IN THE COURT OF SH. DEVENDRA KUMAR SHARMA ADDL CHIEF METROPOLITAN MAGISTRATE (Spl. Acts): CENTRAL TIS HAZARI COURTS, DELHI ITO vs [ENTITY] etc. [CASE NUMBER] Date of Institution: 30.03.2005 Arguments heard/order reserved: 27.08.2014 Date of order: 01.09.2014 ORDER ON CHARGE 1.
This order will decide the point of charge. Present complaint has been filed by the complainant Sh. [ENTITY], the then ITO, against the following accused persons u/[SECTION] of [ACT] (for short the 'Act'), 1961 for the Financial Year 200304 and 200405 (upto November) (1) Mr. [ENTITY], Managing Director (2) Ms. [ENTITY], Executive Director (Whole Time Director) (3) Mr. [ENTITY], Executive Director (Whole Time Director) (4) Mr. [ENTITY], Executive Director (Whole Time Director) (5) Mr. [ENTITY], Executive Director and COO (Now expired) (6) Mr. [ENTITY], Director (7) Mr. [ENTITY], Director (8) Mr. [ENTITY], Director (Dismissed for nonprosecution) (9) Mr. [ENTITY], Director (10)Mr. [ENTITY] (Already discharged) (11)Mr. [ENTITY] (Already discharged) (12)Mr. [ENTITY] (Already discharged) (13)Mr. [ENTITY] (Already discharged) (14)Mr. [ENTITY] (Already discharged) (15)Mr. [ENTITY] (Already discharged) (16)M/s Data Access (India) Ltd. (under liquidation) (17) Mr. [ENTITY] (Already expired) ITO vs [ENTITY] etc. [CASE NUMBER] 1
2.(i) Succinctly, the facts of the case are that a survey operation u/[SECTION] of the Act was carried out in the business premises of the Company on 16.09.2004 and the books of accounts of the accused company M/s Data Access (India) Limited for the period 200304 onwards were examined. It was found that for the Financial Year 200304, the accused company had deducted tax at source (TDS) under several heads, but had not deposited it with the Government Treasury. The accused company was treated as the assessee in default within the meaning of [SECTION] and [SECTION] of the Act and an order dated 30.11.2004 was passed raising a demand of Rs.11,69,800/ (TDS Rs.9,41,18,904/ plus interest Rs.75,60,381/) for the Financial Year 200304. The proceedings u/[SECTION] and [SECTION] of the Act for the subsequent years were stated to be "under progress" at the time of filing of the present complaint.
(ii) A show cause notice was issued on 03.12.2004 to the accused company. In response, the company replied as under: "The TDS outstanding amount referred to in your above said two letters pertains to the period from 11.04.2003 to 31.03.2004 and from 01.04.2004 to July, 2004. In the audited balance sheet of the Company for the year ended 31.03.2004 the company showed outstanding liability towards TDS at Rs.8,61,67,206/ and the current year's TDS liability is Rs.6,76,69,182/ and the total liability is Rs. 15,38,36,388/.
At the outset, we furnish the list of the persons who, at the time the offence was committed, were in charge of, and were responsible to, the accused, Data Access (India) Limited for the conduct of the business of the company. These persons were in the management of company until 01.07.2004 and thereafter. Some of these persons continued to be in the management of the company ITO vs [ENTITY] etc. [CASE NUMBER] even until 29.10.2004.
1) Mr. [ENTITY]
2) Mr. [ENTITY]
3) Mr. [ENTITY]
4) Mr. [ENTITY]
5) Mr. [ENTITY]
6) Mr. [ENTITY]
7) Mr. [ENTITY]
8) Mr. [ENTITY]
9) Mr. [ENTITY].
So far as TDS outstanding is concerned, as submitted earlier, this liability accrued 01.07.2004 and the directors who were on the Board of the company prior to 01.07.2004 are the only persons responsible for the default and we request you to kindly initiate prosecution proceedings against them. We will cooperate with the department in these proceedings"
(iii) Thereafter, notices were issued on 10.01. 2005 by the department to [ENTITY] and [ENTITY] respectively requiring them to show cause as to why they should not be prosecuted. In response, [ENTITY] replied on 18.01.2005 stating that he had resigned with effect from 30.08.2004 and had filed Form 32 with the Registrar of Companies (ROC) on 01.11.2004.
