TMI Blog2023 (6) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... advanced by Advocate Poonam Ankleshwaria appearing for the present applicants /original accused No. 2 to 4 to quash and set aside the impugned order. - CRIMINAL REVISION NO.163 OF 2023 - - - Dated:- 17-5-2023 - ADDL. SESSIONS JUDGE SHRI. V.M. PATHADE (C.R. No. 58) For the Applicants /original accused Nos. 2 to 4 : Advocate Poonam Ankleshwaria. For the Respondent/Income Tax Department : Adv. Amit Munde, Ld. SPP. ORDER 1. This is criminal revision is preferred by the applicants /original accused Nos. 2 to 4 in C.C. No. 33/SW/2016 pending on the file of learned Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai, against the order dated 09.01.2017 whereby process has been directed to be issued against the applicants /original accused Nos. 2 to 4 for an offence punishable under section 276 B r/w section 278 B of the Income Tax Act, 1961. 2. It is the contention of the applicants /original accused Nos. 2 to 4 that they have been appointed and holding post of Independent and Non Executive Directors of Unity Infraprojects Ltd. (Original accused No. 1), from 24.03.2006, 01.10.2008 and 27.10.2007 respectively. They were never in charge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was committed, in charge of and responsible to the company for the conduct of the business of the company. The learned Trial Court further failed to appreciate that the applicants being the Independent and Non Executive Directors of the accused No. 1 company, they were never in charge of and responsible for the day to day activities of the said company at any point of time during which they held the said post. It is further stated that it is a settled law that when there is a Managing Director, Secretary, the Non Executive Directors will not be in charge of and responsible for the day to day affairs of the company. In the present case, there being Managing Directors, Executive Directors and Secretary in the accused No. 1 Company, the prosecution of the applicants who are just Non Executive Directors is bad in law and thus, deserves to be set aside. 4. Applicants would also contend that in similar case bearing No. 33/SW/2016, the learned Trial Court had issued process against the present applicants and they had filed Criminal Revision bearing No. 1013 of 2018 challenging the said issue process order, before this Court and this Court vide order dated 20.01.2020 was pleased to qua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own as Independent Directors. The said information also indicate the names of Chairman Managing Director, Vice Chairman Managing Director, Chief Financial Officer, Independent Directors, Statutory Auditor, etc., to contend that the applicants being the Independent Directors, they had no role to play in the day to day business activities of the accused No. 1 company and as such, they cannot be held responsible for the conduct of the business of the said company to invoke the provisions of section 276 B r/w section 278 B of the Income Tax Act against them. In support of her submissions, Advocate Poonam Ankleshwaria would seek to rely upon the following decisions of the Hon'ble Supreme Court and the Hon'ble Bombay High Court: 1) National Small Industries Corp. Ltd. V/s. Harmeet Singh Paintal and Ors., reported in (2010) 3 SCC 330. 2) N. K. Wahi V/s. Shekhar Singh and Ors., reported in (2007) 9 SCC 481. 3) Homi Phiroze Ranina V/s. State of Maharashtra, (Bombay High Court Judgment) reported as MANU/MH/1715/2003. 4) Sham Sunder and Ors. V/s. State of Haryana, reported in AIR 1989 SCC 1982. 5) Kalanithi Maran V/s. Union of India and Ors., repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alleged that the accused No. 2 to 5 are responsible and in charge of the day to day affairs and conduct of the business of accused No. 1 Company. 10. From the averments made in the complaint, it would appear that the accused No. 1 company though deducted payment of TDS amounting to Rs. 1,49,63,378/ in financial year 203 14, relevant to assessment year 2014 15, failed to deposit the same in the Government Treasury within the prescribed time limit. Thus, the accused committed a default under section 200 and section 204 of the Income Tax Act r/w Rule 30 of the Income Tax Rules, 1962, which amounts to an offence punishable under section 276 B of the said Act. It would also reveal from the said complaint that the accused persons were issued show cause notices on 12.04.2017 so as to give them opportunity of being heard and after considering the response filed by the accused persons the sanction to prosecute them was accorded. In para 13 (iii) it is averred that all other directors (excluding Shri. Kishore K. Avarsekar and Smt. Vidya P. Avarsekar) have claimed that they were non executive directors and were not in charge of and responsible for the conduct of business of company during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015 and she was not the director of the assessee company from 01.04.2013 to 27.03.2015. The said authority thus found that said Smt. Vidya Avarsekar was director for merely three days in the year under consideration and she was not involved in the day to day activities or was aware of the defaults occurred. Ultimately, she was held not guilty for the concerned period. However, as regards to the pleas raised by all others including the present applicants that they were non executive directors and were not incharge of and responsible for the conduct of business of the company during the year, it is observed that they could not produce any documentary evidence to prove the same. It is further stated that merely stating that one being not in charge of day to day affairs or management, does not give immunity to a director from the provisions of section 278 B of the Act. Ultimately, the said authority came to conclusion that there exists prima facie case to prosecute the said company and other accused under section 276 B r/ w section 278 B of the Income Tax Act and accorded sanction to prosecute them for the said offence. 