Crlp/42/2019 Of C. Sambasiva Rao v. The Deputy Commissioner Of Income Tax

[ [32se ]I IN THE HIGH COURT FOR THE STATE OF TELANG ANAAT HYDERABAD MONDAY, THE ELEVENTH DAY OF JULYTWO THOUSAND AND TWENTY TWO PRESENTTHE HONOURABLE DR. JUSTICE D.NAGARJUN CRIMINAL PETITION NO: 42 OF 2019 Between: '1. C.Sambasivq Rao, S/o. Veera Raghavaiah, Director, M/s. Vijay HomeAppliances Limited,Appliances Limited,2. S.Gajendran, ...PET|T|ONERS/A3 & A4 AND The Deputy Commissioner of lncome Tax, Circle-1 7(2), Room No. 913, gth Floor,Signature Towers, Opp. Botanical Garden, Kondapui., Hyderabad. ...neSpOflOef.ff Petition under Section 482 of Cr.P.C praying that in the circumstancesstated in the Memorandum of Grounds of Criminal Petition, the High Court may bepleased to quash the C.C.No. 273 of 2017, taken cognizance U/Ss. 276 C (2)Nw.278 B of the lncome Tax Act, 1961, on the file of the Special Judge forEconomic Offences at Nampally, Hyderabad, in respect of the [petitioners ][(A3 ][and]A4) and pass such other order or orders. l.A. NO: 1OF 2022 Petition under section 482 of [Cr.P ][.C ][praying ][that ][in ][the ][circumstances]stated in the Memorandum [of ][Grounds ][of criminal ][Petition,the ][High ][court ][may ][be]pleased to extend the interim order [granted ][on ][3-3-2020 ][in ][l.A.No.1/2020 ][in]Crl.P.No.4212019 until [further orders ][by ][this ][Hon'ble ][Court] l.A. NO:2 oF [2022] Petition under [Section ][482 ][ot ][Cr'P'C ][praying ][that ][in ][the ][circumstances]stated in the [Memorandum ][tf ][Grounds ][of ][Criminal ][Petition,the ][High ][Court ][may^ ][be]oleased to extend [tre ][interim-oiJer ][granted ][on ][21.04.2022 ][in ][l.A.No.1/2022 ][in]6rrF.r.ro.+Zlzo19 [until ][further orders ][by ][this Court] This Petition [coming ][on for ][hearing,upon ][perusing ][the ][Memorandum ][of]Grounds of [Criminal ][i"iiiion ]"rpon hearinq the arguments of"na STi.A.HANUMANTHA [REDDV" ][Adt;'it ][for ][the ][PetitiJners ][and ][of ][the ][None]Appeared [for the sole ResPondent'] The Court [made the ][following: ORDER] I THE H( NOURABLE DR. JUSTICE D. N,qGARJIJNC RIMINAL PETITION No.42 OF 2019 ORDER This peti:ion is filed by the petitioners/A3 and A,4 toquash the pro,:eedings in C.C.No.273 of 2Ol7 whrch was takencognizance urLder Sections 276-C(2) read with 2788 of theIncome Tax I ct, 196 1 (for short, [.,the ]Act,') on the complaintfiled by the D epuer Commissioner of Income Tax. 2The cor: tents of the complaint in brief as under: 3A1 is a company registered under the Irrcli;ur CompaniesAct, 1956 I raving its registered office zrtHlderabad. Thepetitioners I rerein are the Directors of .A1company and areshown as Ai, and A4, along with another accused. A2 stated tohave been c ied and the Act, 1956 I raving its registered office zrtHlderabad. Thepetitioners I rerein are the Directors of .A1company and areshown as Ai, and A4, along with another accused. A2 stated tohave been c ied and the same was recorded in the proceedingssheet on l:;.12.2O17. Alsheet on l:;.12.2O17. Al company has been manufacturingelectric honLe appliances in the name of \rijay Home AppliancesLimited.electric honLe appliances in the name of \rijay Home AppliancesLimited. 4. .A1 c rmpany has filed lncome assessment tax returns for theyeqr 2074_15 on 10.o3.201srncome as I1s.3,97,65,300A declarirrg the totalan{ as per t}re returns filed by rt, -- 4. .A1 c rmpany has filed lncome assessment tax returns for theyeqr 2074_15 on 10.o3.201srncome as I1s.3,97,65,300A declarirrg the totalan{ as per t}re returns filed by rt, -- tax to a tune of Rs. l,Sg,55,O1g/_ lr,as fell due. However, Alcompany has paid only Rs.gg,750/_ thereby the balance ofRs. 1,57,65,230/_ has to be paid. Al company and its Directorsevaded to pay the tax assessed as per the serf-assessment taxthereby the company and its Directors are liable forpunishment under Sectio n 2\6C(21read with 2TBB and 21gt_ ofthe Act. Respondent/complainant has filed a complaint undersection 200 cr.p.c., aleging that the accused have committedthe offence punishable under Sectio ns 2Z6C(2) and 278 B ofthe Income Tax Act, which was taken on liie by the learnedSpecial Judge for Economic Offences, Hyderabad, asC.C.No.273 of 2017. Aggrieved by the same, the petitionershave filed this petition to quash the same on the followinggrounds: 5. The petitioners are mere Directors arrd they are no wayresponsible for the day to day affairs of the company. There isno averment in the complaint as to a specific and categoricalrole played by the petitioners to make them vicariously liable.The Directors shall be in-charge [of ][the ][day ]to [day ]affairs [of ][the]in order to make them [liable' ][The ][complaint ][must]company of offence, [the ][Petitloners]e [r.hat ][at the ][tlme]specilicaliYallep conduct [of ][the]were in-charge [and ][were ][responsible ][for ][the]busitress. 