Crlrc/389/2017 Of Ashok Gopalrao Kalmankar And Another v. The Deputy Commissioner Of Income Tax Hyderabad

HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD WEDNESDAY ,THE SIXTEENTH DAY OF FEBRUARYTWO THOUSAND AND TWENTY TWOTWO THOUSAND AND TWENTY TWO PRESENT THE HONOURABLE DR. JUSTICE CHILLAKUR CRIMINAL REVIS N CASE [NO: 389 OF ][2017] Criminal Revision Case under [Sectionc3gT ][and 401 ][of ][Cr.P.C against ][the]Order dated 19.01.2017 [passed ][in ][Crl.M.P No. 3106 ][of ][2016 ][in ][C.C' No' 88 ][of]2016 on the file of the Court of the [Special Judge ][for ][Economic ][Offences,]Hyderabad . Between: 1Ashok Gopalrao Kalmankar, [S/o. Gopalrao ][Ramkishna ][Kalmanar, ][Aged ][68]years, Ocb: Retired, Rl/o. H.No. 3-5-874113113, [Flat No. 201, Aasra ][Apts.']Hyderguda, Hyderabad.years, Ocb: Retired, Rl/o. H.No. 3-5-874113113, [Flat No. 201, Aasra ][Apts.']Hyderguda, Hyderabad.2Ul. Sirisn Bommakanti Narasimha, [S/o. Sitarama Sastry ][Bommakanti, Aged]53 vears, Occ : Chartered [Accountant, ][F/o. ][6-3-865/1/1 ][, lmperial ][lvlanor, ][Flat]No.- 107 Green Lands, Arneerpet, [Hyderabad.]53 vears, Occ : Chartered [Accountant, ][F/o. ][6-3-865/1/1 ][, lmperial ][lvlanor, ][Flat]No.- 107 Green Lands, Arneerpet, [Hyderabad.] ...PETITIONERS/ACCUSED [No' 4& ][6] . END The Deputy Commissioner [Of lncome ][Tax ],Circle. [3 (1), ][7th ][Floor, ] [Block ][lT]Tower, Ac [guards, ]Masab [Tank, ][Hyderabad, Rep ][, ][by ][S-pl. ][PP. ], [High ][Court ][at]Hyderibad" represented [Spl. Public ][Prosecutor, ][High ][Court. Hyderabad']Tower, Ac [guards, ]Masab [Tank, ][Hyderabad, Rep ][, ][by ][S-pl. ][PP. ], [High ][Court ][at]Hyderibad" represented [Spl. Public ][Prosecutor, ][High ][Court. Hyderabad'] ,..RESPONDENTiCOMPLAINANT IA NO: 2 OF 2020 Petition under section [482 ]cPc [praying ][that ][in ][the ][circumstances ][stated]in the affidavit filed in [support ][of ][the ][petition, ][the ][High ][court ][may ][be ][pleased ][to]pass an order extending the interim order [dated ][lo-o2- ][2020 granted ][by ][this]ilon,ble Court in l.A.No. [1 ][ol ][2O2O ][in ] [No. ][389 ][of ][2Ol7 ][for a ][period ][of ][6]months. lA NO: ['l ]OF 2022 Petition under Section 151 CPC praying that in the circumstances statedin the affidavit filed in support of the petition, the High Court may be [pleased ]toextend the order dated 2O-12-2021 granted by this Hon'ble High Court in LA. No.1 ol 2021 ln l.A. No. I o'f 2O2O in CRLRC.No. 389 of 2017 lor a period of 6months . lA NO: 1 OF 2021 pejtition under Section 151 CPC praying that in the circumstances statedin the affidavit filed in support of the [petition, ]the High Court may be [pleased ]toextend the order dated 29-11--2021 granted by this Hon'ble High Court in l.A. No.1 of 2027 in CRLRC.No. 389 of 2017 for a period of 6 months .in the affidavit filed in support of the [petition, ]the High Court may be [pleased ]toextend the order dated 29-11--2021 granted by this Hon'ble High Court in l.A. No.1 of 2027 in CRLRC.No. 389 of 2017 for a period of 6 months . I CRLRCMP. NO: 613 OF 2017 IPdtition under Section 482 of Cr PC [praying ]that in the circumstancesstated in the affidavit filed in support of the petition, the High Court may bepleased [leas-ed to stay all further proceedings including the appearance of thePetitioners in C.C. No. BB of 2016 on the file of Special Judge for EconomicOffences, Hyderabad and pass such further or other order(s) as this Hon'bleCourt deems fit and proper in the circumstances of the case. Counsel for the Petitioners :SRl. CH.PUSHYAM KIRAN Counsel for the Respondent : SRl. B.NARASIMHA SARMA, SPECIAL PUBLIC PROSECUTOR The Court made the following: ORDER I THE HONOURABLE DR.JUSTICE CHILLAKUR cRL.R.C.NO.389 0F 2017 ORDER: I CRLRCMP. NO: 613 OF 2017 IPdtition under Section 482 of Cr PC [praying ]that in the circumstancesstated in the affidavit filed in support of the petition, the High Court may bepleased [leas-ed to stay all further proceedings including the appearance of thePetitioners in C.C. No. BB of 2016 on the file of Special Judge for EconomicOffences, Hyderabad and pass such further or other order(s) as this Hon'bleCourt deems fit and proper in the circumstances of the case. Counsel for the Petitioners :SRl. CH.PUSHYAM KIRAN Counsel for the Respondent : SRl. B.NARASIMHA SARMA, SPECIAL PUBLIC