Crlatr/53/2018 Of B. Teja Babu v. Dy. Commissioner Of Income-Tax

IN THE HIGH COURT FOR THE STATE OF TELANGANAAT HYDERABAD FRIDAY, THE SEVENTEENTH DAY OF JUNETWO THOUSAND AND TWENTY TWOTWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE DR. JUSTICE D.NAGARJUN CRIMINAL APPEAL fi RANSFER) Nos. 53 and 80 OF 2018 Criminal Appeal (TR).No. 53 of 2018: . criminal Appear Under section 374 (2) of cr.p.c. aggrieved by the Judgmentdated 0941-2o14inc.c.No.11Bof 2o1'r on thefireof theCourtof ftre speciatiuolefor Economic Offences at Hyderabad. Between: r shri B. Teja.Babu_s/o. B. Ramaringa Raju, aged about 30 years, Director of M/s.Chikavathi A.gro Farms [pvt. ]Ltd., H.No.' t-tr-tg2, Ftar N6.201, Kr;;|, A-r;;;Shamlal Buildings, Begumpet, Hyderabad-500016. . Appellant / Accused No. 3 AND i l Dy. Commissioner_of lncome-Tax,, Centrat Circte-8, Aayakar Bhavan, Room No.g05,8th Floor, Basheerbagh, Hyderabad-500004.8th Floor, Basheerbagh, Hyderabad-500004. ..RESpONDENT/ Complainant Counsel for the Petitioner: Sri VINOD KUTVAR DESHpANDE, SENTOR. COUNSEL FOR SRI. V SURENDER RAO. COUNSEL FOR SRI. V SURENDER RAO Counsel fcjr the Respondent: SRI B. NARASTMHA SARMA, SC FOR t.T. CRIMINAL APPEAL). NO:80 OF 2018 Crl. Appeal Under Section 374 (21 of Cr P,C. aggrieved by the Judgmentdated 09-01-2014 in C.C.No. 118 of 2011 on the fite of the Cou( of the SpecialJudge for Economic Offences at Hyderabad.dated 09-01-2014 in C.C.No. 118 of 2011 on the fite of the Cou( of the SpecialJudge for Economic Offences at Hyderabad. Between: 1. M/S Chitravathi Agro Farms Pvt. Ltd.. H.No. 1-11-192. Ftat No, 2O1, KamahArcade, Shamlal Buildings, Begumpet. Hyderabad-500016, Rep. by G.N.Rama Raju,Arcade, Shamlal Buildings, Begumpet. Hyderabad-500016, Rep. by G.N.Rama Raju, 2. Namburi Rama Raju S/o. Venkata Ra;u, aged about 49 years, Director ofM/s. Chitravathi Agro Farms Pvt. Ltd , H.No. [.l-1 ]1-192, Flat No. 201, KamalaArcade, Shamlal Buildings, Begumpet. Hyderabad-500016.M/s. Chitravathi Agro Farms Pvt. Ltd , H.No. [.l-1 ]1-192, Flat No. 201, KamalaArcade, Shamlal Buildings, Begumpet. Hyderabad-500016. 3, K.Goapala Krishnam Raju, Director of M/s. Chitravathi [Agro Farms ][Pvt. ][Ltd.,]H.No. 1-1 1-192, Flat No. 201, Kamala Arcade, Shamlal [Buildings, ][Begumpet,]Hyderabad-500016. ...Appellant / Accused 1, 2 & 4H.No. 1-1 1-192, Flat No. 201, Kamala Arcade, Shamlal [Buildings, ][Begumpet,]Hyderabad-500016. ...Appellant / Accused 1, 2 & 4 AND Dy. Commissioner of lncome-tax, Central Circle-8, Aayakar Bhavan, RoomNo.805, 8th Floor, Basheerbagh, Hyderabad-500004. ...RESPONDENT/ Complainant Counsel for the Petitioners: SRI VINOD KUMAR, DESHPANDE SENIORCOUNSEL FOR SRI. G ASHOK REDDY Counsel for the Respondent: SRI B. NARASIMHA SARMAStanding Counsel for lncome Tax. The Court delivered the following: Judgment THE HOT{'BLE DR. JUSTICE D.NAGARJUN CRIMINAL APPEAL ITR Nos.53 and 8O of2O18 COMMON JUDGMENT: CrI.A.(TR).No.8O of 2OlB is filed by Al, A2 and A4 i.e.,Company and its two Directors respectively, whereasCrI.A.(TR).No.53 of 2018 is irled by A3, who is another Director ofA 1 conviction and sentence/company, being aggrieved by the imposed by the learned Speciai Judge for Economic Offences atHyderabad in C.C.No. 118 of 2Ol I vide Judgment datedO9.OL.2OL4, wherein Accused Nos. I to 4 were found gr-rilty ofthe offences punishable under Section 276-C(21 read u'ithSection 278-8 of the Income Tax Act, 196 I (tor short, ["the ][Act")]consequently accused No. I was sentcnced to pay fine [of]Rs.1O,OOO/- and in default o[ payment of fine [to ][initiate]appropriate proceedings as required under [Section ][421 ][of]Cr.P.C., whereas Accused Nos.2 to 4 [s,ere sentenced ][to ][undergo]rigorous imprisonment for a period of one ycar [each and ]to [pay]fine of Rs. f O,OOO/- each and in default ol [pa'yment ][of ][fine ][by]accused Nos.2 to 4, to undergo simple imprisonment [for ][a ][period]of one month each. Since the issues invoh,ed in these appea.Is are one and thesame, both the appeals are being disposed of by rhis comrllo1)judgment.judgment. 2. For convenience, the parties herein the parties herein ane referreri to as theyreferreri to as theyto as theyas theytheyare arrayed before the tdal Court. i.e., Appellarrt No_ I asAccrrsed No. I /Company and Appellant Nos.2 to 4 as AccusedNos. 