He further stated: "When the new management took over the management and financial control of the company, there was full disclosure of all liabilities of the company as to June, 30, 2004 including statutory liabilities. After taking the management and financial control of the company the new management, led by Mr. [ENTITY], Managing Director engaged themselves in acts of diversion of funds of the company away from the company for their personal gains.
(iv) It is further alleged that the accused company was supposed to ITO vs [ENTITY] etc. [CASE NUMBER] 3
deposit the tax which was deducted at source from the payee's account. The accused were the custodian of the govt. fund and it was its mandatory duty to deposit the TDS amount in the Central Govt. A/c within the prescribed time. In the said survey operations, it was also noticed that the accused had been habitual and willful defaulter in depositing TDS deducted by it. The accused chose not to deposit the Govt. fund in Govt. exchequer. There was no good and sufficient reason with the accused which could prevent it in depositing the TDS deducted during the FA 200304 and 200405. Hence, present complaint.
3.During pendency of trial, accused no.5 [ENTITY] and no.17 [ENTITY] have expired. Proceedings qua accused no.10 to 15 have already been quashed. Complaint was dismissed against accused no.8 for nonprosecution. Accused no.16 (company) is proceeded u/[SECTION] [ACT] as none is appearing on its behalf. Now this order is directed against the accused no.1, 2, 3, 4, 6, 7, and 9 who are facing trial.
4.In order to substantiate the allegations, the complainant Sh. [ENTITY] examined himself as CW1 in precharge evidence.
In his evidence, CW1 Sh. [ENTITY] reiterated the facts of the case and stated that the complainant department had received a complaint from BSNL that accused company had not issued TDS certificates though it had deducted TDS while making payments to them. He further stated that during survey operation at the business premises of the company at Delhi on 16.09.2004, it was noticed from the accounts of assessee (trial balance sheet ITO vs [ENTITY] etc. [CASE NUMBER] 4 etc) that around a sum of Rs.18 crores had been deducted for the FA 200304 and 200405 while making the payments to various parties under various heads but the said deducted amount of TDS was not deposited to the government account. During the course of survey, statement of Sh. [ENTITY], Assistant Vice President F&A was recorded on oath. The witness also proved on record the relevant documents like complaint Ex.P1/1, sanction Ex.P1/2 and copy of statement of said [ENTITY] mark P1/A. Witness was not cross examined by any of the accused.
5.I have given by thoughtful considerations to the submissions addressed on behalf of both the parties and gone through the records of the case. Learned counsels for accused persons advanced the similar arguments.I have also gone through the written submissions filed on behalf of accused no.1, 2 and 4 and considered the relevant provisions of the [ACT]. Learned counsel for accused no.6 also placed reliance upon the judgments reported in "[PRECEDENT] and [PRECEDENT]".
6.(i) Learned defence counsel firstly argued that the complainant department came into motion on a complaint made by BSNL. But no such complaint or any witness from the concerned office of BSNL has been examined to support the allegations. It is further argued that mere allegations in the complaint is not sufficient to hold the accused persons guilty for the offence alleged in the complaint. The complaint can not be treated as evidence ITO vs [ENTITY] etc. [CASE NUMBER] 5 and allegation is required to be proved. The case of the prosecution fails to disclose the basis or source of any of the allegations leveled against the accused. The prosecution has not proved any document on record to support any of the allegations mentioned in the complaint. No document has been proved on record by the prosecution to support the allegation qua the chart (entries of TDS) mentioned in the complaint Ex.P1/1. The chart itself is not evidence, and in fact, is no more than allegation which has to necessarily be supported by cogent and admissible evidence. The chart is bereft of any evidentiary basis and it is fit to be discarded.