PROSECUTOR The Court made the following: ORDER I THE HONOURABLE DR.JUSTICE CHILLAKUR cRL.R.C.NO.389 0F 2017 ORDER: Heard the submission of the learned counsel for [the]petitioners as well as the learned Standing Counsel [who is]representing the Department of Income Tax. [The ][Court]gave due consideration to the submissions made [as ][well ][as]the contents of the decisions relied [on.] 2. This is a petition filed under Sections [397 and ][401 ][of]the Code of Criminal Procedure [(Cr.P.C) seeking ][the ][Court]to set-aside the order that is rendered [by ][the ][Special ][Judge]for Economic Offences, Hyderabad, in [Crl.M.P'No.3106 of]2016 in CC.No.88 of 2016, dated [19.01.2077. ][The]petitioners herein have moved the above CriminalMisceilaneous Petition i.e. Crl.M.P.No.3106 [of ][2016 under]Section 245 of Cr.P.C. seeking the Court [to ][discharge ][them]from CC.No.B8 of 2016. The [petitioners ][herein ][were]arrayed as accused 4 and 6 in the [calendar ][case. ][The said]request was negatived by the Court [of ][Special ][Judge ][for]Economic Offences, Hyderabad and [aggrieved ][by ][that, ][the]petitioners are before this Court through this [revision ][case'] Thus, in the backdrop of the above factual scenario, thepoint that emerges for consideration is, Wlether there exists ang justifiable grounds toinuoke the reuisional jurisdiction of this Court andto set-aside the order dated 19.O1.2O17 that isrendered bg the Court of Special Judge forinEconomic Offences, Hyderabad, Crl.M.P.No.3106 of 2O16inCC.No.188 of 2016. 3. The facts of the case in nutshell which ultimatelyculminated to filing of the present Revision Petition are thatthe Deputy Commissioner of Income Tax, Circle-3(1),Hyderabad, filed a complaint before the Special Judge forEconomic Offences, Hyderabad, against accused Nos.I to6. As per the contents of the said complaint, the | [*t]accused is the Company registered under the CompaniesAct, 1956. The other accused are the ManagingDirectors/Whole-Time Directors/ Directors of the saidCompany and they are responsible for the day to dayaffairs of the Company. Accused No.l is engaged in thebusiness of manufacturing stabilizers, power savers a:rdpower transformers. Accused No.1 filed its original returnof income for the assessment year 20 1 3- 14 declaring the 3. The facts of the case in nutshell which ultimatelyculminated to filing of the present Revision Petition are thatthe Deputy Commissioner of Income Tax, Circle-3(1),Hyderabad, filed a complaint before the Special Judge forEconomic Offences, Hyderabad, against accused Nos.I to6. As per the contents of the said complaint, the | [*t]accused is the Company registered under the CompaniesAct, 1956. The other accused are the ManagingDirectors/Whole-Time Directors/ Directors of the saidCompany and they are responsible for the day to dayaffairs of the Company. Accused No.l is engaged in thebusiness of manufacturing stabilizers, power savers a:rdpower transformers. Accused No.1 filed its original returnof income for the assessment year 20 1 3- 14 declaring the lncome as Rs.34,21,25,67O/-. It determined the netaggregate liability as nil and filed its return. The accusedclaimed that self assessment tax of Rs.8,84,48,800/- waspaid. However, the actual amount paid1SonlyRs.8,84,488/-. Thus, a show-cause notice was issued forinitiation of proceedings. The Company gave a reply thatout of the total tax liability, an amount of Rs.3.67 croreswas paid by way of advance tax, TDS and self assessmenttax Balance of Rs.8.7crores is due to be paid. Thus, all theaccused with an intention to evade ta-x, filed a false returnand therefore committed the offence punishable underSection 276 C(2\ of the Income Tax Act, 196 1 . Further, theaccused No.2, knowing fully well aware, has given a falseverification and therefore, he has committed the offencepunishable under Section 277 of the Income Tax Act, 196 1.Also, since the offence is committed by the Company, itsDirectors are liable to be punished under Section 27BB ofthe Income Tax Act, i96 1. Disputing their liability andcontending that they have not committed any offence, thepetitioners who are accused Nos.4 & 6, filed a dischargepetition and the same was numbered as Crl.M.P.No.3106 of 2016, seeking for their discharge. The said request wasopposed by the respondent by filing a counter. The trialCourt on considering the entire material that is brought onrecord through the petition, counter and the evidence ofPWs 1 & 2, came to a conclusion that the petitioners a,r'edeemed to be responsible for the affairs of A1 Company zLsper the contents of Section 278 B of the Income Tax Act,1961 and therefore, they are not entitled for discharge.The said observation is assailed by the petitioners/ accusedNos.4 & 6. 