2 lo 4. For convenience, the parties herein the parties herein ane referreri to as theyreferreri to as theyto as theyas theythey 3 . The gcrresis of these cases, which gcrresis of these cases, which of these cases, which these cases, which cases, which which . leacl ttre appella:r leacl ttre appella:r ttre appella:r appella:r tsaccused to prefer these appeals, are narratecl in brief as uniler:accused to prefer these appeals, are narratecl in brief as uniler: The gcrresis of these cases, which gcrresis of these cases, which of these cases, which these cases, which cases, which which . leacl ttre appella:r leacl ttre appella:r ttre appella:r appella:r ts i) Accused No. 1/Company - 1/Company - - M/ s s Ch itravathi Agroitravathi AgroAgroF-arms Private Limited, which was registered undcr- LhcCompanies Act with the Registrar of Cr.rmpanies .rtH1,derabad as Private Limited Company, was engaged inthe business of acquisition and sale of lands. AppeltantNos. 2 to 4 herein are the Directors of AccuseciNo. l/Company. Accused No. 1/Company - 1/Company - - M/ s s Ch itravathi Agroitravathi AgroAgro iil Accused No.l/Company No.l/Company has acquired acquired [ands to ar-rto ar-rar-rextent o[ Ac.33.10 guntas in Sy.Nos.2O S, 206 ancl 207u nde5_ the limits of Bachupally Mandal, Ranga Reddr Accused No.l/Company No.l/Company has acquired acquired [ands to ar-rto ar-rar-r District during the financial years 2OO2-2OO3 anddeveloped the said lands by incurring some amountsduring the financial years 2OO2-O3 to 2OO7 -OB. AccusedNo.l/Company has floated 6 companies by name M/s.Beas Green Fields Private Limited and five others withIOO% holding in the year 2O06-07 and sold lands under 9different sale deeds for ttre financial year 2OOT 'O8 andclaimed exemption of such transfer by invoking provisionsuntler Section 47 of the Act. iii) For the assessment year 20OB-09, accusedNo.1'/company has filed incorne tax returns on 30.O9.2008under Ex.Pl by showing taxable income as Nil and bookprolit under Section 115J8 as Rs. 15,30,71,3721-, which ismore than regular incorrle. Since the book profit was morethan regular income, the sa-me has bee n taken for thepurpose of taxation and tax liabitity was arrived atRs.l,73,42,987 /-. i*r) Accused No.l/Company is expected to pay theincorne tax either by wa-y of a-dvance ta-x as required underSection 2O8 of the Act or at least along filing ol"vith return s in terms of Section 14O-A of the Act. As perSection 143 ( I ) of the Act, the tax liabiliry of Accused No. Iwas arrived at Rs.2,17,62,L44 /- by rheSection 143 ( I ) of the Act, the tax liabiliry of Accused No. Iwas arrived at Rs.2,17,62,L44 /- by rherespotrde nt/complainant emd raised a dema_nd underSection 156 read with Section 143 of the Act and issued anSection 156 read with Section 143 of the Act and issued anintimation to Accused No. 1/Company under Ex. p2.Accused No.l/compaly was required to pay the ttuydemandccl u,ithin 30 days of service of notice, but it hascornmirtcd default.demandccl u,ithin 30 days of service of notice, but it hascornmirtcd default. v) Respondent/complainant has issued show-causenotice under Section 22L (l) of the Act urlder Ex. p5,whcreiu thc appellalts r.vere asked to show cause as to r.r.hlpenall_\' should not be levied for committing defar-rlt inpayment of tax. As there was no response from theappellants, thc complainant has issued another sho\,cause noticc dated 01.09.2010 under Ex.p6 under Section140(4,)3 read u,irh Section 221 (Il of the Act. FinaJIy, onemore o pportunitl, u,as also given by the Department bvgiving anothcr shorr,-cause notice dated lZ .O9.2OlO (Ex. p7)under Scction 221 (1) read with Section 140(A)3 of thc Act v) Respondent/complainant has issued show-causenotice under Section 22L (l) of the Act urlder Ex. p5,whcreiu thc appellalts r.vere asked to show cause as to r.r.hlpenall_\' should not be levied for committing defar-rlt inpayment of tax. As there was no response from theappellants, thc complainant has issued another sho\,cause noticc dated 01.09.2010 under Ex.p6 under Section140(4,)3 read u,irh Section 221 (Il of the Act. FinaJIy, onemore o pportunitl, u,as also given by the Department bvgiving anothcr shorr,-cause notice dated lZ .O9.2OlO (Ex. p7)under Scction 221 (1) read with Section 140(A)3 of thc Act An opportunity of being heard was also given by therespondent/complainant to Accused No. I /Company fixingthe date of hearingAS 2I.O9.2OIO, but there was noresponse, on which a penalty of Rs.35,OO,OOO/-\ [ras]imposed by way of order d.ated 22.09.2O10 (Ex.PS) underSection 221 read with Section 140-A(3) of the Act and thesaid proceedings were served on accused No.1 on23.O9.20tO. 4. Considering the willful evasion of payment of tax, therespondent/complainant has decided to initiate prosecution andaccordingly a notice was issued to accused No.1/company andother Directors under Section 276-C(21 of the Act, as to whyprosecullon shall not be initiated against them for r.villful evasionof the tax. All of them have given reply stating that there was nointention to evade payment of tax.. Another notice was issued toaccused No.1/Company and its directors under Exs.P10 to P13dated O4. 