2022 (3) TMI 1640 - SC - Indian Laws

Seeking to quash the proceeding for offences punishable under Sections 13(1)(c) and 13(1)(d) read with Section 13(2) of the Prevention of Corruption Act 1988 ( the P.C. Act ) and Sections 120B and 420 of the Indian Penal Code ( IPC ) - short payment of road tax - smuggling cars or forging or fabricating documents or committing any other illegal activities - legality of initiation of proceedings - HELD THAT - In the instant case the allegations in the FIR read with the chargesheet filed by the Lokayuktha Police only discloses short payment of road tax. There is only a vague bald allegation of collusion and conspiracy to defraud the State of revenue which is devoid of any material particulars. The mere fact that demand notice may have been issued and the differential tax realized before institution of the private complaint is in our view inconsequential. Either the charges disclose an offence of defrauding the State of revenue or the offence of defrauding the State of revenue not made out. The question is whether the materials on record disclose any criminal act on the part of these Appellants. The answer cannot but be in the negative. The judgment dated 19th December 2019 in the case of S.V. Nandaraju and others 2019 (12) TMI 1691 - KARNATAKA HIGH COURT is distinguishable and has no application to the facts of this case. The accused were officers and/or employees of the Motor Vehicles Department some of whom had retired long before the complaint was lodged. In some of the cases proceedings had been quashed on the ground that sanction under Section 17 of the P.C. Act to prosecute had been declined by the State Government. Mr. Rohatgi argued with force that the Company had paid full road tax as charged by the Motor Vehicles Authorities on the basis of the actual invoice value of the car in question. No further amount was payable. However when the RTO raised a notice of demand for Rs. 21 lakh odd in 2012 the company did not raise any dispute since the amount claimed was a small amount for the Company which had a turnover of crores of rupees. This Court is of the view that the proceedings against the Appellant are misconceived harassive in abuse of process of law and have been initiated without proper application of mind. This appeal is therefore allowed. Further proceedings against these Appellants in the Court below shall remain stayed.

Summary

The core legal questions considered by the Court include:

(a) Whether the initiation of criminal proceedings against the Appellant, a Chairman and Managing Director of a company, for alleged short payment of road tax on a vehicle imported by the company, is justified in the absence of any specific role attributed to the Appellant in the commission of the offence;

(b) Whether short payment of motor vehicle tax, followed by payment of the differential tax upon demand, constitutes a criminal offence under the Prevention of Corruption Act, 1988 and the Indian Penal Code;

(c) The applicability of Section 8A of the Karnataka Motor Vehicles Taxation Act, 1957 regarding recovery of differential tax and its impact on criminal liability;

(d) The extent of vicarious liability of company officials such as the Chairman and Managing Director in criminal proceedings initiated against the company;

(e) The scope and exercise of inherent jurisdiction under Section 482 of the Code of Criminal Procedure to quash criminal proceedings where allegations do not disclose a prima facie case;

(f) The relevance of prior judicial decisions quashing similar proceedings against other accused in the same or related cases.

Issue-wise Detailed Analysis

1. Justification for Initiation of Criminal Proceedings Against the Appellant

The Court examined the chargesheet and complaint documents to assess whether there was any material indicating the Appellant's personal involvement in the alleged offence. The chargesheet alleged conspiracy between the Appellant and certain RTO officials to evade payment of differential road tax. However, the Appellant was neither the vehicle owner nor involved in registration or tax payment processes. The company, of which the Appellant is Chairman and Managing Director, was the vehicle owner and had paid the demanded differential tax promptly after receiving the demand notice.

Precedents such as Ravindranatha Bajpe v. Mangalore Special Economic Zone Limited and Others and Pepsi Foods Ltd. v. Special Judicial Magistrate were relied upon to emphasize that summoning a company official requires specific allegations and evidence of personal involvement. The Court reiterated that mere official position does not attract vicarious criminal liability unless statute provides or specific role is shown.

The Court also referred to Maksud Saiyed v. State of Gujarat, which held that criminal proceedings against company officials require clear allegations of personal liability. The Magistrate must apply mind before issuing summons, ensuring a prima facie case exists against the individual in their personal capacity.

2. Whether Short Payment of Tax and Subsequent Payment Constitutes a Criminal Offence

The Court analyzed Section 8A of the Karnataka Motor Vehicles Taxation Act, 1957, which provides a mechanism for recovery of differential tax from the registered owner or person in possession upon notice and opportunity of hearing. The provision contemplates recovery of tax shortfall as a civil or revenue matter rather than a criminal offence.

Judgments in S. Rajendran and K.J. Kuruvilla cases were considered, where criminal proceedings were quashed after the differential tax was paid following demand notices. The Court noted that short payment of tax per se does not constitute a criminal offence as held in Devendra v. State of U.P.

The Court found the chargesheet vague and stereotyped, lacking particulars about the Appellant's role or any fraudulent act beyond the shortfall in tax payment, which was remedied by payment.

3. Applicability of Section 482 Cr.P.C. to Quash Proceedings

The Court discussed the inherent powers of the High Court under Section 482 Cr.P.C. to prevent abuse of process and secure ends of justice, citing State of Haryana v. Bhajan Lal and G. Sagar Suri v. State of U.P. It was emphasized that criminal proceedings should not be initiated or continued where allegations do not constitute an offence or are inherently improbable.

In this case, the Court found the proceedings against the Appellant to be an abuse of process, as there was no material showing commission of offence by the Appellant personally. The Court held that the initiation of criminal proceedings without specific allegations and evidence against the Appellant was unjustified.

4. Treatment of Competing Arguments

The State contended that the allegations were serious and involved a large-scale racket to defraud the State revenue. However, the Court observed that the Appellant's role was not implicated beyond his official capacity, and the company had paid the demanded tax amount. The Court found the chargesheet devoid of material particulars implicating the Appellant.

The State's attempt to distinguish prior quashing orders was rejected on the ground that the principles laid down in those cases regarding payment of differential tax and absence of criminal intent equally applied.

5. Conclusions

The Court concluded that the criminal proceedings against the Appellant were misconceived, harassing, and amounted to abuse of process. The absence of any specific role or personal involvement by the Appellant, combined with the full payment of differential tax by the company, negated the existence of a prima facie case. Therefore, the Court allowed the appeal and quashed the proceedings against the Appellant, staying further proceedings in the lower court.

Significant Holdings

"Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. The order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto."

"No official of a company can be dragged into criminal proceedings only in his/her capacity as official of the company, without any specific role attributed to him/her in relation to the offence alleged against the company."

"Short payment of tax per se is not a criminal offence."

"Under Section 8A of the Karnataka Motor Vehicles Taxation Act, 1957, the taxation authority may recover the difference between the tax paid and tax payable after notice and opportunity of hearing; this is a civil recovery mechanism and does not per se constitute a criminal offence."

"Where the allegations made in the FIR or complaint, even if taken at face value, do not prima facie constitute any offence or make out a case against the accused, the High Court may exercise its inherent jurisdiction under Section 482 Cr.P.C. to quash the proceedings."

"The initiation of criminal proceedings against the Appellant, without any material showing his personal involvement or criminal intent, is an abuse of the process of law."