6. The [resprndent/income ][tax ][department ][has filed ][the]counter statinl, [that ][the ][petitioners' ][company ][has ][failed ][to ][pay]the self-assess [ment ][tax ][prior to flling ][of returns ][of income tax']which is manc [atory ][under ][Section ][140-A of ][the ][Act' ][Whenever]an offence is [< ][ommitted ][by ][the ][company, ][the ][persons' who ][are]to the [company, ][including the Directors, ][are ][liable]responsible for prosecution. As [per ][Section ][27 ][8B of ][the ][Act, ][the ][Directors]are liable to [p ]rove that the offence [was ][committed ][without ][their]knorvledge ar d that they have exercised their due [diligence ][to]prevent the c rmmission of offence in order to ge1. the relief fromthe liability. It is mentioned further that in tlre l.rial CourtPWs. 1 and I I were examined-in-chief and posted for cross-examination rf the accused. At this stage, this petition is filed 7. As per Section 278-8 of the Act, u'here an oflence iscommitted by a compaly, every person, who at the time ofcom mrssion>f the offence, was in_charge ancl respons ible fOfthe company for the conduct of the business as uelj as the company shall be deemed to be guilty of the offence. Thepetitioners being Directors were responsible for the affairs ofthe company and for the conduct of the business. Thepetitioners have not filed any evidence to show the specific rolebeing played by each of the Directors. Therefore, prayed thecourt to dismiss the petition. 8. The assessee has filed the returns of the income withoutpaying self-assessment tax admitted by the company and notcomplied with the provisions of Section 140-,{ of the Act. Afterreceipt of the assessment order, notices under Sections 156and.271 (1)(c) of the Act were issued, but, the assessee has notpaid the demand of tax. Subsequent to that a notice underSection 279(l\ of the Act was issued to the assessee, on whichthe accused has sought for time and accordingly, one moreopportunity was given to the assessee by fixing date of hearingas 08.07.2016. In spite of it, the assessee has not availed theopportunity, thereby orders have been [passed ][under ][Section]279\ll of the Act authorDing [the ][complainant ][to ][file ][the]complaint before [the ][trial ][court.] g. Heard both [sides and perused ][the ][record'] 1 0. No\I,, thr point for determination is u,1'rether theproceedings agi.inst the petitioners in C.C.No .273 of 2Ol7 canbe quashed? g. Heard both [sides and perused ][the ][record'] 1 0. No\I,, thr point for determination is u,1'rether theproceedings agi.inst the petitioners in C.C.No .273 of 2Ol7 canbe quashed? i 1. The cont rntion of the respondent/complainant IncomeTa-x Departmer t is that A1 company, which has to pay incometax of Rs.1,5B 55,018/-, has paid only Rs.89,750/- keeping abalance of Rs. 1,57,65,230/- for the assessment year 2014-15and thereby cr mmitted default under Section 140-A of the Actas A I compar y was supposed to pay the self-ai;sessment taxbefore filing ol returns. Admittedly, A1 compar.:y has not paidthe tax as rec uired under Section 140A. 'l'here is no disputethat the petitir ners a,re the Directors of A1 Company. 12. The mrLin ground on which the petitioners havechallenged thr: prosecution is that in order to fasten the liabilityunder Section 27 6C(2) of the Act, the complainant has to provethat the peti ioners being Directors were in_charge and thatthey are respr nsible to the day to day activities of the company.According to the petitioners, the respondent/ department hasnot mentione, I in the complaint filed before the tna,l Court thatthe petitioners being Directors were in_charge and responsible'- "nr- for the conduct of the business of the company. It is furthersubmitted by the learned counsel for the petitioners that thepetitioners, being the residents of Chennai, were notparticipating in the day to day affairs of the company.Therefore, sought for quashment of the complaint. 