1O.2O 10 asking them as to why prosecution shall [not]be initiated under Section 27 6-C(21 of the Act. Again replieswere filed by accused No.1/company and its Directors / accuscd Nos.2 to 4 under Exs.Pl4 to Pl7 stating that there \.{,as nointention of n illful evasion of tax-intention of n illful evasion of tax- 5. As Accused Accused No. 1/Company arrd its 1/Company arrd its arrd its its Directors/ accusedNos.2 to 4 have not paid the tax in response to the demaldnotice issued under Section 143 (l) of the Act and also failed topay the penalty, the re spondent/complainant after obtainingsanction order dated 25.02.2011 for launching of prosecutionhled a complaint belore the Special Court for Economic Offencesagainst accused No.1 and accused Nos.2 to 4, tJle otherDirectors, alleging that ttrey have committed offence punishableunder Section 276 C(21 rcad rvirh Section 2ZB-B of the Act, asthey have rvillfutly evaclccl tax even though they were havingsufhcient resources. As Accused Accused No. 1/Company arrd its 1/Company arrd its arrd its its Directors/ accused 6. The Special Court for Economic Offences took cognizanceof the offences against Accused No.l/Compaly and its Directorsi.e., Accused Nos. I ro 4, under Section 2Z 6=C(21 read withSection 278-8 of the Act ancl charges were framed against themunder Section 276 - C(2) read with Section 2Z g_B(L) of the Actand all the accusecl have pleaded not guilty of the charges anclclaimed to be tried. 7. In order to prove the charges leveled against theappellants, the respondent/complainant has examined PWs.l to3 and got marked Exs.Pl to Pl8. After closure of evidence of thecomplainant, the incriminating evidence elicited against theappellants was read over and explained to ttrem under Section313 of the Cr.P.C., for wtrich all of them have denied andreported that they did not choose to examine any witness ontheir behalf. However, they got marked Exs.DI to D3 on theirbehalf. 7. In order to prove the charges leveled against theappellants, the respondent/complainant has examined PWs.l to3 and got marked Exs.Pl to Pl8. After closure of evidence of thecomplainant, the incriminating evidence elicited against theappellants was read over and explained to ttrem under Section313 of the Cr.P.C., for wtrich all of them have denied andreported that they did not choose to examine any witness ontheir behalf. However, they got marked Exs.DI to D3 on theirbehalf. 8. The substance of the evidence of PWl is that after receivingo[ returns o[ income tax hled by accused No.1/company, thcresponcie n t/ complainant has processed the same under Section1a3( i ) of thc Act and issued intimation determining the totaltaxable income as Rs.15,30,71,372/- and tax liabilityASRs.2,I1,67,144 l-. The evidence of PW2,/Income Tax offtcer is tothe extent [hat he has considered the annual report of accusedNo.1/compan_v for the linancial year 2OO7 -O8 under Ex.P3 andbank account statements of accused No.1/Company with theAXIS Bank Limited under Ex.P4 and found that accusedNo. l/Company did not pay the tax returns in spite of having\ surplus and suflicient funds. pW3 is the Income Tax Officer,who has succeeded PW2_ His evidence is that he has passedpenalty order under Ex.P8 imposing penalty of Rs.35 lakhs andwho has succeeded PW2_ His evidence is that he has passedpenalty order under Ex.P8 imposing penalty of Rs.35 lakhs andraised demand under Ex.p9 and the same was served on theaccused. He also deposed that as there ,,vas no response fromaccused. He also deposed that as there ,,vas no response fromthe accused, show cause notices under Section 276-C of the Actwere issued against all thc accused through which accused wereinformed that the departmcnt is initiating criminal proceedingsand consequently the de pa_rLrnent has filed the complaint.and consequently the de pa_rLrnent has filed the complaint. 