INTRODUCTION
It has been
observed of late that the Income Tax Department has become very aggressive in
initiating prosecution proceedings against assessees for various offences under
the Income-tax Act, 1961. As per a CBDT press release dated 12th
January, 2018, during F.Y. 2017-18 (up to end-November, 2017) prosecution
complaints increased by 184%, complaints compounded registered a rise of 83%
and convictions marked an increase of 269% compared to the corresponding period
of the previous year. Even the Courts have adopted a proactive approach. In Ramprakash
Biswanath Shroff vs. CIT(TDS) [2018] 259 Taxmann 385 (Bom)(HC), where
the assessee filed a petition contending that Form No. 16 had not been issued
by his employer in time, the Court suggested the Income Tax Department also
invoke section 405 of the Indian Penal Code, 1860 which is a non-cognisable offence.
When the offence is
committed by a company, an artificial juridical person, it is observed that
prosecution is launched against all the directors, including independent
directors, in a mechanical manner. As per section 2(47) r/w/s 149 of the
Companies Act, 2013, independent director means a director other than a
Managing Director, or a whole-time director, or a nominee director. Thus, an
independent director is not responsible for the day-to-day affairs of the
company.
Recently, the Court
of Sessions at Greater Mumbai, in the case of Eckhard Garbers vs. Shri
Shubham Agrawal, Criminal Revision application No. 267 of 2019 dated
16th December, 2019, quashed prosecution proceedings
launched against Mr. Eckhard Garbers, an independent director and a foreign
national. This decision has received wide publicity in view of several
prosecution proceedings launched against directors who had no role in the
day-to-day affairs of the company. This article looks at the said decision in
addition to analysing section 278B which deals with prosecution against a
person/s in charge of or responsible for the conduct of the business of a
company.
The provisions
regarding the liability of the directors and other persons for offences
committed by the company are enumerated under various Acts such as Industries
(Development and Regulation) Act; Foreign Exchange Regulation Act; MRTP Act;
Securities Contracts (Regulations) Act; Essential Commodities Act; Employees’
Provident Funds and Miscellaneous Provisions Act; Workmen’s Compensation Act;
Payment of Bonus Act; Payment of Wages Act; Environment (Protection) Act; Water
(Prevention and Control of Pollution) Act; Minimum Wages Act; Payment of
Gratuity Act; Apprentices Act; Central Excise and Salt Act; Customs Act, 1961;
Negotiable Instruments Act; etc. The provisions of these Acts are somewhat
identical in nature. Even section 137 of the CGST Act is identical to the
provisions of section 278B of the Income-tax Act, 1961. Hence, when the
provisions qua the directors’ liability are considered under the
Income-tax Act, 1961, or the GST Act, it is also pertinent to note the law as
laid down under other Acts by the Courts.
SCHEME
OF THE INCOME TAX ACT, 1961
PROVISIONS OF
SECTION 278B
As per sub-section
(1) of section 278B, where an offence under this Act has been committed by a
company, every person who, at the time the offence was committed, was in charge
of, and was responsible to, the company for the conduct of the business of the
company as well as the company shall be deemed to be guilty of the offence and
shall be liable to be proceeded against and punished accordingly. The proviso
to sub-section (1) provides that nothing contained in this sub-section shall
render any such person liable to any punishment if he proves that the offence
was committed without his knowledge or that he had exercised all due diligence
to prevent the commission of such offence.
Sub-section (2)
provides that notwithstanding anything contained in sub-section (1), where an
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, manager, secretary or other
officer shall also be deemed to be guilty of that offence and shall be liable
to be proceeded against and punished accordingly.
As per sub-section
(3) where an offence under this Act has been committed by a person, being a
company, and the punishment for such offence is imprisonment and fine, then,
without prejudice to the provisions contained in sub-section (1) or sub-section
(2), such company shall be punished with fine and every person referred to in
sub-section (1), or the director, manager, secretary or other officer of the
company referred to in sub-section (2), shall be liable to be proceeded against
and punished in accordance with the provisions of this Act. The Explanation to
section 278B provides that for the purposes of section 278B, (a) ‘company’
means a body corporate and includes (i) a firm; and (ii) an association of
persons or a body of individuals whether incorporated or not; and (b)
‘director’, in relation to (i) a firm means a partner in the firm; (ii) any
association of persons or body of individuals, means any member controlling the
affairs thereof.
