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TMI Blog2019 (10) TMI 1532X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 matt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aj (A4 in all CC.Nos) 11644/2018 11645/2018 11646/2018 235/2018 236/2018 237/2018 II THE FACTUAL DETAILS: A. Thiru. Ramakrishnan (A-6 in all the cases) 2.1 About 2008, he was functioning as an Executive Director of M/s Sparks Capital. At the request of the first respondent Company, namely Vasan Health Care Pvt. Ltd., Trichy, Sparks Capital helped it in identifying potential and prospective investors in it. Two major investors that Sparks Capital helped the first accused to obtain investments are: (a)M/s Sequoia Investments, an American institution, which ended up investing Rs.230.12 crores in the first accused company; (b) Government Investment Corporation, a Singapore Government undertaking, which invested Rs. 450.50 crores. It is in these circumstances, the Board of the first Accused inducted Ramakrishnan as Promotor-nominee Vide its resolution dated 11-02-2012 as a Non-Executive Independent Director. And, he resigned on 14-05-2015. 2.2 After his resignation, the Complainant/Respondent issued a notice dated 27-02-2017 (relating to Financial year 2014-2015), and two notices, dated 29-03-2018 (relate to Financial Year 2013-2014 & 2015-2016), wherein the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of mensrea required for commission of the offense shall have to be presumed by the court, and the burden is on the accused to rebut it. Thirdly, in terms of sec.278-B of the Income Tax Act, besides imprisonment or imposition of fine on one who is convicted of an offence under the Act, every person , referred to in Sec.278-B(1) such as the Director of the company, Manager, Secretary, or other officer of the company, referred to in Sec.278B(2) shall be liable to be proceeded against. III Of Arguments: 6. The core issue is, if the petitioners as 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 7. The learned counsel for the petitioners in unison argued: That under Sec.278B of the Income Tax Act, only he, who is in charge of, and was responsible to, the company for the conduct of the business of the Company alone is liable for any offences committed by the Company under the Act. The petitioners were merely Non- Executive Nominee directors, nominated to the Board of the first accused more for the purpose of securing the interest of its major investors, and they had no role ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upposition is founded on the statement of the respondent where it declares that it considers the petitioners as the Principal Officer in charge of the affairs of the company. But, is this basic premise, (this supposition of the respondent) itself is a fact which reality supports, or, is it yet another presupposition, that feed another supposition, and that feed cause for prosecution? This requires an understanding of who a Nominee Non-Executive Director. 10. In Ionic Metalliks case [2014 SCC OnLine Guj 10066], a Division Bench of the Gujarat High Court has made an endeavour to classify and define the role of different class of directors of a company. To extract it: 10. "Nominee Directors: They can be appointed by certain shareholders, third parties through contracts, lending public financial institutions or banks, or by the Central Government in case of oppression or mismanagement. The extent of a nominee Director's rights and the scope of supervision by the shareholders, is contained in the contract that enables such appointments, or (as appropriate) the relevant statutes applicable to such public financial institution or bank. However, nominee Directors must be particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding anything contained in sub-section(1), where an offence under this 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 neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Offences by companies (1)If the person committing an offence under section 138 is a company, every person, who, at the time the offence was committed, was incharge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided .... Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government of State Government or a financial corporation owned or controlled by the Central Government or the State Government, as the case may be, he shall not be li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. Simply because a person is a Director of a company, does not make him liable under the NI Act. Every person connected with the company will not fall into the ambit the provision. Time and again, it has been asserted by this Court that only those persons who were in charge of and responsible for the conduct of the business of the Company at the time of commission of an offence will be liable for criminal action. A Director, who was not in charge of and was not responsible for the conduct of the business of the Company at the relevant time, will not be liable for an offence under Setion 141 of the NI Act." In the same authority, in paragraph 23, the Supreme Court relies on another passage from Gunmala Sales (P) Ltd. Vs Anu Mehta [(2015)1 SCC 103] which reads as below: "In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about the role of the Director in the complaint. It may do so having come across some umimpeachable, incontrovertible evidence which is beyond suspicion or doubt or totally acceptable circumstances which may clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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