9. After full-Iledged triat, on considering the entire material onrecord, the tria-l Court has lound Accused No.l /Company andA2 to A4, the DirecLors of A I <.ompany, guilty of the offencespunishable under Secrions 276 C(2) and 27g_B of the Act andwere sentenced as stated supra. Aggrieved by the said jtrdgmentand conviction of Special Judge lor Economica_l Offences atHyderabad, the present appeals are filed originally before theMetropolitan Sessions Judge Court at Hyderabad. The erstwhite High Court for the States Court for the States the States States of Telangana andand 10The erstwhite High Court for the States Court for the States the States States of Telangana andandAndhra Pradesh has issued circular ROC.No.34, CriminalSection/20 t 7, dared 28.O8.2O I 7, ,"vherein it is clarified thatAndhra Pradesh has issued circular ROC.No.34, CriminalSection/20 t 7, dared 28.O8.2O I 7, ,"vherein it is clarified that against any orders passed by the Special Judge for Economic Offences, Hyderabad, in the State of Telangana andVisakhapatnam in the State of Andhra pradesh, the High Courthas the jurisdiction to entertain the appeals, not the SessionsCourt. In view of the said circular, these appeals filed by theCourt. In view of the said circular, these appeals filed by theappellants have been transferred from Metropolitaa SessionsJudge Court, Hyderabad, to the High Court for the State ofTelangana.Judge Court, Hyderabad, to the High Court for the State ofTelangana. 11. The summarlr of grounds of appeal as filed by theappellants in brief are as under: a) The trial CourL has failed to see that accusedNo. 1/company was not having funds to pay the tax on the duedate as reflected in Ex.P4-bank statements. b) The trial court has misconstrued the presumption underSection 278-E ot the Act and erred in holding that the burden ofproof is on the accused to prove that tLrere was no willful evasionof payment of tax. c) The trial Court erred in holding that the accused failed toprove non-existence of culpable mental state in non-payment of 11. The summarlr of grounds of appeal as filed by theappellants in brief are as under: a) The trial CourL has failed to see that accusedNo. 1/company was not having funds to pay the tax on the duedate as reflected in Ex.P4-bank statements. b) The trial court has misconstrued the presumption underSection 278-E ot the Act and erred in holding that the burden ofproof is on the accused to prove that tLrere was no willful evasionof payment of tax. c) The trial Court erred in holding that the accused failed toprove non-existence of culpable mental state in non-payment of taxes on the date of filing retr-rrns and as on the date of demaldnotice arrd that the triai Court tailed to appreciate that in spite ofnot having any cogent eviclence to show that all the accusednotice arrd that the triai Court tailed to appreciate that in spite ofnot having any cogent eviclence to show that all the accusedhave willfully evaded the tax, the trial Court has concluded thataccused have committed rvi[ful evasion in payment of tax. d) The trial courr failed to see that alt the assets belong toaccused No.1/Company were attached unrler Section 281-B ofthe Act ald due to paral-vzing of linancial activities of accusedNo.1, tax could not be paid in tirrre. e) The Trial Court should not have concluded that accusedNos.2 to 4 are responsible for day to cla-i, alfairs of accusedNo' l/company and shourd have takcn i.tc consideration thenotices issued under Section 278 B o[ the Act proposing theprosecution clid not reler accused Nos. 2 to 4 as principal officersand thereby accused Nos.2 to 4 should have been acquitted. 12Heard Sri Vinod Kumar Deshpande, learned Senior counselfor the appellants and Sri B. Narasiri-rha Sharma, leamedfor the appellants and Sri B. Narasiri-rha Sharma, leamedStanding counsel lor the income tax department, considered the entire material on record, relevant provisions of the Act and theauthorities cited. 13. Now, the points for determination in these appeals are: 1) Whether the conviction judgment dated09.0 1.2014 in C.C.No.118 of 2011 on the frle ofSpecial Judge for Economic Offences atHyderabad against the appellants carr be setaside? 