OFFENCES BY COMPANIES

[Dr. Sanjiv Agarwal]

Section 137 of CGST Act, 2017 deals with offences by companies. Section 137 is a provision against persons who seek protection or shelter under the principle of separate legal status of artificial judicial persons and back out from their responsibility of payment of dues of the Government.

Section 137 covers offences by companies, partnership firm, limited liability partnership, Hindu Undivided Family or trust.

Persons guilty

Section 137 provides that in case of an offence committed by a company, every following person will be liable to be proceeded against and punished.

(a)  Person in charge of or responsible for conduct of business of the company at the time of offence as well as company.

(b)  Director, Manager, Secretary or any other officer, in case it is proved that the offence has been committed with the consent of, connivance of or is attributable to negligence of such person.

Section 137 provides that following persons will be liable for any offence committed under CGST Act, 2017:

(a)  In case of partnership firm or LLP – Partner of firm

(b)  In case of HUF – Karta of HUF

(c)  In case of trust – Managing trustee

shall be deemed to be guilty of any offence under the provisions of the Act and liable to be proceeded against.

The following persons shall be considered guilty under section 137 for the offences committed by the concerned entity:

a)	Company	Director Manager Secretary Any other officer
b)	Partnership firm	Partner
c)	Limited liability partnership (LLP)	Designated partner
d)	HUF	Karta
e)	Trust	Managing Trustee

Meaning of ‘company’ and ‘director’

Explanation to section 137 provides the meaning of ‘company’ and director. Accordingly, following meanings are assigned :

1. Company

Company means a body corporate and includes as firm or other association of individuals

Accordingly, company means :

1. Body corporate
2. Includes firm but excludes

other association of individuals

‘Body corporate’ and firm are not specifically defined in GST Act but we can attribute their meanings to respective laws i.e., the Companies Act, 2013 and Partnership Act, 1932. Section 2(20) of the Companies Act, 2013 defines ‘company’ as under:

‘Company’ means a company incorporated under this Act or under any previous company law.

Section 2(11) of the Companies Act, 2013 defines ‘body corporates as under :

‘Body corporate’ or ‘corporation’ includes a company incorporated outside India, but does not include :

1. a co-operative society registered under any law relating to co-operative societies; and
2. any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf.

Section 2(34) defines director as under:

‘Director’ means a director appointed to the Board of a company.                                                                                                                               

2. Director

Explanation (ii) defines ‘director’ but not in relation to company but in relation to firm as follows:

‘Director’ in relation to a firm, means a partner in the firm.

Thus, for the purposes of this section, partner in a firm has been referred to as director, in relation to a firm.

It may be noted that in case of LLP, it is neither a company under the companies Act, 2013 nor a firm under Partnership Act, 1932 but a body corporate under the LLP Act, 2008.

Consequences of offences by companies / firm etc.

If an offence under the CGST Act has been committed by a Company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any negligence on the part of, any director, manager, secretary or other officers of the Company, then such director, manager, secretary or other officers of the Company shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

If offences are committed under GST law by taxable person being a partnership firm or a LLP or HUF or a trust, the partner or Karta or managing trustee respectively shall deemed to be guilty of offence and shall be liable to be proceeded against and punished accordingly.

Further, If offences are committed by partnership firm or a LLP or HUF or a trust and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any negligence on the part of, the partner or Karta or managing trustee respectively, then such partner or Karta or managing trustee shall also be deemed to be guilty of that offence and shall be liable to be  held guilty and proceeded against and punished accordingly under the GST law.

Defense grounds

According to section 137(4), if the accused person proves that he was in no way related to the offence being committed or he had exercised all possible measures to prevent commission of such offences, then he is not punishable under section 137 of CGST Act, 2017.