4. Making his submission, the learned counsel for thepetitioners contented that the petitioners are no wayconcerned with the affairs of the Company arrd indeed,they are Independent Directors of A1's Company and theposition of the Independent Directors is different from thatof other Directors. The learned counsel also stated that therole of Independent Directors is cleariy iaid down underSection 1 50 of Companies Act, 20 13 and furthermore, thepetitioners seized to be the Directors of the Company fromthe year 20J4. Learned counsel for the petitioners took this Court to the contents of Form No.32 which disclosesthe particulars of appointment of Managing Director,Director(s), Manager and Secretary and the changes amongthem. The said document reveals that in A1's Company,the l"t petitioner i.e. A,4 is appointed as an IndependentAdditional Director on 30.12.2OO9. Likewise, the learnedcounsel has also brought to the notice of this Court thecontenrs of Form 32 in respect of the !"a petitioner i.e.accused No.6 which reveals that the 2nd petitioner1Sappointed as Independent Additional Director in the l"taccused company on 30.12.2OO9. The genuineness andthe averments of these documents is not disputed by thelearned Standing Counsel appearing for the respondent this Court to the contents of Form No.32 which disclosesthe particulars of appointment of Managing Director,Director(s), Manager and Secretary and the changes amongthem. The said document reveals that in A1's Company,the l"t petitioner i.e. A,4 is appointed as an IndependentAdditional Director on 30.12.2OO9. Likewise, the learnedcounsel has also brought to the notice of this Court thecontenrs of Form 32 in respect of the !"a petitioner i.e.accused No.6 which reveals that the 2nd petitioner1Sappointed as Independent Additional Director in the l"taccused company on 30.12.2OO9. The genuineness andthe averments of these documents is not disputed by thelearned Standing Counsel appearing for the respondent 5. The learned counsel for the petitioners furthersubmitted that except narrating at Para 2 of the complaintthat the petitioners herein are responsible for the day today affairs of the Company, nothing is mentioned in thecomplaint about their participation and indeed, they arenot responsible for assessing the income tax and filing theIncome Tax returns and therefore, as they are not liable under any of the provisions of Income Tax Act 196 l, moreso under Sections 276 C(21 and 278 B of the Income TaxAct, 1961. He said that they ought to have beendischarged b1' the trial Court, but it did not do so andtherefore, the petitioners are before this Court. 6. Seriously assailing with the said submission, thelearned Standing Counsel who is appearing for theresporfdent, submitted that putting into scrutiny thecontents of the complaint and the evidence of PWs | & 2,the learned Judge of the trial Court came to conclusionthat there aie no grounds to discharge and indeed, theaccused Nos.2 to 6 who were at the helm of affairs, areresponsible for making false declaration. The learnedStanding Counsel also stated that when the tax payable ismore than Rs.8 crores, they made a false declaration thatthe total amount is paid and indeed the actual amountpaid is only Rs.8,84,000/-. 