2011 (9) TMI 462 - HC - Central Excise

Liability of Director and person in Charge - Held That - Revenue failed to bring on record in what manner the petitioner was in-charge of and responsible for the day-to-day affairs of the company and what duties and functions were being discharged by him so as to bring him within the ambit of Section 9AA of the Central Excise Act.

Summary

Issues:
- Quashing of complaint under Section 9 of the Central Excise Act and related proceedings.
- Vicarious liability of a Director for offences under Section 9 of the Central Excise Act.

Analysis:
1. The petition sought the quashing of a complaint under Section 9 of the Central Excise Act and the subsequent proceedings. The complaint alleged that the petitioner, as a Director of a company, evaded Central Excise Duty amounting to a specific sum by clandestinely selling office machines. The Magistrate charged both the company and the petitioner under relevant sections of the Act.

2. The key contention revolved around the vicarious liability of the petitioner as a Director for the company's alleged offences. The petitioner argued that the complaint lacked specific allegations to establish his vicarious liability under Section 9AA of the Central Excise Act. The petitioner's counsel emphasized the necessity of proving the petitioner's direct involvement in the company's day-to-day affairs to hold him vicariously liable.

3. In contrast, the respondent contended that the complaint sufficiently alleged that the petitioner, as a Director, was responsible for the company's activities, shifting the onus onto the petitioner to prove otherwise during the trial. The court examined the provisions of Section 9AA of the Central Excise Act, which mirror the requirements of Section 141 of the Negotiable Instruments Act concerning vicarious liability of Directors.

4. Citing precedents, the court highlighted that to establish vicarious liability of a Director for a company's offences, specific allegations detailing the Director's role and responsibilities in the company's operations are crucial. Mere designation as a Director is insufficient to establish liability; the Director must have been in charge of and responsible for the company's business affairs at the time of the alleged offence.

5. Upon reviewing the complaint and pre-charge evidence, the court found that the allegations failed to demonstrate how the petitioner, as a Director, was directly involved in and accountable for the company's daily operations. Consequently, the court concluded that the charge against the petitioner under relevant sections of the Central Excise Act was unsustainable in the absence of specific allegations establishing vicarious liability.

6. Ultimately, the court quashed the charge framed against the petitioner and disposed of the petition, emphasizing the necessity of meeting the legal requirements to establish a Director's vicarious liability for a company's offences under the Central Excise Act.