Received on : 02\/03\/2019.
\nRegistered on : 02\/03\/2019.
\nDecided on : 16\/12\/2019.
\nDuration : 0Y,
\n9M,
\n14D.
\nIN THE COURT OF SESSIONS AT GREATER MUMBAI
\nCRIMINAL REVISION APPLICATION NO.267 OF 2019
\nIN
\nC.C. NO.231\/SW\/2018
\nEckhard Garbers, ]
\nAdult, Age : 50 years, ]
\nOccupation : Business, ]
\nResiding at Isle of Man. ]
\n(Through Mr. Ajit Allwyn D’Souza, ]
\nConstituted Attorney). ] … Applicant\/
\n(Original Accused No.7)
\nV\/s.
\nShri Shubham Agrawal, ]
\nDy. Commissioner of Income Tax ]
\n(TDS)1(
\n2), Mumbai, Smt. K. G. ]
\nMittal Ayurvedic Hospital Building, ]
\nCharni Road (West), ]
\nMumbai \u2013 400 002. ] … Respondent
\nCORAM : HIS HONOUR THE ADDL. SESSIONS JUDGE
\nM. S. MUNGALE (C.R.NO.44).
\nDATE : 16th December, 2019.
\nShri Sujay Kantawala a\/w Shri Subhash Jadhav I\/b Parinam Law
\nCNR NO. : MHCC020033652019
\n2
\nCRA
\n267\/19
\nAssociates, Ld. Advocate for applicant.
\nShri Amit K. Munde, Ld. Spl.P.P. for respondent.
\nO R D E R
\n1. The respondent\/Deputy Commissioner of Income Tax, has
\nfiled criminal case bearing C.C. No.231\/SW\/2018 against the revision
\napplicant\/original accused No.7 and other six accused persons with
\nallegation that the accused No.1\/Company had deducted Income Tax
\nby way of TDS from the various parties and the total amount for the
\nfinancial year 20162017
\ni.e. the period from 01\/04\/2016 to
\n31\/03\/2017 was Rs.1,87,18,459\/,
\nbut, immediately, the said Income
\nTax amount was not credited to the Central Government, but
\nsubsequently, by delay between 1 month to 11 months, the said
\namount was credited to the Government and as such, offences
\npunishable under Section 276B
\nr\/w. 278B
\nof the Income Tax Act,
\n1961, is attracted. The accused No.1 is the Company registered under
\nthe Companies Act, 1956, whereas the accused Nos.2, 3 and 5 to 7 are
\nimpleaded as the Directors and the accused No.4 is impleaded as the
\nChief Finance Officer of the said Company. The learned Additional
\nChief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai, by
\norder dated 24\/07\/2018, issued process against the accused persons
\nfor the offences punishable under Section 276B
\nr\/w. 278B
\nof the
\nIncome Tax Act, 1961. Being aggrieved by the said order of issue of
\nprocess, the applicant\/accused No.7 has preferred this criminal revision
\napplication.
\n2. In the revision application, the applicant\/accused No.7 has
\ncontended that he is a foreign national person and as such, he was just
\n3
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\n267\/19
\nprofessional and an Independent Director. He has not participated in
\nday to day business of the Company. He was not incharge
\nof day to
\nday business and as such, as per Section 278B
\nof the Income Tax Act,
\nhe is not liable for criminal proceeding. Further, before filing the said
\ncomplaint, he had already submitted his resignation with effect from
\n23\/09\/2015 and the appropriate Form No.DIR11
\nwas submitted in the
\noffice of the Registrar of Companies and as such, criminal case against
\nhim is not maintainable. It is further contended that in the complaint,
\nthe complainant has given his residential address on the address of the
\nCompany which is wrong. He resides at Isle of Man country and his
\naddress is mentioned in the Form No.32 submitted in the office of the
\nRegistrar of Companies. The revision applicant\/accused No.7 has
\nproduced copy of Form No.32 on record.
\n3. It is further contended that if the accused resides out of
\njurisdiction of the Court of Metropolitan Magistrate which takes
\ncognizance of the case, then it is mandatory to postpone the issue of
\nprocess and direct to hold enquiry and carry out investigation.
\nHowever, the complainant gave wrong address of the
\napplicant\/accused No.7 and thereafter, without applying judicial mind,
\nthe learned Additional Chief Metropolitan Magistrate issued order of
\nprocess against the applicant\/accused No.7. On these grounds, the
\napplicant\/accused No.7 has requested to set aside the order of issue of
\nprocess passed against him and discharge him from the prosecution.