LEGISLATIVE
HISTORY AND ANALYSIS OF THE SECTION
Section 278B was
inserted by the Taxation Laws (Amendment) Act, 1975 reported in [1975]
100 ITR 33 (ST) w.e.f. 1st October, 1975. The object and
scope of this section was explained by the Board in its Circular No. 179 dated
30th September, 1975 reported in [1976] 102 ITR 26 (ST).
Under sub-section
(1) the essential ingredient for implicating a person is his being ‘in charge
of’ and ‘responsible to’ the company for the conduct of the business of the
company. The term responsible is defined in the Blacks Law dictionary to mean
accountable. Hence, the initial burden is on the prosecution to prove that the
accused person/s at the time when the offence was committed were ‘in charge of’
and ‘was responsible’ to the company for its business, and only when the same
is proved that the accused persons are required to prove that the offence was
committed without their knowledge, or that they had exercised all due diligence
to prevent the commission of such offence.
Both the
ingredients ‘in charge of’ and ‘was responsible to’ have to be satisfied as the
word used is ‘and’ [Subramanyam vs. ITO (1993) 199 ITR 723 (Mad)(HC)]. Under
sub-section (2) emphasis is on the holding of an offence and consent,
connivance or negligence of such officer irrespective of his being or not being
actually in charge of and responsible to the company in the conduct of the
business. Apart from this, while all the persons under sub-section (1) and
sub-section (2) are liable to be proceeded against, it is only persons covered
under sub-section (1) who, by virtue of the proviso, escape punishment
if they prove that the offence was committed without their knowledge or despite
their due diligence. From the language of both the sub-sections it is also
clear that the complaint must allege that the accused persons were responsible
to the firm / company for the conduct of its business at the time of the
alleged commission of the offence to sustain their prosecution. [Jai
Gopal Mehra vs. ITO (1986) 161 ITR 453 (P&H)(HC)].
Insertion of
sub-section (3) by the Finance (No. 2) Act, 2004 w.e.f. 1st October,
2004 [2006] 269 ITR 101 (ST) was explained by Circular No. 5
dated 15th July, 2005 reported in [2005] 276 ITR 151 (ST).
The said amendment was brought to resolve a judicial controversy as to whether
a company, being a juristic person, can be punished with imprisonment where the
statute refers to punishment of imprisonment and fine. The Apex Court in Javali
(M.V.) vs. Mahajan Borewell and Co. (1998) 230 ITR 1(SC) held that a
company which cannot be punished with imprisonment can be punished with fine
only. However, in a subsequent majority decision in the case of ACIT vs.
Veliappa Textiles Ltd. (2003) 263 ITR 550 (SC) it was held that where
punishment is by way of imprisonment, then prosecution against the company
would fail. In order to plug loopholes pointed out by the Apex Court in Veliappa
Textiles (Supra), sub-section (3) was introduced whereby the company
would be punished with fine and the person/s in charge of or conniving officers
of the company would be punished with imprisonment and fine. It is also to be
noted that the legal position laid down in the case of Veliappa Textiles
(Supra) was overruled by the Apex Court decision rendered in Standard
Chartered Bank vs. Directorate of Enforcement (2005) 275 ITR 81 (SC).
NATURE
OF LIABILITY
The principal
liability u/s 278B is that of the company. The other persons mentioned in
sub-section (1) and sub-section (2) are vicariously liable, i.e., they could be
held liable only if it is proved that the company is guilty of the offence
alleged.
The Apex Court in Sheoratan
Agarwal vs. State of Madhya Pradesh AIR 1984 SC 1824 while dealing with
the provisions of section 10 of the Essential Commodities Act which are similar
to section 278B, has held that the company alone may be prosecuted. The
person-in-charge only may be prosecuted. The conniving officer may individually
be prosecuted.
The Apex Court in Anil
Hada vs. Indian Acrylic Ltd. A.I.R. 2000 SC 145 while dealing with
section 141 of the Negotiable Instruments Act, held that where the company is
not prosecuted but only persons in charge or conniving officers are prosecuted,
then such prosecution is valid provided the prosecution proves that the company
was guilty of the offence.
The Supreme Court
in Aneeta Hada vs. Godfather Travels and Tours Private Limited (2012) 5
SCC 661 held that the director or any other officer of the company
cannot be prosecuted without impleadment of the company unless there is some legal
impediment and the doctrine of lex non cogit ad impossibilia (the law
does not compel a man to do that which is impossible) gets attracted.