13. The complaint filed by the respondent/depa-rtment wastaken cognizance against the accused for the offence underSection 276C(21 read with 27BB of the Act and numbered asC.C.No.273 of 2017. At the description paragraph i.e., [para]No.2 of the complaint the [petitioners were shown as Directors]of the company and that [they ][are responsible ][for the ][day to day]affairs of the companY. 14. Now it is contended [by ][the ][learned ][counsel ][for ][the]petitioners that in [order ][to ][fasten the ][liability, the ][complainant]has to prove that [the ][petitioners ][were ][not only ][responsible ][for]the day to [day ][allairs ][of ][the ][company ][but ][also ][prove ][that ][they]were in-charge' [It ][is ][submitted ][further ][that ][company must]specifrcally [mention ][that ][the ][petitioners ][were in-charge ][and]responsible [for ][ttre ][comPany'] I Section 27 38 of the Act runs as under: "2788. [3 ]C)ffe: rccs by companies ( l_] Where ar offence under this Act has been committed l)y acompany, ev:ry' person rvho, at the time the offence was oornmitted,rvas rn charge of, and was responsible to, the compa:rj for theconduct of tl e business o[ the company as well as the company shallbe deemed ro be guilty of the offence and shall be liable to beproceeded at ;ainst and punished accordingly:company, ev:ry' person rvho, at the time the offence was oornmitted,rvas rn charge of, and was responsible to, the compa:rj for theconduct of tl e business o[ the company as well as the company shallbe deemed ro be guilty of the offence and shall be liable to beproceeded at ;ainst and punished accordingly: Prov ded that nothing contained in this sub- s(:ction shallrender any such person liable to any punishment if he p::oves thatthe offence was committed without his knowledge or that he hadexercised a!. due diligence to prevent the commission of such offence. l2l [Notwith ][itanding ]anything contained in sub- section (1), where anoffence un ler this Act has been committed by a comp:rnv and it isproved thr t the offcnce has been committed with thc (:onsent orconnivancr of, or is attributable to any neglect on the part of, anydirector, r ranager, secretary or other o{ficer of the companl,, suchdirector, r ranager, secretary or other officer shall also be deemed tobe guitty ,.f that offence and shalt be liable to be proccecled againstand punis red accordingly. Prov ded that nothing contained in this sub- s(:ction shallrender any such person liable to any punishment if he p::oves thatthe offence was committed without his knowledge or that he hadexercised a!. due diligence to prevent the commission of such offence. l2l [Notwith ][itanding ]anything contained in sub- section (1), where anoffence un ler this Act has been committed by a comp:rnv and it isproved thr t the offcnce has been committed with thc (:onsent orconnivancr of, or is attributable to any neglect on the part of, anydirector, r ranager, secretary or other o{ficer of the companl,, suchdirector, r ranager, secretary or other officer shall also be deemed tobe guitty ,.f that offence and shalt be liable to be proccecled againstand punis red accordingly. (3) Where an offence under this Act has been committed by a person,being a company, and the punishment for srrch ["offence ]i"being a company, and the punishment for srrch ["offence ]i"imprisonr rent and fine,,then, without prejudice to th(, provisionsin sub-section ::Y'::: . [(t ][) ][or ][sub.section ][(2), ][such ][r:ompa ][ny shall]in sub-section ::Y'::: . [(t ][) ][or ][sub.section ][(2), ][such ][r:ompa ][ny shall]De punrst ed with fine and every person, referred to in sub-iection (1),and or-the referrcd-o puni;hed di rctor, in. sub-section in manager, accordance (2), secretary wilh :1"]i the be or pro.,risions liable to other officer U"-pro"""j""a .i,-nf"l"a"of the company,grir,"tand or-the referrcd-o puni;hed di rctor, in. sub-section in manager, accordance (2), secretary wilh :1"]i the be or pro.,risions liable to other officer U"-pro"""j""a .i,-nf"l"a"of the company,grir,"t Explana ion.- For the purposes of this section,_ (4) 'com )any means a body corporate, and includes_ IIa firm; and Itlan -association of persons or a bo(l) of individualswhether incorporated or not; an(l (!| "dire :tor', in relation to- f_1," [nr*, ][means a ][partner ][in ][the ]firm;!!l [any ]association of n;i;.;;;:#ffi iff ;:ffif ,ftaro-r-i"aiviouars,means 15. In order to fasten the liability, the person rvho alleged tohave committed the offence must be in-charge of and wasresponsible for the conduct of the business of the compa_ny atthe time of commission of offence. In the case on hand, thecomplainant has specifically mentioned at para 2 of thecomplaint that the petitioners are the Directors of the companyand they are responsible for the day to day affairs of thecompaJry. 