public authorities.

Exceptions to Vicarious Liability:

Despite the onerous obligations, there are exceptions to the liability in special statutes and criminal law as well where the concerned person shows lack of knowledge or any omission on his part for the act. Following are…

1) Misrepresentation by an agent does not bind the Principal as excluded u/s 238 of Indian Contract Act. An agent entering into a contract by mis-representing that he is authorised to do so does not bind the Principal under the contract.

2) Acts beyond the scope of employment, not specifically instructed to perform.

3) The liability for offence committed under the Employees Provident Fund and Miscellaneous Provisions Act specified that if the person proved that the Act was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. Section 14-A

4) Any act without jural relationship. E.g. accident caused by thief in stolen vehicle does not pass the liability for compensation to owner of vehicle as the vehicle was used without the consent of owner of the vehicle subject to No fault liability as envisaged under the Motor Vehicles Act.

The conviction of Ansal Brothers2 was also based on the fact that they not only are the licensee but also have supervision and control over the management of the cinema. The moot question remains the attribution of person in the offence and in an offence by the company; anyone responsible for the day to day affairs can’t be made an accused unless a specific attribution to the offence is shown. The role of a person in offences involving a company were discussed in detail by the Apex court while deciding CBI vs Sunil Mittal SC 2015, wherein the company M/s. Bharti Cellular was made one of the accused by CBI in the chargesheet filed under the famous 2G scam. The special court summoned Mr. Sunil Mittal being chairman of M/s. Bharti Cellular on the basis of theory of alter ego, however, the Apex court held that, “Where the Company is an offender; the vicarious liability cannot be imputed automatically on any officer of the company”3.

As our society and legal dynamics are evolving in the complex way, finding the root of an act is necessary to have liability affixed. The mere fact that a Company or public office is involved in the act should not be a shield for the wrong doers but at the same time, the responsibility for the act should be clearly ascertained with attribution of the wrong doer in the offence.

1. Para 12, MCD of Delhi vs Association of Victims of Uphaar Tragedy & others, Civil Appeal no. 7114-15 of 2003, S.C.
2. Para 27, Sushil Ansal vs State through CBI, CRIMINAL APPEAL NO.597 OF 2010, S.C.
3. Para 30 CBI vs Sunil Mittal, S.C. 2015.

Disclaimer - The views expressed in this article are the personal views of the author and are purely informative in nature.

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