Madras H.C : The petition has been filed to quash the proceedings in C. C. No. 29 of 1985 on the file of the Additional Chief Judicial Magistrate (Economic Offences), Madurai.

High Court Of Madras

Geethanjali Mills Ltd. & Ors. vs. V. Thiruvengadathan

Sections 276(1), 277, 278B

Janarthanam, J.

Crl. Misc. Petition No. 4154 of 1985

9th September, 1988

Counsel Appeared

M. Ravindran, for the Petitioners : Ramaswami, for the Respondent

JANARTHANAM, J.:

The petition has been filed to quash the proceedings in C. C. No. 29 of 1985 on the file of the Additional Chief Judicial Magistrate (Economic Offences), Madurai.

2. The IAC (Assessment Range No. 1), Madurai, launched prosecution against petitioners Nos. 1 to 7 (accused Nos. 1 to 4, 6, 7 and 10) and three others (accused Nos. 5, 8 and 9) for the offenses under ss. 120B r/w ss. 193, 196, 420 r/w s. 511 of the IPC and ss. 276C(1), 277 and 278B of the IT Act, 1961. The first petitioner is a limited company, a spinning mill manufacturing cotton yarn. The second petitioner is its managing director. Petitioners Nos. 3 to 6 are its directors and the seventh petitioner is its secretary. The first petitioner-company furnished its IT return and connected statements declaring an income of Rs. 1,11,370 for the fifteen months’ period ending with 31st March, 1980, claiming exemption by way of stores consumption in the form of bobbins, spinning wheels, etc., without even mentioning the names and addresses of the suppliers, to the tune of Rs. 7,53,963. On the direction of the Assessing Officer, the first petitioner-company, in fact, furnished the names and addresses of four suppliers and the particulars of purchase vouchers. On scrutiny of all such materials produced, the Assessing Officer computed the income at Rs. 20,87,680 by his order dt. 24th March, 1983, for the asst. yr. 1980-81. During scrutiny, it was found that the names and addresses of the suppliers as given by the petitioner-company were non- existing persons, besides the vouchers numbering about 263 being found to be bogus. The aggrieved company took the matter on appeal, before the CIT, who, by his order dt. 10th Oct., 1984, upheld the order of the assessing authority. The matter was again agitated before the Tribunal which, in fact, by its order dt. 27th May, 1985, remanded the matter to the assessing authority for fresh consideration by giving an opportunity to the company, enabling it to produce the persons who have supplied the stores and also adduce evidence to prove the genuieness of the vouchers produced.

The launching of prosecution by the Department by the filing of the complaint against the petitioners and three others was subsequent to the date of the order of the Tribunal. On receipt of the processes from the criminal Court, the petitioners filed the present petition to quash the proceedings on 17th June, 1985, and obtained stay of all further proceedings in the criminal Court. The assessing authority, namely, the IRC (Assessment Range No. 1), Madurai, pursuant to the remand order, again went into the question afresh affording adequate opportunities to the petitioners and completed the assessment by his order dt. 28th March, 1988, confirming the earlier assessment made. Despite the opportunities given, the petitioners did not at all venture to produce and examine the brokers from whom the consumable stores were purchased. Nor was any attempt made to prove the genuineness of all the vouchers produced before the assessing authorities. The resultant position was that the persons from whom the consumable stores were stated to have been purchased remained non-existing entities, besides the vouchers produced before the authorities being found to be bogus.