16. It is mentioned by the learned counsel for therespondent/complainant that the charges have already beenframed by the trial Cotrt and PWs. 1 and 2 were examined inchief, however, cross examination by the petitioners is deferredand after deferring, this petition is Iiled for quashment of thecomplaint. 17. Therefore, the [question ]falls [for consideration ][of ][the ][Court]is whether absence [of ][a ][phrase ][that the ][petitioners ][are ]['in-]charge of and [were responsible" ][for ][the ][day ][to ][day affairs ][is ][a]fatal to the complainant [and the ][complaint ][can be ][quashed]under Sectiot 4S2 Cr.P.C, * "* [_] i8. Learned [c ][lunsel for the ][petitioners ][has ][relied ][upon ][the]judgment of the High Court [of ][Andhra ][Pradesh ][in ][Neeta ][Bhalla]Vs. S.M.S. [I'harmaceuticals ][Limited, ][Hyderabad ][and]anotherl. Thir [; ][case ][was ][decided ][by ][this ][Court ][when ][almost]similar questiot [came ][before ][the ][Court ][seeking ][quashment ][of ][a]complaint und,:r [Section ][138 ][of ][the ][Negotiabie ][Instrument ][Act](for short, "the NI Act")' [The issue ][in ][the ][said ][case ][was ][whether]the Directors lf [the ][company ][can be ][made ][liable ][rvhen ][the]has [, ][dlegedly ][committed ][the ][offence' ][This Court ][has]company ultimately helc at [paragraphs ][32 ][and ][39 ][as ][under:] i8. Learned [c ][lunsel for the ][petitioners ][has ][relied ][upon ][the]judgment of the High Court [of ][Andhra ][Pradesh ][in ][Neeta ][Bhalla]Vs. S.M.S. [I'harmaceuticals ][Limited, ][Hyderabad ][and]anotherl. Thir [; ][case ][was ][decided ][by ][this ][Court ][when ][almost]similar questiot [came ][before ][the ][Court ][seeking ][quashment ][of ][a]complaint und,:r [Section ][138 ][of ][the ][Negotiabie ][Instrument ][Act](for short, "the NI Act")' [The issue ][in ][the ][said ][case ][was ][whether]the Directors lf [the ][company ][can be ][made ][liable ][rvhen ][the]has [, ][dlegedly ][committed ][the ][offence' ][This Court ][has]company ultimately helc at [paragraphs ][32 ][and ][39 ][as ][under:] "32 An alalysis of the [judgments relerred ][to]herernabo 'e would in clear terms reveal the legal [position ][that]in order t ) fasten vicarious liability against a dirt:ctor of thecompany there must be c1ear, specific and unambiguousallegation i nrade in the complaint. It is not as if every d ectorof the acc rscd-company czrn be roped in automatically and beproceedec against for the ofence committed by the comparyunder ser tion 138 of the Act. The complainant r:ar proceedagainst o rly such persons who at the time tJ e offence wascommitte, I by the company v/ere in .charge o1' and wereresponsib .e to the company for the conduct of it.s business.Such per;ons could be directors, managers, secretary or theother offi ,ers of the company. Such persons 'in charge" mustmeal th rt they were in overa-ll control of the day-to-daybusiness of the company or frrm, as the case may be. Acomplain based on wild imaginations is not a complaint at allin the r ye of law. The accusation against ea<:h of thedirector/i rerson/accused must be speci{ic a,nd unambiguous.The role rlayed by each of the accused must be clearly statedin the cor eplaint. The complaint if read as a whole must clearly,.1,.,.1:.^j :: 1*. [ohy:d ][by ][each ][of thb directors ][of ][the ][company]:,J.i;"".;[ "iri""TXi..."ommirted [by ][rhe ]compiuy under1l]y rnartistic expression used tn 2002 (t) ALT (Crt.) 27 (A.P.) 2002 (t) ALT (Crt.) 27 (A.P.) drafting the cornplaintcornplaintquashing ,rr" prl"l"ji-cannot [by ]itsclf be a rcomprarnanr .- n. lTali the directorl o"Jgl:.,but'"i"";il" ro la.unch proseculion [":J"*'H:: ]againsrali the directorl o"Jgl:.,but'"i"";il" ro la.unch proseculion [":J"*'H:: ]againsrro'"aution i""i;" "iinl.l_Il"_" Mthoul rhere beinov them at r he '#;;::pTv it""rt^"uo'' til::' ;"" ;*"': mare;ia/nj' 5Lt;;ov them at r he '#;;::pTv it""rt^"uo'' til::' ;"" ;*"': mare;ia/nj' 5Lt;;commiucd br',;"'.;;#.1?i:t 'r No prosecution [Lime' ][when ]rhe offcnce isin pcrson the comptar:ri; or o"."""., 1""'if,lly' mav be on the would lie srmple accusariorragairrst ain pcrson the comptar:ri; or o"."""., 1""'if,lly' mav be on the would lie srmple accusariorragairrst aexecuti*e ii.""i.. ..'