14. It may also be noticed that the learned Trial Court on 09. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustained. The counsel rested his submission on the text of section 10 of the Essential Commodities Act which reads thus 10. Offences by companies. (1) If the person contravening an order made under section 3 is a company, every person who, at the time of the contravention was committed, was in charge of and was responsible to, the company for conduct of the business of company as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punish accordingly: Provided that nothing contained in this sub section shall render any such person liable to any punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. (2) Notwithstanding anything contained in sub section (1) where can offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manger, secretary or other officer shall also be liable to be proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Income Tax Officer, TDS VI, Bombay against the applicants/ accused as well as M/s. Unique Oil India Ltd. of which the applicants/ accused were Directors as well as against Shri. L.K. Khosala, Chairman and Managing Director of accused No. 1 Company as well as Gayatri Khosla another Director and one Yogesh Khosala, the whole time Director of accused No. 1 Company before the Additional Chief Metropolitian Magistrate, 47th Court, charging them under section 276 B r/w. section 278 B of the Income Tax Act 1961. Summons were issued to all the accused persons including the applicants. On receipt of summons the applicants who were the accused No. 4, 5, 6 and 7 filed application for discharge before the learned M.M. Court on 31.10.1996. By his order dated 30.11.1996 the learned M.M. rejected the discharge application. The applicants accused therefore moved the application before the Hon ble Bombay High Court for setting aside the said order. It was contented that the M.M. Court has not taken into consideration the requirements of section 194 C, sections 204 and 2 (35) of Income Tax Act. It was further contented the said applicants / accused were admittedly not the principal officers of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allegation to that effect will not be sufficient. There should be credible materials to show their active involvement in the conduct and management of the business of the firm. Short of stating that they were in charge of and responsible of the conduct of the business of the firm nothing had been mentioned in the complaints either about their role or as to the extent of their liability, which should not have been left to be inferred. At any rate the allegations seem too be insufficient to make them liable for the impugned act for which perhaps the firm and the principal officer, if any, alone would be liable (p.609) . 19. In the said case, the Hon'ble Bombay High Court in para no. 9, 10, 11 and 12 observed thus: 9. The learned Magistrate in rejecting the application for discharge has observed that unless and until the prosecution has been given an opportunity to lead evidence, it cannot be determined at the stage prior to the framing of the charge as to whether accused 4 to 7 applicants herein were not in charge of the conduct of the business of the company, and accordingly, held that the authority referred to by the applicants viz. Shital N. Shah V/s. ITO MANU/TN/02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its business and day to day affairs. 12. Unless the complaint disclosed a prima facie case against the applicants/accused of their liability and obligation as Principal Officers in the day to day affairs of the Company as Directors of the Company under section 278B, the applicants cannot be prosecuted for the offences committed by the Company. In the absence of any material in the complaint itself prima facie disclosing responsibility of the accused for the running of the day to day affairs of the Company process could not have been issued against them. The applicants cannot be made to undergo the ordeal of a trial unless it could be prima facie showed that they are legally liable for the failure of the Company in paying the amount deducted to the credit of the Company. Otherwise, it would be a travesty of justice to prosecute them and ask them to prove that the offence is committed without their knowledge. The Supreme Court in the case of Sham Sundar v. State of Haryana AIR 1989 SC 1982 held as follows : ... It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to sub section (1) that the offence was committed without th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complainant to specifically reproduce the wordings of the section but what is required is a clear statement of fact so as to enable the court to arrive at a prima facie opinion that the accused are vicariously liable. Section 141 raises a legal fiction. By reason of the said provision, a person although is not personally liable for commission of such an offence would be vicariously liable therefore. Such vicarious liability can be inferred so far as a company registered or incorporated under the Companies Act, 1956 is concerned only if