STRICT
CONSTRUCTION
The Supreme Court in the case of Girdharilal Gupta vs. D.N. Mehta,
AIR 1971 SC 2162 has held that since the provision makes a person who
was in charge of and responsible to the company for the conduct of its business vicariously liable for an offence committed by the company, the
provision should be strictly construed.
MENS REA
Section 278B is a
deeming provision and hence it does not require the prosecution to establish mens
rea on the part of the accused. In B. Mohan Krishna vs. UOI 1996
Cri.L.J. 638 AP it is held that exclusion of mens rea as a
necessary ingredient of an offence is not violative of Article 14 of the
Constitution.
DIRECTORS
WHO ARE SIGNATORY TO AUDITED BALANCE SHEET
In Mrs.
Sujatha Venkateshwaran vs. ACIT [2018] 96 taxmann.com 203 (Mad)(HC) it
was held as under: ‘Since assessee had subscribed her signature in profit and
loss account and balance sheet for relevant assessment year which were filed
along with returns, the Assessing Officer was justified in naming her as
principal officer and accordingly she could not be exonerated for offence under
section 277.’
IMPORTANT
JUDICIAL PRECEDENTS
In the case of Girdhari Lal Gupta (Supra),
the Supreme Court construed the expression, ‘person in charge and responsible
for the conduct of the business of the company’ as meaning the person in
overall control of the day-to-day business of the company. In arriving at this
inference, the Supreme Court took into consideration the wordings pertaining to
sub-section (2) and observed:
‘It mentions
director, who may be a party to the policy being followed by a company and yet
not be in charge of the business of the company. Further, it mentions manager,
who usually is in charge of the business but not in overall charge. Similarly,
the other officers may be in charge of only some part of business’.
The Apex Court in State
of Karnataka vs. Pratap Chand & Ors. (1981) 2 SCC 335 has, while
dealing with prosecution of partners of a firm, held that ‘person in charge’
would mean a person in overall control of day-to-day business. A person who is
not in overall control of such business cannot be held liable and convicted for
the act of the firm.
In Monaben
Ketanbhai Shah & Anr. vs. State of Gujarat & Ors. (2004) 7 SCC 15 (SC)
the Apex Court, while dealing with the provisions of sections 138 and 141 of
the Negotiable Instruments Act, 1881, observed that when a complaint is filed
against a firm, it must be alleged in the complaint that the partners were in
active business. Filing of the partnership deed would be of no consequence for
determining this question. Criminal liability can be fastened only on those who
at the time of commission of offence were in charge of and responsible for the
conduct of the business of the firm. The Court proceeded to observe that this
was because of the fact that there may be sleeping partners who were not
required to take any part in the business of the firm, and / or there may be
ladies and others who may not know anything about such business. The primary
responsibility is on the complainant to make necessary averments in the
complaint so as to make the accused vicariously liable. In Krishna Pipe
and Tubes vs. UOI (1998) 99 Taxmann 568 (All) it was held that sleeping
partners cannot be held liable for offence/s.
In Jamshedpur
Engineering & Machine Manufacturing Co. Ltd. & Ors. vs. Union of India
& Ors. (1995) 214 ITR 556 (Pat.)(HC), the High Court of Patna
(Ranchi Bench) held that no vicarious liability can be fastened on all
directors of a company. If there are no averments in the complaint that any
director was ‘in charge of’ or ‘responsible for’ the conduct of business,
prosecution against those directors cannot be sustained.
Justice Mathur,
while dealing with the liability of non-working directors in R.K.
Khandelwal vs. State [(1965) 2 Cri.L.J. 439 (AH)(HC)], very succinctly
stated as under:
‘In companies there can be directors who are not in charge of, and
responsible to the company for the conduct of the business of the company.
There can be directors who merely lay down the policy and are not concerned
with the day-to-day working of the company. Consequently, the mere fact that
the accused person is a director of the company shall not make him criminally
liable for the offences committed by the company unless the other ingredients
are established which make him criminally liable. To put it differently, no
director of a company can be convicted of the offence under section 27 of the
Act [The Drugs Act, 1940] unless it is proved that the sub-standard drug was
sold with his consent or connivance or was attributable to any neglect on his
part, or it is proved that he was a person in charge of and responsible to the
company, for the conduct of the business of the company.’