2l Whether the appellantsaccused havecommitted will[ul evasion of tax? 3) To what relieP 14. [t is submitted by the appetlants in the grounds of appealthat the Respondent lncome Ta;< Department has not placedsuflicient material to show that appellant No.1 Company hascommitted willful default, to fastcn the liability under Section276 C of the [ncome Tax Act. Ttre question of willful defaultcomes, when appellant No.l Company is having suflicient fundsto its credit and deliberately chooses not to pay the tax or divertsthe funds for other purposes, According to the appellants [they] rvere not having funds to pay the tax, thereby, contended thatthere was no u.illful default committed by them. 15. PW3 in his cross examination admitted that appeliant No. I Company v,ias not havir-rg funds as on the clate of trling of thereturns. It is also the case of the appellants that the Respondent- Income Tax Department has not placed any material to showthat inspite of having sufhcient funds, the appellant No. 1compafly has deliberatel.y evaded in paymcnt of t.a_x, thereby theappellants. were not having amy culpable merltal state to cvadethe tax deliberately. 16. According to the appeltant lJo.l compan,v has iiled ITreturns on due date declaring the income ta_x as,,ni[,' by showingbook proht under Section l1SJB of the Income Ta_< Act. As perthe returns, the book prohts were found to be more tharr regula_rincome. According to one of rhe grounds o[ appeal, evcn thoughbook profrts were found to be more than income, as there wereno funds in the account oi the appellant No. I company, couldnot pay the tax. The triat Court in its order has observed t.hatthough appellant company lvas not having the lrquicl cash as onthe date of filing of returns, it (company) n as having reserves. 16. According to the appeltant lJo.l compan,v has iiled ITreturns on due date declaring the income ta_x as,,ni[,' by showingbook proht under Section l1SJB of the Income Ta_< Act. As perthe returns, the book prohts were found to be more tharr regula_rincome. According to one of rhe grounds o[ appeal, evcn thoughbook profrts were found to be more than income, as there wereno funds in the account oi the appellant No. I company, couldnot pay the tax. The triat Court in its order has observed t.hatthough appellant company lvas not having the lrquicl cash as onthe date of filing of returns, it (company) n as having reserves. which were diverted to other concerns without bothering the taxliability on book profits in terms of Section 115JB of the lncomeTax Act. Thus, even the trial Court has concluded that theappellant No. I Company had no liquid funds to pay the tax [as]on the date of filing of returns. It is mentioned in the grounds ofappeal that even though the book profits were more than regularincome, appellant No.1 Company was not in a position to [pay the]tax, thereby, appellant No. I company has not committed defaultwillfully. L7 . It is also admitted fact that atl the assets of appellant [No. ][1]Company were attached under Section 28 1B of the Income [Tax]Act and thereby there was no financial activity of the appellantNo.1 Company. Thus, there rvas no occasion for appellant [No.1]Company to have any funds to its credit. Further, M/s. [MaSrtas]properties Limited also requested lor raising o[ the attachment [of]the properties in order to execute the sale cleeds in [favour ][of the]purchasers so that the sale proceeds can lce paid [direcfly to ][the]department on behalf of the appetlant NI o.l company. [s']Maytas properties Limited also requested to ra-ise [the ][attachment]of five acres belonging to M/ s.Chitravath i Agro [Farms ][Private] Limited for disposal by Revenue Deparlment 1e 5s adjustectagainst the outsternding ta_x demand of ali the 19 companiesincluding appellant No.i cornpan'vicre letter dated 11.03.20r 1. 18. it is also mentioned in the grouncl of appeal that cventhougtr appellant No.l company has transferred the land infavour of subsidiary company, it does not arnount to transler asper Section 45 read urith Section 47 (ivl of the [ncome Ta_x Actand thereby appellant No.1 c6mp41.y is not tiable to palr tax. 19. The other aspect raised by the appeltalts in the grourids ofappeal is that when appellant No. 1 Company 6a, bmitted"4 income tax returns, surplus amouni r,r,as claimed io lle excolptcduncler capital gains as per Section 45 reacl with Section 4 / \r.,1 ofthe Income Ta>r Act and therebv the liability of ta;,r strould not belevied on the said surplus amount. 