(ii) It is further argued that the prosecution has placed reliance upon the reply to the show cause notice dated 03.12.2004 issued by an unidentified "Authorized Signatory", wherein the persons who were the Directors in the named company when the offences as alleged were committed, have been named, but the said reply has not been proved by the prosecution. Even the name of the said Authorized Signatory has not been disclosed by the complainant either in his complaint Ex.P1/1 or in his evidence. It is further argued that the prosecution has failed to prove on record that accused no.1 was Managing Director, accused no.2 and 4 were the Executive Director in the accused company at the relevant time. The complaint is devoid of any specific allegations and the accused persons have only been made parties in the present proceedings by deploying the principle of vicarious liability against them. The complaint Ex.P1/1 does not reveal as to what is the exact role or allegation has been attributed to the accused persons. It is not sufficient to ITO vs [ENTITY] etc. [CASE NUMBER] merely array the Director(s) as an accused or even state that they are in charge and responsible for the conduct of the business of the accused company without specifying how they were so in charge or responsible. There should be clear and unambiguous allegation as to how the Directors are incharge and responsible for the conduct of the business of the company. In support of claim and contentions, learned defence counsel has placed reliance upon the judgments reported in [CASE NUMBER], [PRECEDENT], [PRECEDENT], [PRECEDENT], [PRECEDENT]".
(iii) It is further argued that the contents of the statement of [ENTITY] i.e accused no.17 (since expired) have not been proved in accordance with law as same could only be proved by [ENTITY] had he been cited as witness and had he been alive. Both these circumstances do not exist. As per the second proviso of [SECTION] of the [ACT], the evidence given by a witness in a proceeding is relevant for the purpose of proving the truth of the fact which it states, when the witness is dead, only when the adverse party in the proceeding had the right and opportunity to cross examine. In support of claim and contentions, reliance is placed upon the judgments report in "([PRECEDENT], Mr. [PRECEDENT], [PRECEDENT]". It is also argued that the statement mark P1/A of [ENTITY] can not be termed ITO vs [ENTITY] etc. [CASE NUMBER] 7 as evidence in terms of [SECTION] of the [ACT] in view of judgment of Hon'ble Patna High Court reported in "[PRECEDENT], [PRECEDENT]".
(iv) Lastly, it has been argued that even at the stage of charge, the prosecution is required to discharge its initial burden of establishing a prima facie case against the accused persons. It is incumbent upon the prosecution to lay down the very basis i.e facts of the case and the material that exists against the accused, and only after this has been satisfactorily done by the prosecution, can it be said that the burden of making out a prima facie case against the accused has been discharged by the prosecution. However, in the present case prosecution has failed to discharge the same. In this regard reliance is placed upon the judgment reported in [PRECEDENT], [ENTITY] v. Jitendra Bhimraj Bijjaya & Ors.". It is also argued that the case of the accused is no more different from the case of the discharged accused persons as the complainant has arrayed both sets of the accused persons without even a whisper of an allegations against them. Thus, on grounds of parity also, accused are entitled to the same relief and they are liable to be discharged from the alleged offence.
7. (i) Learned standing counsel for the complainant, on the other hand, argued that the accused willfully did not deposit the TDS within stipulated time despite deduction of same. The accused had been habitual and willful defaulter in depositing TDS deducted by it. The accused chose not to deposit the TDS so deducted and thereby caused great loss to govt. exchequer. It is further ITO vs [ENTITY] etc. [CASE NUMBER] argued that there was no need to give any notice u/[SECTION] to accused no.1, 2, 3 & 4 as they would be covered u/[SECTION] of the Act and placed reliance upon the judgment reported in "[PRECEDENT] dated 06.11.2006".
(ii) It is further argued that in his evidence the complainant has spelled out the names and official designation of the accused persons which have not been rebutted or challenged by way of crossexamination hence his evidence ought to be read against the accused persons. It is also argued that the prosecution under the Act being a special statute at least at the stage of pre charge evidence is covered by a special feature u/[SECTION] of the Act and therefore, when the testimony of the complainant has gone unrebutted there is prima facie no reason to discard the same in view of [SECTION] of the Act and reliance is also placed upon the judgments reported in "([SECTION], [PRECEDENT] and (ii) (2004) 9 SCC 686 [PRECEDENT]".