\n4. The revision application is opposed by the
\nrespondent\/Deputy Commissioner of Income Tax Department by filing
\nreply. The respondent has contended that the TDS amount mentioned
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\nby the revision applicant\/accused No.7 in his revision application, was
\nrecovered by the accused No.1\/Company from the various parties
\nduring financial year, but, did not immediately deposit the same to the
\nGovernment Treasury. This fact was revealed in a survey action under
\nSection 133A(2A) of the Income Tax Act, 1961, on 14\/02\/2017. It was
\nrevealed that the said TDS amount was deposited by the Company by
\ndelay of 1 month to 11 months. Therefore, show cause notices were
\nissued to the accused No.1\/Company, all the Directors and Chief
\nFinance Officer of the Company. All the said notices were served on the
\naddress of the Company. However, reply was not given. When fresh
\nnotice was issued, reply was given by the Company. Any of the
\nDirectors has not given personal reply. The reply given by the Company
\nwas not satisfactory, therefore, by obtaining sanction from the
\nCommissioner of Income Tax, the complaint is filed against the
\naccused.
\n5. It is further contended that the accused Nos.2 to 7, being
\nDirectors, were incharge
\nand responsible to the Company for the
\nconduct of the business and as such, along with the Company and Chief
\nFinance Officer, all the Directors are also vicariously liable for
\nprosecution and as such, the learned trial Magistrate has rightly issued
\nprocess against the accused persons for the offences punishable under
\nSection 276B
\nr\/w. 278B
\nof the Income Tax Act, 1961. On these
\ngrounds, the respondent has requested to dismiss the revision
\napplication.
\n6. The following points arise for my determination, followed
\nby my findings against each of them with reasons to follow :5
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\n267\/19
\nPOINTS FINDINGS
\n1. Whether it is necessary to interfere in the
\nimpugned order of issuance of process passed
\nby the learned trial Magistrate passed against
\nthe applicant\/accused No.7 for the offences
\npunishable under Section 276B
\nr\/w. 278B
\nof
\nthe Income Tax Act, 1961 ?
\nIn the affirmative.
\n2. What order ? As per the final
\norder.
\nR E A S O N S
\nPOINT NO.1 :7.
\nHeard the arguments submitted by the learned Advocate
\nShri Sujay Kantawala for the revision applicant, the learned Spl.P.P.
\nShri Amit Munde for the respondent\/Deputy Commissioner of Income
\nTax. Perused the copy of complaint and other documents produced on
\nrecord.
\n8. As per Form No.32 of the Registrar of Companies office
\nproduced by the applicant\/accused No.7, he was Director of the
\naccused No.1\/Company with effect from 29\/03\/2012. The
\napplicant\/accused No.7 has contended that he had resigned from the
\nCompany with effect from 23\/09\/2015. However, he has not produced
\nthe copy of resignation letter and the prescribed form DIR11
\nsubmitted
\nto the Registrar of Companies. Therefore, prima facie, the contention of
\nthe applicant\/accused No.7 that he had resigned from the Company on
\n23\/09\/2015 is not established by the applicant\/accused No.7.
\n6
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\n267\/19
\n9. Now about merits of the case. The complaint is filed under
\nSection 276B
\nr\/w. 278B
\nof the Income Tax Act, 1961. Section 278B
\nwhich deals with offencec by Companies provides as under :\u201c(
\n1) Where an offence under this Act has been
\ncommitted by a company, every person who, at the time
\nthe offence was committed, was in charge of, and was
\nresponsible to, the company for the conduct of the
\nbusiness of the company as well as the company shall be
\ndeemed to be guilty of the offence and shall be liable to,
\nbe proceeded against and punished accordingly :
\nProvided that nothing contained in this subsection
\nshall render any such person liable to any punishment if
\nhe proves that the offence was committed without his
\nknowledge or that he had exercised all due diligence to
\nprevent the commission of such offence.\u201d
\n10. On perusal of the impugned complaint, it appears that in
\nparagraph 8 of the complaint, there are certain averments regarding
\nposition and liability of the accused persons. The said clause is
\nreproduced as under :\u201c
\n8. It is further respectfully submitted that the Accused
\nare being the directors Accused are also liable for the
\nsaid acts, omission and contravention committed by the
\nAccused and therefore they are also liable to be
\nprosecuted and to be punished for the act committed by
\nthe Accused as per U\/s.276B
\nof the I.T. Act, 1961.\u201d
\n7
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\n267\/19
\n11. Except the aforesaid averment which is in vague nature,
\nthere is nothing in the complaint showing how each of the
\naccused\/Directors were incharge
\nof and responsible for the day to day
\nbusiness of the accused No.1\/Company. The learned Advocate for the
\napplicant\/accused No.7 has contended that as per legal ratio down in
\nvarious judgments by Their Lordships of the Hon’ble Supreme Court
\nand the Hon’ble Bombay High Court, only vague pleadings that the
\naccused\/Director was incharge
\nand responsible for day to day business
\nof the Company is not sufficient. But, there must be additional
\nsufficient averment showing how the particular Director had
\nparticipated in the day to day affairs of the Company and if such
\naverment is not there, the prosecution cannot lie against the Director.
