Consultancy Is Not Trade – Nor Is It a Crime Without Clear Prohibition – Madras High Court Quashes Prosecution of Government Employee Under Section 168 IPC

"Sporadic Professional Services Without Permission May Breach Employment Policy, Not Penal Law" – In a significant decision reaffirming the boundaries of criminal prosecution against public servants, the Madras High Court held that providing consultancy services for a fee, without prior permission, may be a service rule violation—but does not amount to a criminal offence under Section 168 of the Indian Penal Code, unless the public servant is legally bound not to engage in such activity.

Justice D. Bharatha Chakravarthy, allowing a petition under Section 482 CrPC, quashed the final report in C.C. No. 8045 of 2017, holding:

“Professional consultancy does not amount to ‘trade’ within the meaning of Section 168 IPC; nor does the Standing Order explicitly prohibit such work—only requiring prior written permission.”

The Court found that, even accepting the prosecution’s case as true, no offence was made out in law.

The petitioner, S. Balasundram, a long-time employee of Andrew Yule & Company Ltd., a Government of India enterprise, was charged under Section 168 IPC for allegedly working as a private PF & ESI consultant for various companies, including the well-known food chain Adyar Ananda Bhavan. During a CBI investigation into unrelated bribery allegations against other individuals, authorities discovered consultancy invoices issued by the petitioner and bank records reflecting professional fees received.

Though the original bribery allegations against the other accused were dropped for lack of evidence, the CBI filed a final report against Balasundram, asserting that his consultancy amounted to engaging in trade while being a public servant, thereby violating Section 168 IPC.

“What Is Prohibited by Employment Policy Is Not Automatically a Criminal Offence” – Legal Prohibition Essential

The Court underscored that Section 168 IPC penalizes only such conduct where the public servant is “legally bound” not to engage in trade. Referring to Section 43 IPC, which defines what constitutes being “legally bound”, the Court held:

“A person is said to be legally bound to do whatever it is illegal in him to omit. Thus, what is explicitly prohibited would become illegal, and anyone is legally bound to omit what is illegal.” [Para 17]

The Court observed that the Standing Orders governing the petitioner’s employment did not categorically prohibit external consultancy, but merely required prior written permission—which had neither been sought nor expressly denied.

“Engagement in other employment is not prohibited, but the employee is required to obtain written permission… which must be granted if the activity does not adversely affect his duties and the interests of the factory.” [Para 12]

“Consultancy Services Do Not Fall Within ‘Trade’ Under Section 168 IPC”

At the heart of the prosecution was the classification of the petitioner’s professional consultancy as “trade”. But the Court rejected this characterization outright. Relying on Supreme Court rulings, including State of Gujarat v. Maheshkumar Dhirajlal Thakkar, the Court held:

“In its narrow sense, ‘trade’ means exchange of goods for money with a view to make profit. In its broadest sense, it includes any business conducted with the intent to earn profit… The activity of acting as a consultant and preparing PF returns does not fall within this scope.” [Paras 14–16]

Moreover, the Court clarified that even under the broader definition of ‘trade’ under Section 2(x) of the Competition Act, 2002, consultancy services are at most professional engagements—not commercial trading activities.

“Violation of Conduct Rules Is Not ipso facto a Crime”

Even assuming the broader Conduct Rules (which require prior sanction for external employment) applied to Balasundram—though contested—the Court emphasized that mere failure to obtain sanction is not equivalent to criminal culpability:

“It cannot be said that sporadic consultation activity that does not interfere with his work is prohibited by law… the essential elements for prosecuting the petitioner under Section 168 IPC are not established, even if all the allegations are accepted as true.” [Para 19]

The Court also noted the difference in terminology between the Conduct Rules and Section 168 IPC:

“Section 168 IPC penalizes only engagement in trade—not employment or professional services. The Conduct Rules list ‘trade’, ‘business’, ‘employment’ separately. Therefore, consultancy is not automatically caught within Section 168.” [Para 19]

The Madras High Court concluded that no offence was made out under Section 168 IPC, and that the continuation of proceedings would be an abuse of process of law. Accordingly, the criminal original petition was allowed, and the prosecution was quashed.

“After considering the facts and circumstances of the case… even if all the allegations in the Final Report are accepted as true and correct, the essential elements for prosecuting the petitioner under Section 168 of the Indian Penal Code are not established.” [Para 19]

This judgment reaffirms the principle that not every breach of service conditions attracts penal consequences, and that criminal law must not be stretched to cover employment policy violations in the absence of clear statutory prohibition.

Date of Decision: 25 June 2025