the requisite statements, which are required to be averred in the complaint petition, are made so as to make the accused therein vicariously liable for the offence committed by the company. Before a person can be made vicariously liable, strict compliance of the statutory requirements would be insisted. Not only the averments made in paragraph 7 of the complaint petitions does not meet the said statutory requirements, the sworn statement of the witness made by the son of respondent herein, does not contain any statement that appellants were incharge of the business of the company. In a case where the court is required to issue summons which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d parties. M/s. Spice Jet Limited is an assessee on the file of the 2nd respondent and its TAN number is also registered with the 2nd respondent only and therefore, the facts which have a bearing with the dispute have arisen in Delhi only and not in the State of Tamil Nadu. The mere fact that the petitioner herein is residing in Chennai does not give rise to a cause of action arising in the state of Tamil Nadu. The place where the petitioner is residing has no bearing with the lis involved, which is the failure to deposit the tax deducted at source. (ii) According to the respondents, the petitioner has filed a Criminal M.C. Petition No. 381 of 2015 before the Delhi High Court against the criminal complaint that was filed pursuant to the order dated 03.11.2014 holding the petitioner as a Principal Officer of M/s. Spice Jet Limited. Hence, with regard to the very same issue i.e., failure to deposit the TDS within the time as stipulated under the provisions of the Income Tax Act, the petitioner is pursuing his remedies before different High Courts. The respondents being situate in Delhi and all the relevant records being available at Delhi and having regard to the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... time the full amount of tax deducted at source. The company submitted a plan for payment of the amount of tax deductible at source to the Income Tax Authorities, which plan was accepted without objection by the Authorities. This crucial factor by itself establishes that the Income Tax Authorities were fully aware of the acute liquidity and financial problems faced by the company which prevented it from making payment in time of the amount of tax deducted at source. 24. In the said decision of the Hon'ble Madras High Court, there is reference to its observations in Shital N. Shah V/s. ITO, MANU/TN/0229/1990 : (1991) 188 ITR 376 thus: The words 'any person who is responsible for paying' found in Section 194A of the Income tax Act, 1961, have to be read in conjunction with Section 204 of the Act which furnishes the meaning of 'person responsible for paying'. This provision makes it abundantly clear that, if the payer is a company, the company itself including the principal officer thereof will be the 'person responsible for paying'. If that be so, it is fairly apparent that the company itself including the principal officer thereof were liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient to hold that the petitioner is the Principal Officer. There should be credible material to show his active involvement in the conduct and management and business of the Company. 26. From the judgment of the Hon'ble Supreme Court in case of N. K. Wahi (supra) it appears that the same was in respect of sections 138 and 141 of the N.I. Act. In that context, the Hon'ble Supreme Court in para No. 5 observed thus: To launch a prosecution, therefore, against the alleged Directors there must be a specific allegation in the complaint as to the part played by them in the transaction. There should be clear and unambiguous allegation as to how the Directors are incharge and responsible for the conduct of the business of the company. The description should be clear. It is true that precise words from the provisions of the Act need not be reproduced and the court can always come to a conclusion in facts of each case. But still in the absence of any averment or specific evidence the net result would be that complaint would not be entertainable . 27. From the judgment of the Hon'ble Supreme Court in the case of National Small Industries Corp. Ltd. (supra), it is appa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he order dated 18th November, 2019, issuing process against the petitioner therein and others for alleged offence under section 276B read with section 278B of the Income Tax Act, 1961. The petitioner therein contended that he is professional executive director who had not taken part in the affairs of the company for last six years. He is resident of Netherlands, the averments in the complaint are insufficient to constitute offence under section 276B read with section 278B of the Income Tax Act, 1961. In support of his submissions, he had relied upon the judgment of the Hon'ble Apex Court in the case of National Small Scale Industries (supra) and Dayle De'souza V/s. Government of India, through Deputy Chief Labour Commissioner and Anr., reported in 2021 SCC OnLine SC 1012 . The respondent No. 1 had relied upon Apex Court's judgment in the case of Madhumilan Syntex Ltd and others V/s. Union of India and Anr., reported in (2007) 11 SCC 297. From the said decision it reveals that the decision of the Hon'ble Single Judge of the Bombay High Court in the case of Homi Phiroze Ranina (supra) dated 04.02.2003 , the decision of the Hon'ble Apex Court in Sham Sund ..... X X X X Extracts X X X X X X X X Extracts X X X X
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