8. The allegations against the accused are that TDS amounting to about Rs.18 crores had been deducted for the relevant years from various parties under various heads but the same could not be deposited within time to the credit of Government. Learned defence counsel vehemently argued that mere allegations in the complaint is not sufficient to hold the accused persons guilty for the offence alleged in the complaint. In the complaint Ex.P1/1, or in the examination in chief of CW1, no specific role or allegation has been attributed ITO vs [ENTITY] etc. [CASE NUMBER] to the accused no.6, 7 and 9. Except document mark P1/A, there is nothing on record to suggest that these accused were in charge and responsible for the conduct of the business of the accused company at the relevant periods. Vicarious liability can not be imputed without specifying how they were so in charge or responsible for day to day affairs of the company.
9. Present case is a criminal proceedings and criminal responsibility cannot be fastened on a particular partner/director unless he/she was responsible for day to day affaris of company or knowingly party to the default. For holding a particular partner/director liable, it has to be proved on record that he/she was incharge and responsible for day to day affairs or knowingly party to the default and was also liable to comply with the provisions of the Act and in the absence of any such evidence, the complaint has to fail against that particular partner/director. This court does not find any evidence on record which could show that accused no. 6, 7 and 9 were actively involved in day to day affairs of the accused company and were responsible for depositing TDS so deducted for the relevant periods, to the govt. account within stipulated period on behalf of the company.
10.Further, vicarious liability cannot be imputed merely on the ground that accused was director of the company. Law in this regard has been summarized by our own High Court in case titled as "[PRECEDENT]", order dated 06.05.2013. While discussing the vicarious liability of the director, it was observed that vicarious liability on the ITO vs [ENTITY] etc. [CASE NUMBER] 10 part of a person must be pleaded and proved and not inferred. Same view has been taken by the Hon'ble Apex court in "[PRECEDENT]". Relevant para of the judgment is reproduced below: "24. if the accused is not one of the persons who falls under the category of "persons who are responsible to the company for the conduct of the business of the company" then merely by stating that "he was incharge of the business of the company" or by stating that "he was incharge of day to day management of the company" or by stating that "he was incharge of, and was responsible to the company for the conduct of the business of the company", he can not be made vicariously liable under [SECTION] of the Act. To put it clear that for making a person liable under [SECTION], the mechanical repetition of the requirements under [SECTION] will be of no assistance, but there should be necessary averments in the complaint as to how and in what manner the accused was guilty of consent and connivance or negligence and therefore, responsible under [SECTION] of the Act".
11.It has been held by the Hon'ble Supreme Court in the following case which was a case u/[SECTION] of [ACT] that in the absence of any proof, no partner can be convicted and in this regard relevant para of the judgment reads as under: [PRECEDENT] "9. It is, therefore, necessary to add an emphatic note in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day to day in the firm. There may be partners, better known as sleeping partners who are not required to take part in the business of the firm. There may be ladies and minors who were admitted for the benefit of partners. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all partners and ask them to prove under the proviso to subsection (1) that the offence was committed without their knowledge. It is significant to note that the obligation for the accused to prove under the proviso that the 'offence took place without his knowledge or that he exercised all due diligence to prevent such offence arises only when the prosecution establishes that the requisite condition ITO vs [ENTITY] etc. [CASE NUMBER] 11 mentioned in subsection (1) is established. The requisite condition is that the partner was responsible for carrying on the business and was during the relevant time in charge of the business. In the absence of any such proof, no partner could be convicted".
12.Thus, it is clear that for holding a director responsible for a criminal offence, it has to be established by the prosecution that he/she was the person incharge for the day to day affairs of the firm/company during the relevant time. It is also clear from the law laid down by the Hon'ble Supreme Court that a partner/director cannot be made personally liable for the offences committed on behalf of the firm/company and the criminal liability can not be extended to another partner/director merely by virtue of his being partner in the firm/company unless something concrete is proved on record to show that he/she was the person incharge and responsible for the conduct of the business of the firm/company. Thus, in view of the aforesaid discussions, it is held that accused no.6, 7 and 9 are not liable for any offence allegedly committed on behalf of the company.