20. It is also not in dispute that M/s. Maytas pr.)pertiesLimited has requested the Respondent - lncome Tru< Depzlrtmentlor adjustment of TDS refund of income ta< and adjustr:nent olrefund of income tax dues of Rs. I I .45 crores vicle letter s dated22.O2.2O1O and 11.O3.20I1 in favour of appellant No. I company. The trial court in its judgment at page 15 para No.33has observed that nothing has been placed on record to showthat the department was in fact any due of any refunds to M/s.Maytas properties Private Limited and whether such refundswere fortified by passing appropriate refund orders. However, onperusal of the letters dated 22.O2.2OLO and 11.03.2011addressed by the M/s.Maytas Properties Private Limited, theendeavour of appellant No.l Company is very clear that in themost possible manner the tax liability was to be pard. This courtis of the opinion that if really the intention of appellant No.lcompany was not to pay the income tax and evade the samewillfulltj the letters dated22.O2.2O1O and I t.03.20lt addressedby M/s. Maytas Properties Limited requesting the clepartment toadjust TDS refr:nd of the tax liability could not have beenaddressed. 21. Another contention raised in the grounds of appeal is thataccused Nos.2 to 4 are not responsible for day to day affairs ofappellant No. I company and that there is no material placedbefore the trial Court to establish that accused Nos.2 to 4 areresponsible for day to day affairs of appellant No. i company and1 ') that unless there is specilic resolution authorizing one of thedirectors as principle offlcer, all the directors of the company areprinciple officers of the company, thereby, the observation of trialCourt that unless restricted by the provisions of the CompaniesAct, all the directors are authorized to alo a1l the acts and therebvaccused Nos.2 to 4 are principal officers is erroneous. 22. tn Akkinapalli Sujatha (smt.l and others v. State ofTelangana, Public Prosecutor, High Court of Telangana,Hyderabad and anothert, wherein it was held as follows: "1O. In POOJA RAVINDER DEVIDASANI u.STATE OF MAHARASHfRAI the Supretne CourTnrade tlrc folLouLing obseruations: "... Time and again, it has been asserted bytlris Courl that onlg those persons who utere tncharge of and responsible for the conduct of thebusiness of the Compang at the time ofcommission of an offence uill be tiable for criminalaction. A Director, ulho uas not in cLnrge of and_was not responsible for tLrc conduct of thebusiness of the CompanA at the releuant time, utiltnot be Liable for an offence tlnder Section 141 ofthe N.l. Act." 202 L r2) AI-l (crL l2 ta (S It.) In National Small Industies Corporation(supra) this Court obserued: Sectton 741 is a penatproui-sion creating uicarious liabilitA, and uhich, asper settled lanu, must be strbtlg construed. It istherefore, not sufficient to make a bald cursorystatement in a complaint ttat the Director (arraged,as an accused) is in clnrge of and responsible tothe compang for the condtrct of the business of thecompanA witlnut angthing rtare as to the rote oftlte Director. But the amplaint sLauld spell out asto l'nu.t and 1 (2O14) 16 SCC 1 6 in uhat mannerRespondent 7 u.ns in chorge of or was responsibleto the a@used Compang for tlrc conduct of itsbusiness. This is in consonance with stictinterpretation of penal stadttes, especially, tuheresuch statutes create uicarious liability. A companymag haue a number of Diectors and to make angor all the Directors as accused in a complaintmerelg on tLe brrsis of a statement that theA are irucharge of and responsible for the conduct of thebusiness of the ampang wttlnut angthing more isnot ct sufficient or adequate fulfillment of therequire ments Under Section 741. 27. Unfortunatelg, tle High Court did notd.eal tlre i.s,sue in. a proper perspectiue andcommitted error in drsmlssfng tle utrit petitions bghr,tlding that in tle Complaints filed by the Respondent No. 2, specific auerm.ents utere madeagainst the Appellant. But on the contrary, takingthe complaint as a tuhole, it can be infered that inthe entire complaint, no specific role is attibuted tothe Appellant in the commission of offence. It issettled law that to attract a- case Und.er Sec.tion141 of the N.l. Act a spectfi.c role must Lwue beenpLayed bg a Director of the Compang for fasteninguicctnotts hability. But in thi.s case, tle Appellantu.tos netther a Director of tLe accused Companynor in charge ol or inuolued in the dag to do-gaffairs of the <)ompantl at th_e time of comni,ssionoJ'the alleged offen.ce. There * not euen a u,'hisperor shrecl of eutdence on ,-ecord to slriu' that ttereis an.q acl conmiLtcd bg tlrc Appellant fiom whicha reasonable itkrence can be drqutn that theAy:pelktnt coulcl be uicariouslg LeM liable for theoJfr:nc<: tutth tuhtch she is charged." t t In POOJA RAVINDER DEWDASANTscase- ( I supra), the Suprem_e Court allouted thequash petition not onl.u on