7. Section 276 C of Income Tax Act, 196 1, prescribespunishment for willful attempt to evade tax or the penaltyor the interest chargeable or imposable under the Act. As per the version of the respondent, the petitioners hereinhave committed the offence punishable under Section276C(2) which says that z/ [qnA ]person tuiUfullg attempts inanA manner what so euer to affect the payment of tax,penaltg or interest under the Act, he shall be punishablewith rigorous impisonment for a term which shall not beIess than three months but u-thich mag extend to two [gears]and shg,ll also liable to fi.ne. The other offence which as [per]the version of the respondent/complainant the [petitioners]have committed is under the provisions of Section 278 B ofthe Income Tax Act.have committed the offence punishable under Section276C(2) which says that z/ [qnA ]person tuiUfullg attempts inanA manner what so euer to affect the payment of tax,penaltg or interest under the Act, he shall be punishablewith rigorous impisonment for a term which shall not beIess than three months but u-thich mag extend to two [gears]and shg,ll also liable to fi.ne. The other offence which as [per]the version of the respondent/complainant the [petitioners]have committed is under the provisions of Section 278 B ofthe Income Tax Act. 8. Section 278 B of Income Tax Act, 1961, deals withthe offences by Companies and says that uthen an offenceunder tLLe Income Tax Act, 1961 is committed by a compang,euery person uho at the time of commission of offence wasincharge, was responsible to for conduct of business of thecompanA as well as the companA shall be deemed to beguilty of the offence and shall be liable for punishment.Stating that when the persons who, though areDirectors of the company, are not involved in the actual 8. Section 278 B of Income Tax Act, 1961, deals withthe offences by Companies and says that uthen an offenceunder tLLe Income Tax Act, 1961 is committed by a compang,euery person uho at the time of commission of offence wasincharge, was responsible to for conduct of business of thecompanA as well as the companA shall be deemed to beguilty of the offence and shall be liable for punishment.Stating that when the persons who, though areDirectors of the company, are not involved in the actual conduct of the business, they cannot be roped with theliability, the learned counsel for the petitioners relied uponthe decision of the Honbie Apex Court in the case betweenS.M.S Pharmaceuticals Ltd. v. Neeta Bhalla and Ors.rwherein their Lordships at Para t held as follows:-liability, the learned counsel for the petitioners relied uponthe decision of the Honbie Apex Court in the case betweenS.M.S Pharmaceuticals Ltd. v. Neeta Bhalla and Ors.rwherein their Lordships at Para t held as follows:- " While analyzing Section 141 of the Act, it will be seenthat it operates dn cases tahere an offence underSection 138 is committed bg a companA. The keyfuords tuhich ocanr in the Section are "euery person".These are general utords and take euery personconnected uith a companA utithin their sueep.Therefore, these words houe been ightlg qualified byuse of the uords "who, ot the time the offence u.tascommitted, uas in charge of and uas responsible tothe company for the conduct of the business of thecompanA, as well as the company, shall be deemed tobe guilty of the offence etc." Whot is required is thatthe persons who are sought to be made ciminallyliable under Section 141 should be at the time theoffence utas committed, in charge of and responsible tothe compang for the conduct of the business of thecompanA. Euery person connected uith the companAshall not fall within tLe ambit of the prouision. It isonly those persons who utere in charge of andresponsible for conduct o.f business of the compong atthe time of commission of an offence, ulho taill be liqble for [ciminal ][action. ][It ]follort-ts from [this ][that ][if ][a]director of a company u.tho was not in charge of andwas not responsible for the conduct of the business ofthe company at the releuant time, uill not be liableunder the prouision. The liability aises from being incharge of and responsible for conduct of business ofthe company at the releuant time uLhen the offenceuras committed and not on the basis of merelg holdinga designation or office in a company. Conuerselg, [a]person not holding any office or designation in acompanA mag be liable if he satisfes the [main]requirement of being in charge of and responsible forconduct of business of a Compang at the releuant time.Liabilitg depends on the role one [plags ]in [the ][offairs ]ofa Company and not on designation or stahts. [If ][being]a Director or Manager or Secretary tuas enough [to ][cast]criminal liability, the Section would haue said [so.]Instead of "euery person" the section would haue said"euery Director, Manager or Secretary in a Company [is]liable". .. etc. The legislature is ougre that it is a caseof ciminal