13.(i) Now let me see the role of the accused no.1, 2, 3 and 4 on merit. Learned defence counsel for accused no.1, 2 3 and 4 denied the allegations and vehemently argued, in addition to other arguments discussed above, that the burden of making out a prima facie case against the accused has not been discharged by the prosecution. Learned defence counsel sought discharge of the accused persons on parity with already discharged accused persons and also placed reliance upon the judgment of "[ENTITY]" (supra) in support of claim and contentions.
ITO vs [ENTITY] etc. [CASE NUMBER] No doubt, the statement of accused [ENTITY] (since
expired) mark P1/A is inadmissible yet the entire testimony of CW1 can not be discharged at this moment and accused can not be allowed to take advantage of this technicality. In his statement, CW1 has clearly stated that during the course of proceedings, the accused company had itself provided the relevant information about the role of the accused and the testimony of CW1 is unrebutted/unchallenged being not cross examined on behalf of the accused persons. This plea of the learned counsel for complainant appears to have force. In his evidence, CW1 has clearly stated that the company had itself provided information regarding the management and directors of the company, therefore, accused no.1 to 4 were arrayed as accused along with other co accused and this specific deposition of witness remained unchallenged. It is well settled law that if any part of the deposition of a witness is not cross examined, same is deemed to be admitted by other party. In this case also, the testimony of CW1 remained unrebutted being not crossexamined on behalf of the accused. Learned defence counsel did not cross examine CW1 thus, the testimony of CW1 can not be discarded outrightly at this stage. Though, the accused have sufficient opportunity to cross examine the witness regarding to rebut the allegations qua accused persons. At this stage, except mere denial by the accused, there is nothing on record which could suggest that they were not the Managing Directors/Whole time Directors and responsible for the day to day affairs and necessary compliance of the provision of [ACT], on behalf of the accused company at the relevant periods and therefore, by virtue ITO vs [ENTITY] etc. [CASE NUMBER] 13 of their designation being Managing Director/Hole time Directors, they are responsible for day to day affairs of the company. The defence of the learned defence counsel whether accused no.1, 2 and 3 were the persons responsible for the compliance of the provisions of the Act on behalf of the accused company, is a triable issue and same will be decided only after appreciation of evidence of the both parties in view of the presumption of mens rea u/[SECTION] of the Act. Further there is no denial on behalf of the accused no.1 to 4 that there was no dues of TDS or same was deposited within stipulated period.
14.At the stage of framing of a charge probative value of the materials cannot be gone into, the material brought on record by the prosecution has to be accepted as true at that stage. The truth, veracity and effect of the evidence which the prosecutor proposes to adduce are not to be meticulously judged. At this stage this court has not to see whether there is sufficient ground for conviction of the accused or whether the trial is sure to end in their conviction. At this initial stage, the court has only to see whether the prima facie case is made out against the accused and not supposed to decide whether the materials collected by the investigating agency provides sufficient ground for conviction of the accused. What is required to be seen is whether there is ground for presuming that the accused have committed an offence. In this regard this court is supported with law laid down by the Hon'ble Apex Court and Hon'ble High Court in "[PRECEDENT], [PRECEDENT], Kallu ITO vs [ENTITY] etc. [PRECEDENT]".
15.Further, the legal proposition qua the framing of charge is well settled and has been quoted in a catena of decisions. In the judgment of [PRECEDENT] passed in [CASE NUMBER] dated 17.04.1986 it has been observed that: "The [ACT] Contemplates discharge of the accused by the Court of Session under [SECTION] in a case triable by it; cases instituted upon a police report are covered by [SECTION] and cases instituted otherwise than on police report are dealt with in [SECTION]. The three sections contain somewhat different provisions in regard to discharge of the accused. Under [SECTION], the trial Judge is required to discharge the accused if 'he considers that there is not sufficient ground for proceeding against the accused.' Obligation to discharge the accused under [SECTION] arises when 'the Magistrate considers the charge against the accused to be groundless.' The power to discharge is exercisable under [SECTION] when "the Magistrate considers, for reasons to be recorded, that no case against the accused has been made out which, if un rebutted, would warrant his conviction ". It is a fact that [SECTION] and [SECTION] provide for discharge being ordered before recording of evidence and the consideration as to whether charge has to be framed or not is required to be made o the basis of the record of the case, including documents and oral hearing of the accused and the prosecution or the police report, the documents sent along with it and examination of the accused and after affording an opportunity to the two parties to be heard. The stage for discharge under [SECTION], on the other hand, is reached only after the evidence referred to in [SECTION] has been taken. Notwithstanding this difference in the position there is no scope for doubt that the stage at which the Magistrate is required to consider the question of framing of charge U/[SECTION] is a preliminary one and the test of "prima facie" case has to be applied. In spite of the difference in the language of the three sections and legal position is that if the trial Court is satisfied that a prima faice case is made out, charge has to be framed."