#'.Hrson ;;; ""UT: [or ][persons ]wcre rhe director,rjme when ,h;;tT;;;;rrrcer [of.rhe ][compa.ny ]at r]re marerial:l:..",H-.lff ["X.ii,;Ji,,"*:Tt'::,HJff ]:Tf ::"il;nprocedure crJ" "..rra [u1ler ][section ]482 of the criminal:l:..",H-.lff ["X.ii,;Ji,,"*:Tt'::,HJff ]:Tf ::"il;nprocedure crJ" "..rra [u1ler ][section ]482 of the criminalenquiry b fi;; ;;;'r""?t '.o,.t']tv [undertake ]any rovingallegations-;;;;:.il.:o [th: ]Futh [or ][otherwise ]or thicannoj undertake il ;;:# :t"T",H f :i:f arrayed as the un_ambiguous materia.l accused allegations time when in the "r" tfr compl-ai"i -"a" .ff"""" ug;'r"; "U*i i"- ";;.f"d.: lr_r" iotf 1,; .ptay"a ;l;i:**personsU, *".t""rri-iild of the in ::Tpi"y. l4l any of company and rhe [Mere ]Act every director. would as the [repetirion ]not case meet [of ]or may [the ]other tfr. [words ]b9. ."qrl.e-iiiirii"* .S."r: Th"." i""o.po..^t.?i, ;;";B; ;;;.]'"""..,rrsomething,o .op"".",io.allegations-;;;;:.il.:o [th: ]Futh [or ][otherwise ]or thicannoj undertake il ;;:# :t"T",H f :i:f arrayed as the un_ambiguous materia.l accused allegations time when in the "r" tfr compl-ai"i -"a" .ff"""" ug;'r"; "U*i i"- ";;.f"d.: lr_r" iotf 1,; .ptay"a ;l;i:**personsU, *".t""rri-iild of the in ::Tpi"y. l4l any of company and rhe [Mere ]Act every director. would as the [repetirion ]not case meet [of ]or may [the ]other tfr. [words ]b9. ."qrl.e-iiiirii"* .S."r: Th"." i""o.po..^t.?i, ;;";B; ;;;.]'"""..,rrsomething,o .op"".",io.more clearly stated in the. complaint. e trrJ lielation of merely repeating those the Act would rlot magc be enough. words mentioned But in case in section where 141theuyT3y:d complaint [as ]discloses [accused, ]the factual [the ][High Court ]foindation [in ]"g"i"J of iis-int *r" personse...rtjurisdiction cannot interdicith" fr.th". "r"."'i"" of merely repeating those the Act would rlot magc be enough. words mentioned But in case in section where 141theuyT3y:d complaint [as ]discloses [accused, ]the factual [the ][High Court ]foindation [in ]"g"i"J of iis-int *r" personse...rtjurisdiction cannot interdicith" fr.th". "r"."'i"" ""ql_,i.v ""J [t.i"f.] 39. The crucial issue is as to whether the petitionerherein, at the material time, when the offence was c-ommittedby the compaly, was in charge of [' ]and responsible to thebusiness of A- l-company. The document upon which relianceis sought to be placed would in no manner advance the case ofthe respondent/complainant. The same is not at all relevant todecide the question as to whether the petitioner herein wasresponsible at the material time for the offence committed bythe A- 1-company." 19. l,earned counsel for the petitioners has [also ]reiied [upon] the authority of the Hon'ble Apex [Court ][in ][S.M.S.] !: I I Pharmaceutice [ls ][Limited ][vs' ][Neetha ][Bhalla ][and ][another2']wherein [the ][Hc ][n'b1e ][Supreme ][Court has ][decideC ][the issue ][as ][to]whether [the ][es ][sentia] averments to ][be made ][irr ][a ][cornplalnt filed]under [Section 138 ][of the NI Act' ][in ][case ][if ][the ][comparry ][is]stated [to ][havt ][been ][committed ][the ][offence' ][Paragraph ][8 ][of ][the]said [judgmen ][' ][reads ][as ][under:] 19. l,earned counsel for the petitioners has [also ]reiied [upon] the authority of the Hon'ble Apex [Court ][in ][S.M.S.] !: I I Pharmaceutice [ls ][Limited ][vs' ][Neetha ][Bhalla ][and ][another2']wherein [the ][Hc ][n'b1e ][Supreme ][Court has ][decideC ][the issue ][as ][to]whether [the ][es ][sentia] averments to ][be made ][irr ][a ][cornplalnt filed]under [Section 138 ][of the NI Act' ][in ][case ][if ][the ][comparry ][is]stated [to ][havt ][been ][committed ][the ][offence' ][Paragraph ][8 ][of ][the]said [judgmen ][' ][reads ][as ][under:] ' 8. [rh ][: ][officers ][*',', ]: Tl:l:-l:'.""'l"oT:'":?";*J: [,.'fr";';:l]::U*l:T'-,-#ffl [.1.J:i:::''""':"y*i;=":"S*llt'":]::;;;;'i'1"' t" it"=.Jn'ient [to simplv ]lt"tl-'f,'ru',, at the Limeil# .r]:".'m [ft ][*T ]:il'$ii f";i;#t1 ::*': [l:]"' rs delined in]ial'^ [t ][o ]'r'i"' [;t ][mav ][bc ]rne [worthwhile" ]wora^'airector" [t9 ][n]director 'rr " -;;;?' Section [ztlgt ][of ][th;"do;panies ][Act' ][1956 ][as ][under:] 'director [includes ][€mY ][Person]"2-113],c :cupYing [th]e fositiott [of ][director, ][by ][whirtever]r ame called:" There #H [j ]' s [a ]'bffii"' [whole ][chapter ]u. [-s"ttitt" ][in ][the ][- ]ist [Companir:s Act ]to- zsz reft:r 1'o ['rn ]powers [directors']of" Board rf [Directors' ] [perusal ][of ][these provisions shows ][that]what a Board *""*p"r,y [of Directors ][is ][empowered ][to ][do ][in ][relation ][to ][a]i-lic [r* ]depettds upon [the ][role ][ar-rd ][{unctions]assign [:d ][to ][Directors ][as ][per ][the'Memoiandurn ][a'rrd ][Articles ][of]e="oi.i ,tiott [of the company ][There ][is ][nothing ][which ][suggests];;;;y by being , iit"tto. [in ][a ][Company, ][one ][is ][supposed]i. Ji", [,f,'*"g" ][prr.ti",-.t* ][functions on behalf ][of ][a ][comparry' ][It]happe rs tiat a [person may be ][a director ][in ][a company ][but ][he]may r ot know [anything about ][day-to-d:ry funcl-ioning ][of ][the]"oripr Board [rry. ]of Directors of [As ][a ][diiector he ]the Company [may be ]where [attentling ]usu,alty [rn':etings ]they decide[of ][the]policy matters and guide the course of business of a compaly.It m€ y be that a Board of Directors m.Iy appoint sub-cornm.trees consisting of one or two diredors out Of the BOafdof the Cornparty who mav be. made responsible for runcrir ns of the dity_to_ d.aycompary. Ir.". ,'."iJi ..r'_.i-ri.i, fr* p*t ' [(2oos) ]I scc Bg ' [(2oos) ]I scc Bg of resolutions of Board of Directors of a Company. Nothing isoral. What emerges from this is that the role of a director in acompany is a question of fact depending on the peculiar factsin each case. There is no universal rule that a director of acompany is in charge of its everyday affairs. We have discussedabout the position of a Director in a company in order toillustrate the point that there is no magic as such in aparticular word, be it Director, Manager or Secretary. It alldepends upon respective roles assigned to the olficers in acompany. A company may have Managers or Secretaries fordifferent departments, which means, it may havc more thanone Manager or Secretary. These olficers may also beauthorised to issue cheques under their signatures withrespect to alfairs of their respective departments. [Will ][it ][be]possible to prosecute a Secretary of Department-B [regarding ][a]cheque issued by the Secretary of [Department-A ][which ][is]dishonoured? The Secreta-ry [of ][Department-B ][may ][not ][be]knowing anlthing about [issualce ][of the ][cheque ][il ][question']Therefoie, -.r" [,-,*" ][of ][a ][particular ][designation ][of ][al ][o{Iicer]without more, may not [be ][enough by ][way of an ][averment ][in ][a]complaint. When- the [requirement ][in ][Section ][14 ][1' ][which];;i;;J" the [liability to ][offrcers ][of ][a ][companv' ][is ][that ][such ][a]nerson should. be [in ][charge ][of ][and ][responsible to ][the ][company]o"r th" how can [a ][person ][be]il;;;;;,-;;;;;;.""; "o.',p,''v' ;;b;i;; a" [abilitv [of ][criminal ][piostiution ][without ][it ][being]##i; i-lr""l"-pi-"t [ir'"t ][he ][sltisfies ][those ][requirements ][?]Not every [person ][connecJ ][*ittt ][a ][Compnay ][is- ][made liable]orr pti"ot'" [wtro ][may ][have]under SecLion [la ][t' ][Liabruiv ][is ]"^"t of business ".rn.,n*- who is in charge [a ][Oo ][with ][of ][the ][ti"-I]"attion ][complained ]'oi'a"o [of'. A ][person]^of"d ';;;;iC;'i" whv'the [cheque ][in ][questlon];;"";;;;;"'1i "^t""uik"ow H" i"Jff it [got ][dishonoured.'']""J*nv 20. [Learned counsel ][for ][the ][petitioners ][has ][also ][relied ][upon]the [judgment ][in ][S'M'S' ][Pharmaceuticals ][Limited ][vs' ][Neetha]Bhalla [and anothera' ][wherein ][the ][provisions of Section ][138 of]the [N.I. Act ][were ][challenged ][and ][the ][Honlcle ][Court ][at] paragraPh [3O ][held ][as ][under:] "30. It is, therefore, an authority [for ][the ];lropositionthat t.Ile Hig h Court is not completely [denuded of ][ils ][pow€r ][to]exercise inh :rent [jurisdiction ][for the ][sccond ][time."] 21. Learned [( ]ounsel for the petitioners has submitted thatSection 278-8 tf the Income Tax Act and also Section 141 ofthe N.i. Act a'e almost similar, except the fact that in thebeginning of tt e provision so far as Section 279-8 of the Act isconcerned, it r hows where an offence under this Act has beencommitted by ,r company, whereas in case of Section 141 of theN.I. Act, it is mentioned that if the person committing anolfence under Section 13g is a compan)., and rest of theprovisions arr identical. In order to demonstrate that theauthority sub nitted by him decided under Section l3g of theN.I. Act can a.lso be made applicable to the case on hand underthe Act, lear red counsel has also filed anot.her authoritydecided by t}: Madras High Court in K. Subramanyam vs.fncome Tax (rflicer+, wherein it is held at paras 5, 6 and 7 asunder: "5. The [.efore]l99l SCC show