\nIn this regard, reliance has been placed on the ruling of the Hon’ble
\nSupreme Court in the case of Municipal Corporation of Delhi Vs. Ram
\nKishan Rohtagi and others reported in AIR 1983 SC 67. In paragraph
\n15 of the judgment, it is observed by their Lordships of the Hon’ble
\nSupreme Court as under :\u201c
\n15. So far as the Manager is concerned, we are
\nsatisfied that from the very nature of his duties it can be
\nsafely inferred that he would undoubtedly be vicariously
\nliable for the offence ; vicarious liability being an
\nincident of an offence under the Act. So far as the
\nDirectors are concerned, there is not even a whisper nor
\na shred of evidence nor anything to show, apart from
\nthe presumption drawn by the complainant, that there
\nis any act committed by the Directors from which a
\nreasonable inference can be drawn that they could also
\n8
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\n267\/19
\nbe vicariously liable. In these circumstances, therefore,
\nwe find ourselves in complete agreement with the
\nargument of the High Court that no case against the
\nDirectors (accused Nos.4 to 7) has been made out ex
\nfacie on the allegations made in the complaint and the
\nproceedings against them were rightly quashed.\u201d
\n12. Reliance has also been placed on the ruling of the Hon’ble
\nBombay High Court in the case of Homi Phiroz Ranina and others Vs.
\nState of Maharashtra and others reported in 2003 Bom.C.R. (Cri.)
\n793. In paragraph 11 of the judgment, it is observed by their Lordships
\nof the Hon’ble Bombay High Court as under :\u201c
\n11. Unless the complaint disclosed a prima facie case
\nagainst the applicants\/accused of their liability and
\nobligation as principal officers in the day today affairs
\nof the company as directors of the company under
\nsection 278(b) the applicants cannot be prosecuted for
\nthe offences committed by the company. In the absence
\nof any material in the complaint itself prima facie
\ndisclosing responsibility of the accused for the running
\nof the day to day affairs of the company process could
\nnot have been issued against them. The applicants
\ncannot be made to undergo the ordial of a trial unless
\nit could be prima facie showed that they are legally
\nliable for the failure of the company in paying the
\namount deducted to the credit of the company.
\nOtherwise, it would be a travesty without their
\nknowledge. The Supreme Court in the case of (Shyam
\n9
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\n267\/19
\nSunder v. State of Haryana)3, in A.I.R. 1984 S.C. 53
\nheld as follows :\u201c
\nIt would be a travesty of justice to prosecute all
\npartners and ask them to prove under the proviso to
\nsubsection
\n(1) that the offence was committed without
\ntheir knowledge. It is significant to note that the
\nobligation for the accused to prove under the proviso
\nthat the offence took place without his knowledge or
\nthat he exercised all due diligence to prevent such
\noffence arises only when the prosecution establishes
\nthat the requisite condition mentioned in subsection
\n(1) is established. The requisite condition is that the
\npartner was responsible for carrying on the business
\nand was during the relevant time incharge
\nof the
\nbusiness. In the absence of any such proof no partner
\ncould be convicted.\u201d
\n13. Thus, in view of the aforesaid legal ratio laid down by
\nTheir Lordships of the Hon’ble Supreme Court and the Hon’ble Bombay
\nHigh Court, in the complaint, there must be detail averment showing
\nhow the particular Director\/accused was participating in day to day
\nconduct of the business of the Company and that he was incharge
\nof
\nand responsible to the Company for its business and if such averments
\nare missing, the Court cannot issue process against such Director.
\n14. The learned Spl.P.P. for the respondent has contended that
\nin the sanction letter, the Commissioner of Income Tax, has discussed
\nhow the Directors of the Company are liable for prosecution. However,
\n10
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\n267\/19
\neven in the said sanction letter, there is no whisper about participation
\nby the applicant\/Director in day to day business of the Company.
\nTherefore, on this ground itself, the order of issue of process passed
\nagainst the applicant\/accused No.7 is liable to be set aside.
\n15. The further argument of the learned Advocate for the
\napplicant\/accused No.7 is that the applicant\/accused No.7 does not
\nreside within the jurisdiction of the Court and as such, it was
\nmandatory for the learned Additional Chief Metropolitan Magistrate, as
\nper amended Section 202 of the Code of Criminal Procedure to
\npostpone the order of issue of process and order to make enquiry and
\ninvestigation, but, any such enquiry was not held and in very vague
\nnature, the order of issue of process is passed.