16.In the most recent judgment of the Hon'ble Supreme Court titled as [PRECEDENT], it has been held that: ITO vs [ENTITY] etc. [CASE NUMBER] 15 "True, it is that at the time of consideration of the applications for discharge, the court can not act as a mouth piece of the prosecution or act as a post office and may sift evidence in order to find out whether or not the allegations made are groundless so as to pass an order on discharged. It is trite that at the stage of consideration of an application for discharge, the court has to proceed with an assumption that the materials brought on record by the prosecution are true and evaluate the said materials and documents with a view to find out whether the facts emerging therefrom taken at their face value disclose the existence of all the ingredients constituting the alleged offence. At this stage, probative value of the materials has to be gone into and the court is not expected to go deep into the matter and hold that the materials would not warrant a conviction. In our opinion, what needs to be considered is whether there is a ground for presuming that the offence has been committed and not whether a ground for convicting the accused has been made out. To put it differently, if the court thinks that the accused might have committed the offence on the basis of the materials on record on its probative value, it can frame the charge; though for conviction, the court has to come to the conclusion that the accused has committed the offence. The law does not permit a mini trial at this stage. Reference in this connection can be made to a recent decision of this Court in the case of [ENTITY] and Ors. [PRECEDENT], in which, after analyzing various decisions on the point, this Court endorsed the following view taken in [PRECEDENT]): it is trite that at the stage of framing of charge the court is required to evaluate the material and documents on record with a view to finding out if the facts emerging therefrom, taken at their face value, disclosed the existence of all the ingredients constituting the alleged offence. At this stage, the court is not expected to go deep into the probative value of the material on record. What needs to be considered is whether there is a ground for presuming that the offence has been committed and not a ground for convicting the accused has been made out. At this stage, even strong suspicion founded on material which leads the court to form a presumptive opinion as to the existence of the factual ingredients constituting the offence alleged would justify the framing of charge against the accused in respect of the commission of that offence."
17.Further [SECTION] of the [ACT], provides that any person responsible for paying any income tax chargeable under the head "Salaries" shall at the time of payment, deducted income tax on the amount payable at ITO vs [ENTITY] etc. [CASE NUMBER] 16 the average rate of the income tax etc and [SECTION] of the said Act provides that any person deducting any sum in accordance with the provisions of [SECTION] of the Act shall pay within the prescribed time, the sum so deducted to the credit of Central Government or as the Board directs. Under the [ACT], this amount was to be deposited within one week from the date of such deductions. There is no denial on behalf of accused that TDS was not deducted by the accused company from various heads or same were credited to the govt. account within stipulated period.
18.Thus, keeping in view of the facts and circumstances of the case and testimonies of CW1 and documents available on record, this court is of the considered view that prima facie there is sufficient ground to frame charge against the accused no.1 to 4 u/[SECTION] and [SECTION] of the Act against the accused no.1, 2, 3 and 4. However, there is no material against accused no.6, 7 and 9 and accordingly they stand discharged. Their bail bonds stand cancelled. Surety stands discharged. Original documents, if any, be returned to the rightful claimant after endorsement cancelled thereupon.
Put up for framing of charge qua accused no.1 to 4 on 10.10.2014.
([ENTITY]) ACMM (Spl. Acts)/CENTRAL DELHI/01.09.2014 ITO vs [ENTITY] etc. [CASE NUMBER] 17