firrn second the 1nthe Onlil charge petitio 16a 16,.businr e that Mad. anr r .5j-.iai,fsrert conduct s. third and theat What responsiblethe time accutime there of sed are isthe the diis ofnobusoffeeged the to al.legatiresINnce the coess. inponsible mmrssion of the was companon The comrnicomplarnt m cointo y the for Lile platnttedthecom thefir;ofltnce st t s plaintconduct ofthe does acr:usedthat thirdnotthatwasthel99l SCC show firrn second the 1nthe Onlil charge petitio 16a 16,.businr e that Mad. anr r .5j-.iai,fsrert conduct s. third and theat What responsiblethe time accutime there of sed are isthe the diis ofnobusoffeeged the to al.legatiresINnce the coess. inponsible mmrssion of the was companon The comrnicomplarnt m cointo y the for Lile platnttedthecom thefir;ofltnce st t s plaintconduct ofthe does acr:usedthat thirdnotthatwasthe \ \ \ Ior thc accused was conduct in of cha-rgc rrri ausin"*"'*;,,:^"r^",j",:,c of and was rcs.nnc;hr^ .^ to .,rhe companyiff .'i:X ::,.; I f * I*"{ : : i ;: [";,, ]I_,ilX #i l;i,"?; ;P.y^, [*" ][*",a ]" [;ii-"i',lg:l*;;: ][Hl,Y?:,e"Ro,, ]["; ][ure ][t ][rhe ][nrm.]rwo ugredients haue io n" -,,l]ll"' 'rr. Lne complaint. Thcsefl :n::H:*Iiil;.5*";",:".n:Hi:1,1fl!":l,iJ,#:--_ v vrq(;rrcg rater on. 1,1*ils;i"'*:#tll-ffi [,;t,q,-,,,-""'Ltffi] ,.What _ then r:H,-# iT," r tir #=";ti:,,i :? ;1 ffil"""r :incl;des ;-i; o. o,I-'t [o" ][noticed ][that the ]['c,]musl il" rr"" ;" appry jrgJ ,o u [* ][ur ]ar."1il-"lsociatioi';; [c.ctor ][ltl-charge ]and a partner "."#iTJ;of acontext "i, a person ,in lslness' [It ][seems ][to ][us ]that in theff of 'r, [o ]the [r ][a ]company [u. ] "' "i", or [,,':ff ]fir1,_.this [,-:;, ] inferenci [ii ]#,H:;T,r"il:::follovis from thewording of Section 23C(21." 7 There is no allcgation that rhe third accu se/ petitionerherein had control of tie day-to.day husiness of trrJ'.ompa.,yor..f1.- on_thc particular date. [- ]Learned for the*qf""l a-lso relied upon the judgment ,.pori.i- """"".f ,, ,lou.,(!.{.) u, State, (1985) L.W. Crt. 4|-lstigarauetu.rT. it tearnedJudge in the_ above-quoted judgment [-observed ]t-irat ..a " perusatof the complaint shows that ihe allegation so far as thesepetitioners are concerned a-re vague just because they are directors of the "_.ra company. [th"y ][are ]It is [impleaded]not evenaverred in the complaint as to the part played by thepetitioners in ttre business. There a-re not even allegationsregarding the part played by these petitioners in tJle businessexcept that tlrey are mere directors. [None of ][them ][is ][managing]director, and the managing [director, ][if ][any, has ][not ][been]impleaded as an accused. [In ][these ][circumstances, ][the]prosecution against the [peLitioners, ][who ][are mere ][directors, ][is]not sustainable." 22. Therefore, [the ][complainant ][is ][expected ][to rnention ][in ][the]complaint [the ][petitioners, being ][the Directors' ]["were ][in-charge] t and [resPonsible ]['][ to the ][company ][for the ][conduct ][of ][the]business. [In ][t ][re ][complaint though ][the ][second ][limb of ][the]phrase [is ][menti'rned, ][the ][first limb ][of ][the ][said phrase ][that ][the]petitioners [were ][in-charge ][of ][is missing'] 23- Further, [r ][rhether ][the ][complainant ][is ][required ][to ][mention]both the limbs of [the ][phrase ][specihcally ][or ][if ][he narrates ][the]incidents of [inr olvement of ][the ][accused ][in ][the ][day ][to ][day ][affairs]of the compa ry to [hold ][that ][though there ][is ][no ][specific]averment that the petitioners were in-charge, [the ][averments]made before tt e Cor-rrt would reveal that thel, are rn-charge. t and [resPonsible ]['][ to the ][company ][for the ][conduct ][of ][the]business. [In ][t ][re ][complaint though ][the ][second ][limb of ][the]phrase [is ][menti'rned, ][the ][first limb ][of ][the ][said phrase ][that ][the]petitioners [were ][in-charge ][of ][is missing'] 23- Further, [r ][rhether ][the ][complainant ][is ][required ][to ][mention]both the limbs of [the ][phrase ][specihcally ][or ][if ][he narrates ][the]incidents of [inr olvement of ][the ][accused ][in ][the ][day ][to ][day ][affairs]of the compa ry to [hold ][that ][though there ][is ][no ][specific]averment that the petitioners were in-charge, [the ][averments]made before tt e Cor-rrt would reveal that thel, are rn-charge. 