\n16. It appears that the complainant had given address of the
\napplicant\/accused No.7 on the address of the accused No.1\/Company
\nand on that basis, the learned trial Magistrate had taken cognizance
\nand the complainant, being public officer, without holding any enquiry,
\npassed order of issue of process. It appears that the complainant had
\ngiven misleading address of the applicant\/accused No.7 by mentioning
\nhis residential address on the address of the Company itself. In the
\nsanction letter, it was mentioned by the sanctioning authority i.e. the
\nCommissioner of Income Tax that the survey was held under 133A(2A)
\nof the Income Tax Act, 1961, and during enquiry, the statement of the
\nChief Finance Officer i.e. the accused No.4 Shri Ramesh T. Patel was
\nrecorded. The enquiry report of the statement of the accused No.4 was
\nnot annexed to the complaint. Under Section 133A(2A) of the Income
\nTax Act, there are wide powers to the Income Tax authorities to make
\n11
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\n267\/19
\nenquiry by visiting the office premises of the Company and even to
\ncheck the account books and other documents and also, to attach the
\ndocuments and use the same in any proceeding under the Income Tax
\nAct. While making enquiry with the accused No.4, the Income Tax
\nOfficer could get information from him about details of Directors, their
\ntenure, their residential addresses, particularly of foreigner persons,
\nwho are Directors of the Company. Further, the Income Tax Officer has
\nnot explained on which basis of documents, he had mentioned the
\naddress of the accused No.7\/applicant on the address of the Company.
\nDue to misleading address of the applicant\/accused No.7 mentioned by
\nthe respondent\/complainant in the complaint, the further mandatory
\nenquiry under Section 202 of the Code of Criminal Procedure was not
\nheld by the learned trial Magistrate.
\n17. In view of the aforesaid legal ratio, the Chief Finance
\nOfficer, who was responsible for the day to day finance matters
\nincluding recovery of TDS from the customers and to deposit in the
\naccount of the Central Government, was prima facie responsible for the
\ncriminal prosecution for the alleged default committed, but, certainly,
\nthe Director, who is not incharge
\nof and not responsible for day to day
\nbusiness of the Company, is not liable for criminal prosecution, unless
\nspecifically it is described in the complaint how he is involved in day to
\nday conduct of the business of the Company.
\n18. Therefore, in view of the aforesaid discussion, the order of
\nissue of process passed by the learned Additional Chief Metropolitan
\nMagistrate against the applicant\/accused No.7, is liable to be set aside.
\nHence, accordingly, I answer the point No.1 in the affirmative and
\n12
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\n267\/19
\nanswer the point No.2 as per the following order :O
\nR D E R
\n1. Criminal Revision Application No.267 of 2019 is allowed.
\n2. The order of issue of process dated 24\/07\/2018 passed by
\nthe learned Additional Chief Metropolitan Magistrate, 38th Court,
\nBallard Pier, Mumbai, in C.C.No.231\/SW\/2018 is hereby set aside to
\nthe extent of the applicant\/accused No.7 Eckhard Garbers.
\n3. The applicant\/accused No.7 is discharged from the charge
\nof an offence punishable under Section 276B
\nr\/w. 278B
\nof the Income
\nTax Act, 1961.
\n4. The bail bonds of the applicant\/accused, if any, stand
\ncancelled.
\n5. Criminal Revision Application stands disposed off
\naccordingly.
\n(M. S. Mungale)
\nAdditional Sessions Judge,
\nCity Civil & Sessions Court,
\nDate : 16\/12\/2019. Gr. Mumbai.
\nDirectly typed on Laptop on : 16\/12\/2019.
\nSigned on :
\n13
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\n267\/19
\n\u201cCERTIFIED TO BE TRUE AND CORRECT COPY OF THE ORIGINAL
\nSIGNED JUDGMENT\/ORDER.\u201d
\nUPLOAD DATE AND TIME NAME OF STENOGRAPHER
\n30\/12\/2019 at 4.15 p.m. Bahushruta Y. Jambhale
\nName of the Judge ( With Court
\nRoom No.)
\nH.H.J. Shri. M. S. Mungale
\n(Court Room No.44)
\nDate of Pronouncement of
\nJUDGMENT\/ORDER
\n16\/12\/2019.
\nJUDGMENT\/ORDER signed by
\nP.O. on
\n30\/12\/2019.
\nJUDGMENT\/ORDER uploaded on 30\/12\/2019.<\/p>\n","protected":false},"excerpt":{"rendered":"
Unless the complaint disclosed a prima facie case against the applicants\/accused of their liability and obligation as principal officers in the day today affairs of the company as directors of the company under section 278(b) the applicants cannot be prosecuted for the offences committed by the company. In the absence of any material in the complaint itself prima facie disclosing responsibility of the accused for the running of the day to day affairs of the company process could not have been issued against them. The applicants cannot be made to undergo the ordial of a trial unless it could be prima facie showed that they are legally liable for the failure of the company in paying the amount deducted to the credit of the company. Otherwise, it would be a travesty without their knowledge<\/p>\n