Legal Responsibility in Investment Irregularities: Can Staff Members Be Proceeded Against Alongside the Owner?

 

In many financial businesses in India, the owner or promoter is not the person who deals directly with customers. Investors often interact with sales executives, relationship managers, field staff, or branch-level representatives who explain the scheme, collect documents, receive money, and make assurances about returns. When the investment later turns sour, returns are delayed, or the entire operation appears to be a fraudulent deposit or Ponzi-style arrangement, the central legal issue is not merely who owned the business, but who actually participated in the wrongdoing and in what manner. Under current Indian law, offences such as criminal breach of trust and cheating are dealt with under the Bharatiya Nyaya Sanhita, 2023, and the Banning of Unregulated Deposit Schemes Act, 2019 provides a dedicated framework against unlawful deposit-taking schemes.

Liability Is Based on Role and Conduct, Not Just Job Title

The broad legal position in India is that criminal liability is personal, not automatic. The Supreme Court has repeatedly held that a person cannot be prosecuted merely because they hold a designation such as director. The Court reiterated in 2024 that liability depends on whether the person was actually in charge of, and responsible for, the conduct of the business, or whether the offence occurred with that person’s consent, connivance, or negligence. The Court also stressed that this requirement applies even more strongly to non-director officers: it must be shown what their duties were and how they were responsible for the offending conduct.

This principle is important for both sides of the question. It means that an owner or promoter cannot escape scrutiny merely because he or she stayed behind the scenes and left all investor-facing work to staff. At the same time, it also means that a staff member is not automatically “equally responsible” just because he or she was an employee. The law looks at actual participation, authority, knowledge, representations made to investors, and the person’s connection to the fraudulent conduct.

When the Owner, Promoter, or Persons in Control Can Be Held Responsible

If the business is running an unregulated deposit scheme, the Banning of Unregulated Deposit Schemes Act, 2019 prohibits not only acceptance of deposits under such schemes but also their promotion and advertisement. The Act separately penalises fraudulent default and wrongful inducement. Most offences under the Act are cognizable and non-bailable. Significantly, where the offender is not an individual but a firm, company, partnership, or other entity, the law deems both the deposit taker and every person who was in charge of and responsible for its business to be guilty, subject to a defence of lack of knowledge or due diligence.

For a company structure, the Companies Act, 2013 can also become relevant. Section 36 applies to any person who knowingly or recklessly makes false, deceptive, or misleading statements, promises, or forecasts, or deliberately conceals material facts, in order to induce investment. Section 447 then provides punishment for fraud. In other words, where the entity is a company, the law is capable of reaching beyond the nominal owner and focusing on the actual persons who engineered or carried forward the deception.

Can Staff Members Also Be Proceeded Against?

Yes, staff members can also be proceeded against, but not merely because they spoke to investors. Their liability arises when evidence shows that they knowingly made false promises, misrepresented returns, concealed material facts, collected money for an unlawful scheme, or otherwise assisted the operation with the required level of knowledge or culpability. The BUDS Act is especially clear on this point. It prohibits any person from knowingly making false, deceptive, or misleading statements to induce investment in an unregulated deposit scheme, and it separately provides that where the offence was committed with consent, connivance, or neglect, liability can extend to a director, manager, secretary, promoter, partner, employee, or other officer.

That makes the legal answer quite direct: proceedings need not be confined to the owner alone. If the staff members were merely ordinary employees carrying out routine administrative work without knowledge of the fraud, the case against them may fail. But if they were active participants in soliciting investors, giving false assurances, handling collections, or knowingly furthering the scheme, the law allows them to be named and prosecuted as well. Their responsibility may or may not be identical to the owner’s, but it can certainly be substantial.

Ponzi Schemes, Money Circulation Schemes, and Regulatory Overlap

Where the scheme is in substance a Ponzi arrangement or a money circulation model, more than one statute may be triggered. The BUDS Act expressly states that a prize chit or money circulation scheme banned under the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 is to be treated as an unregulated deposit scheme under the BUDS framework. The 1978 Act itself bans the promotion or conduct of such schemes. If the business is structured as a pooled investment product, SEBI law may also become relevant, because the SEBI Act defines collective investment schemes in section 11AA and contains an offences-by-companies provision in section 27.

What Usually Has to Be Shown Against Staff

In practice, the legal case against staff usually turns on proof. Courts look for specific allegations and supporting material showing what the person actually did. The Supreme Court has made clear that bald or generic allegations are not enough; the complaint must explain how and in what manner the person was responsible. Applied to staff, this means that prosecution is stronger when there is concrete material such as written promises, recorded calls, brochures, investor forms, receipts, commission records, chat messages, account handling, or evidence that the employee knowingly repeated false claims to bring in money.

The Real Legal Position

The most balanced legal conclusion is this: in cases of investment fraud, delayed or non-payment of returns, or a suspected Ponzi-style operation, liability in India is not limited to the owner, and it is also not automatically imposed on every staff member. The owner, promoter, directors, managers, and staff who were actually involved can all be proceeded against if the facts show responsibility, knowledge, false inducement, consent, connivance, or neglect. Mere ownership is not the sole test, and mere employment is not enough to create guilt. The law follows the substance of the person’s role in the fraud.

Conclusion

Therefore, where investors dealt only with staff members and later discover that the firm was operating dishonestly or as a Ponzi-style arrangement, legal action can extend beyond the owner and include those staff members who directly participated in inducing investments or facilitating the scheme with knowledge or culpable involvement. The better view in law is not that the owner alone is always responsible, nor that all staff are automatically equally responsible, but that each person’s liability depends on the evidence of his or her actual role. That is the position most consistent with the current statutory framework and the Supreme Court’s approach to personal and vicarious criminal liability in India.

C. P. Kumar

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