In Kalanithi
Maran vs. UOI [2018] 405 ITR 356 (Mad)(HC), while dealing with the
liability of the Non-Executive Chairman of the Board of Directors of the
company for the offence of non-deposit of TDS, it was held that merely because
the petitioner is the Non-Executive Chairman, it cannot be stated that he is in
charge of the day-to-day affairs, management and administration of the company.
The Court held in Chanakya
Bhupen Chakravarti and Ors. vs. Rajeshri Karwa and Ors. (4th
December, 2018) (Del)(HC) Crl. M.C. 3729/2017 that ‘there is some
distinction between being privy to what were the affairs of the company and
being responsible for its day-to-day affairs or conduct of its business.’
In Pooja
Ravinder Devidasani vs. State of Maharashtra & Anr. (2014) 16 SCC 1 (SC),
the Supreme Court ruled thus: ‘17. Non-Executive Director is no doubt a
custodian of the governance of the company but is not involved in the
day-to-day affairs of the running of its business and only monitors the
executive activity.’
In Mahalderam
Team Estate Pvt. Ltd. vs. D.N. Pradhan [(1979) 49 Comp. Cas. 529 (Cal)(HC)],
it was held that a director of a company may be concerned only with the policy
to be followed and might not have any hand in the management of its day-to-day
affairs. Such person must necessarily be immune from such prosecutions.
In the case of Om
Prakash vs. Shree Keshariya Investments Ltd. (1978) 48 Comp. Cas. 85 (Del)(HC),
the Court had held that a distinction has to be made between directors who are
on the board purely by virtue of their technical skill or because they
represented certain special interests, and those who are in effective control
of the management and affairs, and it would be unreasonable to fasten liability
on independent directors for defaults and breaches of the company where such
directors were appointed by virtue of their special skill or expertise but did
not participate in the management. This view has been followed by the Division
Bench of the Bombay High Court in the case of Tri-Sure India Ltd. [(1983)
54 Comp. Cas. 197 (Bom)(HC).
In S.M.S.
Pharmaceuticals Ltd. vs. Neeta Bhalla & Anr. [2005] 148 Taxmann 128 (SC)
the Court, while dealing with provisions of section 141 of the Negotiable
Instruments Act which is similar to section 278B, laid down the following
important law relating to the liability of directors:
(a) It is necessary to specifically aver in a
complaint u/s 141 that at the time the offence was committed, the person
accused was in charge of, and responsible for, the conduct of business of the
company. This averment is an essential requirement of section 141 and has to be
made in a complaint. Without this averment being made in a complaint, the
requirements of section 141 cannot be said to be satisfied.
(b) Merely being a director of a company is not
sufficient to make the person liable u/s 141 of the Act. A director in a
company cannot be deemed to be in charge of and responsible to the company for
the conduct of its business. The requirement of section 141 is that the person
sought to be made liable should be in charge of and responsible for the conduct
of the business of the company at the relevant time. This has to be averred as
a fact as there is no deemed liability of a director in such cases.
(c) The Managing Director or Joint Managing
Director would be admittedly in charge of the company and responsible to the
company for the conduct of its business. When that is so, holders of such
positions in a company become liable u/s 141 of the Act. By virtue of the
office they hold as Managing Director or Joint Managing Director, these persons
are in charge of and responsible for the conduct of the business of the
company. Therefore, they get covered u/s 141.
In Madhumilan
Syntex Ltd. vs. UOI (2007) 290 ITR 199 (SC) the assessee had deducted
TDS but credited the same to the account of the Central Government after the
expiry of the prescribed time limit, thereby constituting an offence u/s 276B
r/w/s/ 278B. A show-cause notice was issued against the company as well as its
four directors as ‘principal officers’. The accused pleaded the ground of
‘reasonable cause’. However, sanction for prosecution was granted as a
complaint was filed against the appellants on 26th February, 1992 in the Court of the Additional
Chief Judicial Magistrate (Economic Crime), Indore. The accused filed
applications u/s 245 of the Cr.PC, 1973 (the Code) for discharge from the case
contending that they had not committed any offence and the provisions of the
Act had no application to the case. It was alleged that the proceedings
initiated were mala fide. In several other similar cases, no prosecution
was ordered and the action was arbitrary as also discriminatory. Moreover,
there was ‘reasonable cause’ for delay in making payment and the case was
covered by section 278AA of the Act. The directors further stated that they
could not be treated as ‘principal officers’ u/s 2(35) of the Act and it was
not shown that they were ‘in charge’ of and were ‘responsible for’ the conduct
of the business of the company. No material was placed by the complainant as to
how the directors participated in the conduct of the business of the company
and for that reason, too, they should be discharged.