3. Mr. M. Ravindran, learned counsel appearing for the petitioners, would make a triple pronged attackquestioning the legal edifice of the foundation of the launching of the prosecution against the petitioners. He would, in the first instance, submit that the basis on which the prosecution was launched did not at all subsist the moment the Tribunal set aside the order of the CIT confirming the order of the IAC and remanded it for fresh disposal and therefore, the prosecution is not maintainable in law. He would amplify the same, stating that though the IAC completed the assessment, subsequent to the remand order, complying with all the formalities, yet the complaint filed against the petitioners was on the basis of the order of the CIT confirming the order of the IAC and not the fresh order passed by the IAC subsequent to the remand on 28th March, 1988. This argument was repelled by the Revenue stating that there is no bar to the launching of a criminal prosecution, pending decision by the assessing authorities and whatever adverse finding has been observed in the orders of assessment or penalty proceedings, that was not binding on the criminal Court while determining the guilt of the accused. He would further submit that mere expectancies should not stand in the way of the criminal Court proceeding in the matter. In support of the contention, reliance was sought to be placed in the case of Telu Ram Raunqi Ram vs. ITO (1984) 39 CTR (P&H) 93 : (1984) 145 ITR 111 (P&H) : TC48R.509. In that, case the ITO, during the assessment proceedings, made additions to the income of the assessee. The AAC reduced the addition. On further appeal, the Tribunal made certain additions and in the quantum proceedings, the matter came finally to rest. Simultaneously, the IAC passed an order imposing penalty on the assessee. The assessee’s appeal to the Tribunal was dismissed. The assessee filed an application for reference against the order of the IAC imposing penalty which was pending. Thereafter, the Department launched prosecution against the assessee under s. 277 of the IT Act, 1961. The assessee filed a petition in the High Court under s. 482 of the CrPC, 1973, for quashing the criminal complaint against it on the ground that the criminal proceedings were an abuse of the process of the Court, because, since the order of the Tribunal was not final and the penalty proceedings were open to correction in the light of the opinion given by the High Court in the income-tax reference which was pending, the jurisdiction foundation might be knocked off and fresh penalty proceedings might have to be undertaken by the ITO and, in that event, he might take a different view so as to absolve the assessee altogether from the imposition of penalty and that even if the ITO did not do so, there were two other higher forums in which such a finding could be arrived at. It was held under such circumstances as follows : “Mere expectancies should not stand in the way of the criminal Court from proceeding in the matter. The High Court could not stop any proceedings against an assessee in a criminal Court on mere expectancy. In case the expectations of the assessee fructify and an order was passed in its favour by the time the trial was pending, or even at the appellate and revisional stages, all those Courts, in dealing with that matter, would be required to give due regard to those findings in case they were favourable to the assessee. Therefore, the proceedings against the assessee, at the instant stage, were not an abuse of the process of the Court and the grant of stay of the proceedings would not be in the interest of justice. Though there was no bar of limitation for economic offenses under the law, yet the proceedings could not be allowed to stagnate in the criminal Court and make the law relating thereto a mockery.”

4. This decision is applicable on all fours to the case on hand. According to the decision, the pendency either of assessment proceedings or penalty proceedings in forums contemplated under the IT Act, is not a ground at all for the launching of simultaneous prosecution before the appropriate forum. In the face of the decision, the argument of learned counsel for the petitioners bristles next to nothing. It is of no consequence to the prosecution launched during the pendency of the proceedings before the Tribunal getting terminated by an order of remand for fresh disposal. The assessment proceeding, whether pending before the Tribunal or before any other forum before completion of assessment, cannot be stated to be anything other than the pendency of proceedings. In this view of the matter, the argument of learned counsel for the petitioners that the criminal compliant had no legal basis to stand on the moment the order of the assessing authority had been set aside by the Tribunal cannot at all be countenanced. The position here is rather worse when the assessment had been completed and reached finality by the order of the IAC after giving due opportunities to the petitioners as per the directions of the Tribunal. As adverted to earlier, the position of the brokers from whom consumable stores were purchased remained to be non- existing entities, besides the vouchers produced were bogus vouchers resulting in claiming false exemption from tax. It is these acts of the petitioners which made the Department to launch the prosecution before the criminal Court. In view of what has been stated above, the first contention of the petitioners fails as being of no substance. Secondly, learned counsel for the petitioners put forth a double-fanged argument on the question of lack of application of mind on the part of the Department before launching of prosecution. He would submit that accused Nos. 5 and 9, who passed away in December, 1981, and March, 1984, respectively, cannot by any stretch of imagination be added as parties accused in a criminal proceeding subsequent to their death. He would further submit that even if the fifth accused had been alive, by virtue of his position as a nominee-director of the Tamil Nadu Industries Corporation, he cannot at all be prosecuted for any act done or omitted to be done by him in good faith in the discharge of his duties as a director. The principle of this argument, he would also extend to the seventh accused, a nominee director of the Industrial Development Bank of India and the eighth accused, a nominee-director of the Government of Tamil Nadu, and claim immunity from prosecution. The Revenue would submit that even assuming for argument’s sake that accused Nos. 5 and 9 were dead on the date on which the prosecution was launched it will not have the effect of vitiating the criminal proceedings and, at the worst, the criminal proceedings as against accused Nos. 5 and 9, on proof of their death before that Court, would get abated and nothing more. I accept the argument of the Revenue on this aspect, viz., that the adding of accused Nos. 5 and 9 in the complaint will not in any way advance the case of the petitioners in tilting the scales in their favour.

Coming to the other fang of the argument claiming immunity from prosecution, learned counsel for the petitioners would rely upon s. 41A of the State Financial Corporations Act of 1951 as well as s. 30A of the Industrial Development Bank of India Act of 1964. Sec. 41A of the State Financial Corporations Act of 1951 reads as follows : “No suit, prosecution or other legal proceeding shall lie against any person appointed as director, administrator, managing agent or manager by the Financial Corporation in pursuance of s. 27 or s. 32A for anything which is in good faith done or intended to be done by him as such director, administrator, managing agent or manager.”

It is unnecessary to quote the provisions of s. 30A of the Industrial Development Bank of India Act of 1964, as the provisions of that section are also couched in the same language as that of s. 41A of the State Financial Corporations Act of 1951. To counter this argument, the Revenue would place reliance on s. 278B of the IT Act 1961. The section reads as follows : “(1) 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 : Provided 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.(2) Notwithstanding anything contained in sub-s. (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.”

On a cursory perusal of s. 41A of the State Financial Corporations Act of 1951, it emerges that no suit or prosecution or any other legal proceedings shall lie against any person appointed as director, administrator, etc., merely by virtue of his position as such director or administrator and further, such director or administrator is not liable for anything which is in good faith done or intended to be done by him as such director, administrator, etc. To put it otherwise, if there is lack of good faith on the part of the person concerned in the discharge of his functions, then, he cannot claim any immunity from such suit, prosecution or other legal proceedings. The exercise of good faith in the discharge of a function is a matter, the determination of which is possible only by adducing of evidence either way, only in the course of trial before the proper forum. As such, it is rather premature to come to any conclusion that the array of the aforesaid persons as accused before the criminal Court cannot be stated to be one of non-application of mind on the part of the Department.

As this juncture, if attention is turned to the provisions of s. 278B of the IT Act, 1961, it will be lucidly clear that the company as well as any other person, who at the time the offence was committed was in charge of and was responsible to the company, shall be deemed to be guilty of the offence and liable to be proceeded against and punished accordingly. It is further made clear that the person in charge of and responsible to the company for the conduct of its business is not liable to any punishment, if he proves that the offences was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. Whether the aforesaid persons were in charge of and were responsible for the conduct of the business of the company, is again a matter of evidence to be considered during the trial. If it was found that they were actually in charge of and responsible for the conduct of the business of the company, then it is for them to prove that the offence had been committed without their knowledge and despite due diligence to prevent the commission of such offence. The onus in such an eventuality is shifted to them to prove the absence of knowledge or exercise of due diligence to prevent the commission of such an offence by adducing evidence. As such, at this stage, it cannot be stated that the arraying of these persons as accused in the complaint is not born out of lack of application of mind on the part of the Department.

There is one more single circumstance of some importance as stated by learned counsel for the Revenue, viz., that the IT Act, being a special enactment, will have the effect of overriding the provisions of the State Financial Corporations Act of 1951 and the other allied enactment, namely, the Industrial Development Bank of India Act of 1964, and, therefore, learned counsel for the petitioner cannot at all seek the benevolent provisions of the respective enactments. This argument put forth by the Revenue rather appears to be sound and tenable and even without this, as stated earlier, for the petitioners to avail of the benevolent provisions of those said enactments, adducing of evidence is necessary and such a course is possible only before the trial Court. Thirdly, learned counsel for the petitioners would submit that in the absence of the issuance of notices to all the petitioners by the assessing authority, it may not be possible to treat all or any of the petitioners as “principal officer” for being proceeded against by way of launching of prosecution. In support of this contention, reliance is sought to be placed on the decision in M. R. Pratap vs. V. M. Muthuramalingam, ITO (1984) 39 CTR (Mad) 43 : (1983) LW (Crl) 191 : TC48R.339. Learned counsel appearing for the Revenue, would submit that though in fact individual notices had not been served on all the petitioners in this case, yet he would state that such a course is not at all necessary and the decision is not at all applicable to the facts of the present case. In that case, the company as well as its managing director were prosecuted under s. 276B and 200 of the IT Act, 1961, r/w r. 30 framed thereunder for non-payment, within the prescribed time, of the income tax deducted from the salaries of the employees of the company. The ITO, in fact, had not served on the managing director a notice under s. 2(35)(b) of the said Act stating that the Department would be treating him as the principal officer of the company. The non- issuance of such a notice was the contention raised for the non- maintainability of the prosecution against him. Accepting the contention, the learned judge of this Court quased the proceedings against him in the criminal Court. From this, it is crystal clear that criminal liability was sought to be mulcted upon the managing director for non-payment of the income tax deducted from the salaries of the employees of the company within time. Learned counsel for the Revenue would submit that the question of determination of the principal officer would arise only under certain special circumstances as found enumerated in the very provisions of the Act itself and not otherwise. He would draw my attention to ss. 194A, 201(1) and 204(iii) of the IT Act of 1961. Sec. 194A makes provision for deduction of interest other than interest on securities. Sub-s. (1) of the said section, which is relevant for our purpose, is couched in the following terms : “194A. Interest other than ‘Interest on Securities.—(1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any income by way of interest other than income chargeable under the head ‘Interest on securities’, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that no such deduction shall be made in a case where the person (not being a company or a registered firm) entitled to receive such income furnishes to the person responsible for making the payment— (a) an affidavit, or (b) a statement in writing, declaring that his estimated total income assessable for the assessment year next following the financial year in which the income is credited or paid will be less than the minimum liable to income-tax.” Sec. 200 of the Act contains the salient provisions as respects the duty of the person deducting the tax at source. This section reads as follows : “200. Duty of person deducting tax.—Any person deducting any sum in accordance with the provisions of ss. 192 to 194, s. 194A, s. 194B, s. 194BB, s. 194C, s. 194D and s. 195 shall pay, within the prescribed time, the sum so deducted to the credit of the Central Government or as the Board directs.” Sec. 204 of the said Act gives the meaning of “person responsible for paying”. This section runs thus : “204. Meaning of person responsible for paying.—For the purposes of s. 192 to 194, s. 194A, s. 194B, s. 194BB, s. 194C, s. 194D and s. 195 to 203 and s. 285, the expression ‘person responsible for paying ‘ means— (i) in the case of payments of income chargeable under the heard ‘Salaries’, other than payments by the Central Government or the Government of a State, the employer himself or, if the employer is a company, the company itself, including the principal officer thereof; (ii) in the case of payments of income chargeable under the head ‘Interest on securities’, other than payments made by or on behalf of the Central Government or the Government of a State, the local authority, corporation or company, including the principal officer thereof; (ii) in the case of credit or, as the case may be, payment of any other sum chargeable under the provisions of this Act, the payer himself, or, if the payer is a company, the company itself including the principal officer thereof.”

10. From a cursory perusal of all the sections as extracted above, as rightly pointed out by learned counsel for the Revenue, the determination of the “principal officer” is necessary only in the case of deduction of tax at source as in the case of salaries and interest other than interest on securities, etc., and not otherwise. He would further submit that the case on hand would be secqarly covered by the provisions of s. 278B of the IT Act, 1961, about which I have discussed earlier. Even at the risk or repetition, it may be stated here that in respect of an offence by a company, the company as well as the person, who, at the time of the commission of the offence, was in charge of and was responsible for the conduct of the business of the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Affixing my seal of approval to the argument of learned counsel for the Revenue on this aspect of the matter, I hold that the decision cited by learned counsel for the petitioners reported in (M. R.) Pratap vs. Muthuramalingam, ITO (supra), is not at all applicable to the facts of the present case. Consequently, non-issuance of individual notice to any of these petitioners is of no consequence.

11. One point of some signal importance touching upon the non- feasibility of fastening criminal liability in the shape of sentence of imprisonment on a juristic personality like the company as well as impossibility of the commission of offences by its requiring a particular mens rea had neither been adverted to as a ground in the petition, nor was it argued before me. I feel that it is rather unfortunate that such a tenable contention was not at all taken by learned counsel for the petitioners. The first petitioner, no doubt, is a private limited company, a juristic person. It is very well settled that a corporation or a juristic personality cannot be subjected to bodily punishment or imprisonment. This apart, under s. 11 of the IPC, the word ‘persons’ is defined as including a company or association or BOI, whether incorporated or not. All the offences under the IPC in respect of which the petitioners are prosecuted before the criminal Court require proof of requisite mens rea as found incorporated in the respective section, which is necessary for the commission of such an offence.

All those offences could conceivably be committed by natural persons alone and not by a juristic person like the first petitioner, a private limited company. Therefore, I am afraid that the array of the first petitioner as an accused in the criminal case is not permissible under law. Such a point not being taken by learned counsel for the petitioners, is left open to be agitated, if so advised, at the proper forum.

12. In the result, the petition fails and is, therefore, dismissed. Since the complaint before the Court below is pending on and from 19th March, 1985, as a result of the stay of the proceedings, the Court below is hereby directed to dispose of the case within three months from the date of receipt of the records from this Court.

[Citation : 179 ITR 558]

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