24. The raticna-l in the judgments cited above is that in orderto fasten the :riminal liability against the petitioners, the de_facto complair ant must allege that the petitioners rrre in_chargeand responsit Ie for the day to day allairs of the company.Paragraphs 2 :Lrrd. 6 of the complaint filed before the Court byrespondent Nc '1' discrose that the accused are the Directors ofthe company e nd they are responsible for the da1. to day affairsof the cornpa ny fornout'nr of the bu .ayerr,enrs in t ?e >/arbt "o*, are *",,:.;;;*r:, ::, I contention of the learned counsel forthe petitioners can beaccepted. .EHowever, it is to be noted thatthis petition is filed in theyear 2079, whereas the de_factocomplainant has filed thecomplaint before the trial Court in 2072.After filing of thecase, cognizance was takensummons were issued, afteraccused made theirappea_rance, charges were framed andevidence of the respondent/complainant was also commenced,PWs. I and 2 were examined_in-chief and at the time of cross_examination, the petitioners have fiied this compiaint beforethis Court seeking qu4shment of proceedings. 26. The petitioners are expected to approach thisCourtwithout anydelay i.e.,at the initial stages of filing of thecomplaint.Then thisCourt would have considered thepleadings available basing on the complaint filed by the de_factocomplainant in the trial Court, but, as observed above, as onthe date of fiIing of this complaint, the material available beforethe Court, as filed by the complainant themselves are thecomplaint, charges framed by the trial Court and examination_in-chief of pWs. 1 and 2. AIt these documents are required to be I consLdered no ,v to consider the case of tl-re pr:titioners. Asalready obser;eci, the averments of the comolaint thoughCisclose that t re accused persons are responsibie fbr lhe day today affairs of t he company, what is missing is thrLt tht:y are "rn-charge of the company". However, the charges framed by thetrial Court ar r relevant to consider at this stage. The trialCourt has frz med charge1n respect of the pe,ti tioners also.Charge No.2 r rns as under: ..ST CONDLY: Thi t 1.ou A3 and A4 being the Directors of A1 cornpanywas in-ch arge of ald was responsible for the condr.rct of thebusiness rf A1 company wiflfuly ald deliberately lailed to paythe tax lJ rbility on the admitted income for the assessmentyear 2O1t -15 in spite of show cause notice zurd that you havecommitte, I zrn offence punishable under Section 2711C{2) rlw.2788 of h come Tax Act, 196 I and within my cogni;ar-rce. An I I direct that you shall be tried belore this Court forthe a-forer rentioned charges." 27. Therelor e, the tria,l Court has framed the <:h arge that thepetitioners wt re in-charge of and responsible lor the :onduct ofthe business and that cha-rge was put to trial. Therefore,considering tl re fact that the charges are specifically framed asrequired und 3r Section 27 88 of the Act and trial has a,lsocommenced, his Court is of the opinion that at this stage, thepetitioners re luest for quashment of the complaint cannot be I considcred and the petitioners are at liberty to take all thcdefences that they have taken here before the trial Court [at-rd]the trial Court basing on the material avajlable before it wouldpass appropriate order. 28. In the result, the criminal petition is dismissed. An I I direct that you shall be tried belore this Court forthe a-forer rentioned charges." 27. Therelor e, the tria,l Court has framed the <:h arge that thepetitioners wt re in-charge of and responsible lor the :onduct ofthe business and that cha-rge was put to trial. Therefore,considering tl re fact that the charges are specifically framed asrequired und 3r Section 27 88 of the Act and trial has a,lsocommenced, his Court is of the opinion that at this stage, thepetitioners re luest for quashment of the complaint cannot be I considcred and the petitioners are at liberty to take all thcdefences that they have taken here before the trial Court [at-rd]the trial Court basing on the material avajlable before it wouldpass appropriate order. 28. In the result, the criminal petition is dismissed. Miscellaneous petitions, if any, shall stand closed Sd/.P.PADN/ANABHA [R]YASSISTANT REGIRAR//TRUE COPY/iSECTION OFFICER To1The Deputy Commissioner [of lncome Tax ][Circle ][-17(2), Room No'913, ][9th]Fiooi, Sign'ature Towers, [Opp: ][Botanical ][Garden, ][Xondapur, ][Hyderabad']2One bCio Sri A.Hanumantha [Reddy, ][Advocate ]IOPUCIoTwo CD Copies4One Spare CopyKi.r.(\v-"- HIGH COURTDATED:1110712021.4...J,q'. r)'I19i ll i?fl,ORDERCRLP.No.42 of 201).A9tDISMISSED.$\\[10$l'-]\q