However the prayers
of the accused were rejected. Against this rejection a revision petition was
filed, which was also rejected. And against this, a criminal petition was filed
before the High Court, which was also dismissed. Hence, the accused approached
the Supreme Court. The following important points of law were laid down by the
Apex Court:
1. Wherever a company is required to deduct tax
at source and to pay it to the account of the Central Government, failure on
the part of the company in deducting or in paying such amount is an offence
under the Act and has been made punishable;
2. From the statutory provisions, it is clear
that to hold a person responsible under the Act it must be shown that he / she
is a ‘principal officer’ u/s 2(35) of the Act or is ‘in charge of’ and
‘responsible for’ the business of the company or firm. Where necessary
averments have been made in the complaint, initiation of criminal proceedings,
issuance of summons or framing of charges cannot be held illegal and the Court
would not inquire into or decide the correctness or otherwise of the
allegations levelled or averments made by the complainant. It is a matter of
evidence and an appropriate order can be passed at the trial;
3. No independent and separate notice that the
directors were to be treated as principal officers under the Act is necessary
and when in the show-cause notice it was stated that the directors were to be
considered as principal officers under the Act and a complaint was filed, such
complaint can be entertained by a Court provided it is otherwise maintainable;
4. Once a statute requires to pay tax and
stipulates the period within which such payment is to be made, the payment must
be made within that period. If the payment is not made within that period,
there is a default and appropriate action can be taken under the Act;
5. It is true that the Act provides for
imposition of penalty for non-payment of tax. That, however, does not take away
the power to prosecute the accused persons if an offence has been committed by
them.
Though the Apex
Court did not go into the merits of the case and decided the issue in respect
of the maintainability of the criminal complaint, the decision has given a
clear warning to corporates and their principal officers on the need for strict
adherence to time schedules in the matter of payment of taxes, especially Tax
Deducted at Source.
Analysis of
recent decision of Court of Sessions at Greater Mumbai in the case of Eckhard
Garbers vs. Shri Shubham Agrawal, criminal revision application No. 267 of 2019
dated 16th December, 2019
FACTS
OF THE CASE
The facts of the
case as can be culled out from the order are as under:
(i) The Income Tax Department had filed criminal
case bearing C.C. No. 231/SW/2018 against the company, its six directors and
Chief Financial Officer on the ground that the company had deducted income tax
by way of TDS from various parties but the said amount was not immediately
credited to the Central Government; subsequently, after a delay of between one
and eleven months, the said amount was credited to the Government; as such,
offences punishable u/s 276B r/w/s 278B of the Income Tax Act, 1961 were
attracted.
(ii) The learned Additional Chief Metropolitan
Magistrate, 38th Court, Ballard Pier, Mumbai, by order dated 24th July,
2018, issued process against the accused persons for offences punishable u/s
276B r/w/s 278B of the Income Tax Act, 1961.
(iii) Being aggrieved by the said order of issue of
process, the applicant / accused No. 7, i.e., Eckhard Garbers, had preferred
criminal revision application before the Sessions Court. He contended that he
is a foreign national and as such he was just a professional and an independent
director. He has not participated in the day-to-day business of the company and
was not in charge of such day-to-day business; as such, as per section 278B of
the Act, he is not liable for criminal proceedings.
FINDINGS
OF THE SESSIONS COURT
(a) The averments regarding the position and the
liability of the accused persons, especially Mr. Eckhard, are vague in nature.
There is nothing in the complaint showing how each of the accused / directors
were in charge of and responsible for the day-to-day business of the accused
No. 1 / Company. The averment in the complaint is as under:
‘8. It is further
respectfully submitted that the accused are… the directors. The accused are
also liable for the said acts of omission and contravention committed by the
accused and therefore they are also liable to be prosecuted and to be punished
for the act committed by the accused… u/s 276B of the I.T. Act, 1961.’
(b) There must be detailed averment showing how
the particular director / accused was participating in the day-to-day conduct
of the business of the company and that he was in charge of and responsible to
the company for its business and if such averments are missing, the Court
cannot issue process against such director. The Sessions Court, while coming to
the said conclusion, has relied on the following two decisions:
# Hon’ble Supreme
Court in the case of Municipal Corporation of Delhi vs. Ram Kishan
Rohtagi and others reported in AIR 1983 SC 67. In paragraph 15 of the
judgment, it is observed by their Lordships as under:
‘15. So far as the
manager is concerned, we are satisfied that from the very nature of his duties
it can be safely inferred that he would undoubtedly be vicariously liable for
the offence, vicarious liability being an incident of an offence under the Act.
So far as the directors are concerned, there is not even a whisper nor a shred
of evidence nor anything to show, apart from the presumption drawn by the
complainant, that there is any act committed by the directors from which a
reasonable inference can be drawn that they could also be vicariously liable.
In these circumstances, therefore, we find ourselves in complete agreement with
the argument of the High Court that no case against the directors (accused Nos.
4 to 7) has been made out ex facie on the allegations made in the
complaint and the proceedings against them were rightly quashed.’
# In Homi
Phiroze Ranina vs. State of Maharashtra [2003] 263 ITR 6 636 (Bom)(HC)
while dealing with the liability of non-working directors, the Bombay High
Court held as follows:
‘11. 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 u/s 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 vs. 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 their knowledge. It
is significant to note that the obligation for the accused to prove under the proviso
that the offence took place without his knowledge or that he exercised all due
diligence to prevent such offence arises only when the prosecution establishes
that the requisite condition mentioned in sub-section (1) is established. The
requisite condition is that the partner was responsible for carrying on the
business and was during the relevant time in charge of the business. In the
absence of any such proof, no partner could be convicted…’ (p. 1984).
(c) The Chief Finance Officer, who
was responsible for the day-to-day finance matters, including recovery of TDS
from the customers and to deposit it in the account of the Central Government,
was prima facie responsible for the criminal prosecution for the alleged
default committed, but certainly the Director, who is not in charge of and not
responsible for the day-to-day business of the company is not liable for
criminal prosecution, unless it is specifically described in the complaint as
to how he is involved in the day-to-day conduct of the business of the company.
CONCLUSION
From the analysis
of the provisions of section 278B it could be seen that the scope and the exact
connotation of the expression ‘every person who at the time the offence was
committed was in charge of, and was responsible to, the company for the conduct
of the business of the company’ assumes a very important role. If a person,
i.e., the director or an executive of the company falls within the purview of
this expression, he would be liable for the offence of the company and may be
punished for the same. If, on the other hand, the person charged with an
offence is not the one who falls within the ambit of that expression, the court
will relieve him of the accusation. Therefore, the essential question that
arises is as to who are the persons in charge of, and responsible to, the
company for the conduct of the business of the company. It should be noted that
the onus of proving that the person accused was in charge of the conduct of the
business of the company at the time the contravention took place lies on the
prosecution.
Another essential
aspect is that the complaint must not only contain a bald averment that the
director is responsible for the offence, but the averment must show how the
director who is treated as accused has participated in the day-to-day affairs
of the company. If such an averment is not found and the Magistrate has issued
process and taken cognisance of the complaint, then the accused director can
file a revision application before the Courts of Session. The director can also
file a Writ Petition before the High Court by invoking the provisions of
section 482 of the Cr.PC. The Bombay High Court in Prescon Realtors and Infrastructure
Pvt. Ltd. and Anr vs. DCIT & Anr WP/59/2019 dated 7th August,
2019 has stayed the proceedings before the trial court against the
company and its directors as self-assessment taxes were ultimately paid by the
company. Thus, in genuine cases the Bombay High is entertaining the Writ
Petitions challenging the processes issued by the Magistrate.
Where the directors
have resigned, or were not involved in the day-to-day affairs of the company,
the directors can also file discharge application u/s 245 of the Cr.PC before
the Magistrate Court. However, one must note that as per section 280C, offences
punishable with imprisonment extending to two years or fine, or both, will be
tried as summons cases and not warrant cases. There is no provision of discharge
in summons triable cases. Hence, in such cases the process may be challenged by
filing revision before the Sessions Court or by filing a Writ Petition before
the Bombay High Court.
The companies must
clearly cull out the responsibilities of directors, Chief Financial Officers,
accountants, etc. so that tax defaults can be appropriately attributed to the
right person in the company and all the key persons of the company don’t have
to face the brunt of prosecution.