liabilitg uthich means serious consequencesso far as the person sought to be mode liable [is]concerned. Tlerefore, onlg persons taho can be said [to]be connected uith the commission of a cime at [the]releuant time haue been subjected to action. [. ]. ... ..." In the said case, the controversy arose [when]prosecution was launched against the officers of the Company uncler Sections 138 & 14 1 of the NegotiableInstruments Act, 1BB 1 In the said case, the controversy arose [when]prosecution was launched against the officers of the Company uncler Sections 138 & 14 1 of the NegotiableInstruments Act, 1BB 1 9. Section 141 of the Negotiable Instruments Act, 1881,deals with the offences by the Companies attracting theprovisions of Section 138 of the Negotiabie InstrumentsAct, 1881. The wording in Clause 1 of Section 141 ofNegotiable Instruments Act stands in similar footing asthat of Clause 1 of Section 278 B of the Income Tax Act,196 1 . Therefore, it is incumbent on the part of therespondent to show that the petitioners are responsible forthe conduct of the business of the Company. Neither theaverments in the complaint nor the evidence of PWs I & 2goes to show that on verification of the connected records,it was found that the petitioners were at the helm of a-ffairs.Even PWs L & 2 did not speak that they found thepetitioners herein to be dealing with the day to day affairsof the company. On what basis they have mentioned thatthey are responsible for day to day affairs of the company,in the complaint filed, is not stated any-ruhere. Thoughthere is no necessity for mentioning each and every detail in the complaint filed, yet when the witnesses in support ofthe case of the complaint enter into the witness box andgive evidence, there is every necessity on their part tojustify the version made by the complainant through thecomplaint. However, the evidence of PWs 1 & 2 does notdisclose any mention as to how they came to conclusionthat the petitioners herein are the helm of affairs or thatthev were looking after the day to day affairs of Al'sCompany. 10. Section 150 of the Companies Act, 2013 deals withthe Manner of Selection of Independent Directors andMaintenance of data of Independent Directors. The saidprovision is extracted as under:- "(I) Subject to the prouisions contained in sub-sectionB) [of ][section 149, ][an ][independent ][director ][mag ][be]selected from a data bank containing names,addresses and qualiftcations of persons uho areeligible and uilling to act os independentdirectors, maintained bg angbody, institute orassociation, as maA be notified bg tLLeCentral Gouernment, hauing expertise in creationand maintenance of such data bank and put on their website for the use by the compang making theapp ointrnent of such directors:app ointrnent of such directors: Provided that responsibilitg of exercising duediligence before selecting a person from the databank refered to aboue, as an independent directorshall lie tuith the companA making suchappointment. p) fhe appointment of independent director shall beapproued by the companA in general meeting as-prouided [in ][sub-section ]Q) [of ][section ][152 ][and ][the]explanatory statement annexed to the notice of thegeneral meeting called to consi.d.er the saidappointment shall indicote the justification forchoosing the appointee for appointment asindependent director. (3) The data bank referred to in sub-section (7), shallcreate and maintain dato of persons uilling to act asindependent director in accordance uith such ntlesas maA be prescibedcreate and maintain dato of persons uilling to act asindependent director in accordance uith such ntlesas maA be prescibed $) [The ][Central ][Gouernment ][may ][prescribe ][the]manner and procedure of selection of independentdirectors u.tho fuUill the qualifi"cations andrequirements specified under section 149." Therefore, by the contents of the above provision, it isclear that the Independent Directors are selected basing ontheir expertrse, basing on the data bank that is being (3) The data bank referred to in sub-section (7), shallcreate and maintain dato of persons uilling to act asindependent director in accordance uith such ntlesas maA be prescibedcreate and maintain dato of persons uilling to act asindependent director in accordance uith such ntlesas maA be