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2019 (10) TMI 1532 - HC - Income TaxCriminal liability u/s 278B of the Income Tax - Whether Non-Executive nominee directors of the first accused company are criminally liable to be prosecuted for an offence involving non-remittance of the TDS amount? - scope of Section 141 of the Negotiable Instruments Act 1881 - HELD THAT - As the Proviso to Sec.141 of NI Act explicitly exempt those who are not liable for criminal prosecution Sec.278B of the Income tax does not provide it. That in the opinion of the Court does not make any real difference in understanding the provision for the operative portion of both the provisions in both the enactments themselves provide such necessary factors as would be sufficient to identify those who are liable for criminal prosecution. To repeat they both read- Those who are in charge of or responsible to the business . Ultimately if a nominee Directors of a financial institution or shareholders of a company have a duty to or responsibility to be in charge of the affairs of the company depends on the terms of contract or any legal provisions on the basis of which such nominee director came to be nominated. This cannot be left to any unfounded belief of the Complainant or to his random statement that a nominee director is the Principal Officer of the company. In Madhumilan Syntex case 2007 (3) TMI 670 - SUPREME COURT a case where the accused who are the Directors of the company (and not Nominee directors) approached the Court seeking to exclude them from criminal prosecution under sec.278B of the I.T. Act for an offence of non remitting the TDS (exactly the same offence for which the petitioners herein are sought to be prosecuted) the Honble Supreme Court declined to grant relief to the Directors of the company because they happened to be Directors and proceeded to hold that their actual role via-a-vis the company is a matter for trial. As indicated earlier that was a case involving the Directors of the company and not Nominee Directors. This court has little hesitation to conclude that there is nothing in the complaint that the petitioners even as Nominee Directors were in charge of the affairs of the companym and consequently they cannot be made liable to face criminal prosecution. In the result this Court allows all the petitions and quashes the complaints pending on the file of Judicial Magistrate Court Trichy only as against the petitioners.
Issues Involved
1. Criminal liability of Non-Executive Nominee Directors for non-remittance of TDS under Sections 200 and 201(A) of the Income Tax Act. 2. Application of Section 278B of the Income Tax Act concerning the responsibility and liability of directors. 3. Role and definition of Nominee Non-Executive Directors in the context of criminal prosecution. 4. Legal precedents and interpretations related to the liability of directors under the Income Tax Act and Negotiable Instruments Act. Issue-wise Detailed Analysis 1. Criminal Liability of Non-Executive Nominee Directors for Non-Remittance of TDS The petitioners, who were Non-Executive Nominee Directors of M/s. Vasan Health Care Pvt. Ltd., Trichy, faced accusations of non-remittance of TDS for three financial years. They argued that as Non-Executive Directors, they were not involved in the company's day-to-day management and should not be held liable. The court examined their roles and responsibilities, concluding that mere nomination as Non-Executive Directors did not make them liable for the company's offenses. 2. Application of Section 278B of the Income Tax Act Section 278B of the Income Tax Act holds individuals liable if they were in charge of and responsible for the conduct of the business at the time the offense was committed. The petitioners contended that they did not fit this description. The court agreed, emphasizing that criminal prosecution under this section requires clear evidence that the accused were responsible for the company's business operations. 3. Role and Definition of Nominee Non-Executive Directors The court referred to the Ionic Metalliks case to define the role of Nominee Non-Executive Directors. It highlighted that such directors are appointed to safeguard the interests of specific stakeholders and are not necessarily involved in the company's daily operations. The court noted that the prosecution must provide concrete evidence of a director's involvement in the company's affairs to hold them liable. 4. Legal Precedents and Interpretations The court relied on various legal precedents to support its decision. It cited the Pooja Ravinder Devidasani case, where the Supreme Court held that Non-Executive Directors are not liable for the company's offenses unless they were actively involved in its day-to-day activities. The court also referred to the Madhumilan Syntex case, emphasizing that liability under Section 278B requires proof of a director's responsibility for the company's business. Conclusion The court concluded that the petitioners, as Nominee Non-Executive Directors, were not in charge of the company's affairs and thus could not be held liable for the non-remittance of TDS. It quashed the criminal complaints against the petitioners in C.C.No.235 of 2018, C.C.No.237 of 2018, and C.C.No.236 of 2018, pending before the Judicial Magistrate Court, Trichy. Consequently, all connected miscellaneous petitions were closed.
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