th.e ground. that th.ere iscase- ( I supra), the Suprem_e Court allouted thequash petition not onl.u on th.e ground. that th.ere isno speciJic role attributed to the appeltant but o,lsoon the ground that the appellant has resigned ason the ground that the appellant has resigned asDireclor much prior to is suance of tLe clwque. TLteSupreme Court taking into consideration its earlierdecr-slon-s in Nationctl Smatl Industries Corporationu. Ilarrneet Singh panital [(2O10) 3 SCC 33O];decr-slon-s in Nationctl Smatl Industries Corporationu. Ilarrneet Singh panital [(2O10) 3 SCC 33O]; Gunmala Sales 7 Priuate Ltd. u. Anu Mehta [(2O15)I SCC 1O3l and Pepsi Foods Ltd. u. SpecialJudicial Magistrate (1998) 5 SCC 3431, reiteratedthe ratio that a complaint, uh.ere no specific rol-e isattibuted to the Director - Accused, i.s liable to bequashed.' 23. In Alka Khandu Avhad v. Ao.ar Syamprasad Mishra and another2, it was held by the Honourable Supreme Courtas foliows: "8.1 Sectton 141 of tLe NI Act i.s relating tothe offe nce by cnmpanies and it cannot be madeappLicable to the indiuiduaLs. Learned counseloppeaing on beLnlf of tle original ampLainanthas sub mitted tlwt "Company" rLeans aruA bodAcorporate and includes, a firm or oth.er associationof indiuiduals and therefore in case of a jointliabiLitg of tu.to or more persotls it u,till fall within"other ossociation of ind.iuidual.s" and thereforewith the aid of Section 141 of the NI Act, theappellant who is jointlg liabl,e to pag tle debt, canbe prosecuted. The aforesaid cannot be accepted.Two priuate indiuiduals cannot be said to be "otherassociation of indiuidual.s". Therefore, tLrcre is noquestion of inuoking Sectian 741 of tle NI Act agalnst the appelLctnt, as tLrc liabilitg is theindiuidual Liabilitg (r,ag be a joint ttabitities), butcannot be said to be the offence committed. bg aindiuidual Liabilitg (r,ag be a joint ttabitities), butcannot be said to be the offence committed. bg acomponA or bg it corporate or firm or otherassoclafions of indiuid_uats. TLe appeltant heretn isassoclafions of indiuid_uats. TLe appeltant heretn isneither a Directrtr nor a partne_r in any firm uthohns issued thecheque. ['fherefore, ]euen theappeLlant cannotbe conuicted uith the aid ofSection 141 of the N! A<:t. Tiuzrefore, tLrc High Courtha-s cornmitted a qraue error in not quashinq tLEcomplaint agains! t h.r: ,-lppeLlant for tlrc offencepunishable uncler Sect.iort I3g r/ u.t Section 141 ofthe NI Act. The cnmiruti contplairt frLeC against thehns issued thecheque. ['fherefore, ]euen theappeLlant cannotbe conuicted uith the aid ofSection 141 of the N! A<:t. Tiuzrefore, tLrc High Courtha-s cornmitted a qraue error in not quashinq tLEcomplaint agains! t h.r: ,-lppeLlant for tlrc offencepunishable uncler Sect.iort I3g r/ u.t Section 141 ofthe NI Act. The cnmiruti contplairt frLeC against theappellant for Lhe ofkn<:e punishable unrier Seetion138 r/ w Sectlon l t l of th.e Nl Act, tLerefore, can138 r/ w Sectlon l t l of th.e Nl Act, tLerefore, canbe said to bc ctbusc of process of lara ond. thereforethe same is requrrerl to be quashed. and_ set asid.e. ithe same is requrrerl to be quashed. and_ set asid.e. i 24. On considering tt-re ratio laici dou,n by the Honourd.ble ApexCourt in the decisions reported above, it is clear that theprosecution must specific:allv rnention in the complaint as to therole played by the appellant in the management of the company.Merely saying that rhe appcllants are responsible for the day_to_day affairs ot the Lccused No. I Company is not suffiiient. tt isalso expected to .rllege rhat the appellants are in_charge of a t particular branch / wing/ unit of appellant No. 1 Company. Merelysaying that all the directors are in-charge and responsible for theday-to-day affairs of the appellant No. I compaly will not servethe purpose. 24. On considering tt-re ratio laici dou,n by the Honourd.ble ApexCourt in the decisions reported above, it is clear that theprosecution must specific:allv rnention in the complaint as to therole played by the appellant in the management of the company.Merely saying that rhe appcllants are responsible for the day_to_day affairs ot the Lccused No. I Company is not suffiiient. tt isalso expected to .rllege rhat the appellants are in_charge of a t particular branch / wing/ unit of appellant No. 1 Company. Merelysaying that all the directors are in-charge and responsible for theday-to-day affairs of the appellant No. I compaly will not servethe purpose. 