prescibed $) [The ][Central ][Gouernment ][may ][prescribe ][the]manner and procedure of selection of independentdirectors u.tho fuUill the qualifi"cations andrequirements specified under section 149." Therefore, by the contents of the above provision, it isclear that the Independent Directors are selected basing ontheir expertrse, basing on the data bank that is being maintained and who are eligible and willing to act asIndependent Directors. Thus, as submitted by the learnedcounsel for the petitioners, their role in the day-to-dayaifairs of the company would be minimal and nominal.This Court does not find at least one mention in speciiicthat these petitioners have participated in the day- to- dayaffairs of the company or ol the conduct of the business ofthe coppany. Also, nothing is on record to show theirparticipation in assessment of tax and its payment. 1 1. Learned Standing Counsel submits that if trial ispermitted to be proceeded with, and if the petitioners arefound not guilty, they would be acquitted and thereforetheir discharge is not desirable. The penal [provisions]which are referred in the complaint are in respect of thevicarious liability which must be strictly construed. A baldstatement in the complaint that accused 2 to 6 i.e.Managing Director/Whole time Director/Directorsareinvolved in the day to day affairs of the company and wereresponsible for the conduct of the business of the companyand has filed returns, is not sufficient. The averments of the complaint should be specific and clear as against therole played by each accused as Director/AdditionalDirector or the Manager of the company. Theirparticipation in the conduct of the business should bespecifically shown. In case those averments are notspecificaliy narrated, yet those averments should bebrought on record through the evidence of witnesses whichwould_be recorded before framing of charges in a privatecomplaint. Hence, this Court is of the view that as the roleplayed by the petitioners is nowhere mentioned in thecomplaint and as the complaint being a private complaintand recording of evidence of witnesses is desirable and itwas done so by the trial Court before framing charges andas the evidence of those witnesses i.e. PWs 1 & 2 also doesnot disclose the role played by the petitioners so as tomake them responsible for the offences that are alleged tohave been committed by the respondent/complainant, thisCourt is of the view that the learned Judge of the trialCourt ought to have exercised his power judiciously andought to have discharged the petitioners. However, he didnot do so. \ To, 12. Therefore, this Court considers that the relief soughtfor through this Revision Petition is [justifiable.]Resultantly, the Criminal Revision Petition is allowed. Theorder under challenge i.e. the order rendered [by the ][Court]of Special Judge for Economic Offences, [Hyderabad, ]inCrl.M.P.No.3106 of 2016 in CC.No.S8 of 2016 [dated]19.O1.2017 is thus set-aside. Consequently, [the petitioners]i.e. aceused Nos.4 & 6 are discharged from the case inC.C.No.8S of 2016, on the file of the Court of Special Judgefor Economic Offences, Hyderabad. Stay [granted ]throughorders dated 14.03.2017 is vacated. At request of [the]learned counsel for the Respondent/Complainant, the trialCourt is directed to proceed with the trial and dispose ofthe matter as expeditiously as [possible ][preferably ]within [a]period of six months from the date cif receipt of copy of thisorder. 1 3. Misceilaneous petitions, if any [pending, ]shall stand closed. SdIK.SREENIVASA JOINTx'EGISTRAR,TRUE COPY//(l-tSECTION OFFICER I I 1. The Special Judge [for ][Economic Offences, Hyderabad ][.] 2. One CC to SRl. CH.PUSHYAM [KlRANlAdvocate ] 1 3. Misceilaneous petitions, if any [pending, ]shall stand closed. SdIK.SREENIVASA JOINTx'EGISTRAR,TRUE COPY//(l-tSECTION OFFICER I I 1. The Special Judge [for ][Economic Offences, Hyderabad ][.] 2. One CC to SRl. CH.PUSHYAM [KlRANlAdvocate ] 3. Two CCs to SRl. B.NARASIMHA [SARMA, Special Public Prosecutor, ][High]Court for the State of Telangana, [at Hyderabad ]IOUICourt for the State of Telangana, [at Hyderabad ]IOUI 4. Two CD Copies 5. One Spare [CoPY] \ HIGHOURTDATE D: 1 610212022 ORDERICRLRC.No.389 ot 2017 I ALLOWING THE CRI-.R.C. *zZ\4\o6@ \[t ]',i. [t\]((.? iloo2 0 Jtlr{ ltjaI\).-\trri!