25. Appellarrt No.l company has frled an application underSection 39 I of thc Code of Criminal procedure a-long w.ith theappeal for recerVing (i) Dossier Reports of the appellant companyfor tlre assessmenr year 2OOB-O9, (2) Files pertaining to TROProceedings pcrtaining to the appellant cornpany and (3) entireproceedings pcrtaining to the sanction order in the appeal. It issubrnitted [rv thc learned counsel for the appellants thatsanction rvas accorded lor prosecution without assigrring cogentreason s and r n order to prove that tJ:e appellants have notwillfully cvaclcd the payment of taxes, tl:e liles pertaining to thesaid order ernd all communications between the assessing officerand rhc sanctioning authority are crucial documents_Considcring the same and on hear-ing botJ: sides, this Court is ofthe opinion that these documents are very relevant to considertlre gr ounds rarsed in the appeals on hand, thereby thesedocunrcnI s arc rccerved. 26. In view of the above cliscussion and on perusal of thegroi:nds of appeal, it is evident that the appellalts have raisedcertain substantial issues including that the appellant Companyhas not committed wiliful delault, as admittedly there were nofunds to the credit o[ appellarrts; the request of M/s. Maytashoperties Limited to rarsc the artachlnent of lands, so that saleproceeds can be paricl dull torvards income tax on behalf of theappellants, but same 14/zl s nor c.rnsrdcred; the appellant Ncs.2 to4 a-r:e not the principle olliccr s :urcl thereby they cahnot be heldto be responsible lor tlr{, ;rc[s committed by the company;appellant No.1 comparrr,' tr:rr; lilccl 11- returns on due datedeclarir'rg the income ra-\ .is rul" as book prof'it under SectionIISJB of the Income Tax Ar:r. F urthcr, the appellants have flledpetifion under Section 39 I oI rirc Code of Criminal Procedure tore.eiie (1) Dossier Report s o[ the appellant company for t]reassessment year' 2OO8 Oq. Ql Files pertaining to TROProceedings pertaining ro rhe appellanr company and (3) entireproceedtngs pertaining to rhc s:rncrion order in the appeal andaccordingly the said docurncnts tvcrc received 27 . Con sidering the above, this Court is of the consideredopinion that the tria_l Court is required to be directed tore-consider all the issues that. are raised by the appellant in thisopinion that the tria_l Court is required to be directed tore-consider all the issues that. are raised by the appellant in thisappeal and the documents liled under Section 391 of tl"e Code ofCriminal Procedure and give Iinding afresh by gir.ing opportunityto both sides.Criminal Procedure and give Iinding afresh by gir.ing opportunityto both sides. 2a. Accordingly, both these criminal appeals are disposed ofsetting aside the conviction and sentence dated O?.OL.2OL4recorded by Special Court lor Economical Offences at Hyderabadand C.C.No. I 18 of 201 I is remanded back to the trial Court witha direction to considcr the complaint afresh in accordance r,r,ithlaw, after giving an opporrunity to both sides to adduce furtherevidence, if an,y. Horn,cvcr, the trial Court shall not be influencedby the comments and observations, if any, made by this Courttouching merits of t-he case while passing orders. As a sequel. pcnding miscellaneous applicarions, if any,shall stand closed. //TRUE "'rBi.i?H'S["'"$sEcrrot\#ER 2a. Accordingly, both these criminal appeals are disposed ofsetting aside the conviction and sentence dated O?.OL.2OL4recorded by Special Court lor Economical Offences at Hyderabadand C.C.No. I 18 of 201 I is remanded back to the trial Court witha direction to considcr the complaint afresh in accordance r,r,ithlaw, after giving an opporrunity to both sides to adduce furtherevidence, if an,y. Horn,cvcr, the trial Court shall not be influencedby the comments and observations, if any, made by this Courttouching merits of t-he case while passing orders. As a sequel. pcnding miscellaneous applicarions, if any,shall stand closed. //TRUE "'rBi.i?H'S["'"$sEcrrot\#ER l:lx::nii'.'di,:1ffii[il'J:ffii:in.:H';.:.:;:i:"'il:il]Roo"n [No ]['8O5 ]' [Bth ][Floor]Roo"n [No ]['8O5 ]' [Bth ][Floor] 3. One CC to SRI.V SURENDER RAO, Advocate tOpUCltOpUCl 4. One CC to SRI.B NARASTMHA SARMA, Advocate tOpUCl 5. One CC to SRl. c. ASHOK REDDY, Advocate 6. Two CD Copies kul pr Ur,- HIGH COURT DATED: 1710612022 COMMON JUDGMENT c Rr M r N AL nen enl(rnaru s re n) Nos. 53 and 80 OF 2018 DISPOSING OF THEBOTH TR. CRL.APPEALS ,..-)h-t\\r11,3 F1o..1r'1l,\i4fi$l',\ [1$8]\=.:',,.,.'.: