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TMI Blog2025 (2) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... tly she was made the Accounts Executive and she used to handle the entire finance and accounts department of the complainant company. She was also a Bank Signatory of the complainant company. In order to enable the accused no. 1 to perform her job smoothly and efficiently, the accused no. 1 was provided with company's letter-heads, company's seal, official files, official stationary, classified documents, party ledgers, company's balance sheets, IT Files, bank statements, accounting softwares etc. She was also disclosed/divulged with various official communications, correspondences, customer information, various trade secrets, technical know-how, business data and confidential information which forms part of the exclusive property of the complainant company and which the said accused person is/was not likely to disclose to third party or use for her personal work and/or misuse the same as per her terms of employment. As part of her duty, the accused no. 1 used to prepare and maintain the accounts of the complainant company, deduct TDS from the invoices, prepare TDS certificates as per the prevalent prescribed Rules of Income Tax Department, fulfill other statutory compliances f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. (ii) The accused no. 2 company/claimant/petitioner herein had an amount due from the complainant. (iii) As seen from the Arbitral award it appears that payments was made by the complainant by way of cheque which it appears was dishonoured. 5. The remedy for cheque being dishonoured is to be prayed for by the petitioner herein under the appropriate provisions of law. 6. Admittedly payment was made by complainant/company to the petitioner/company. 7. The Supreme Court in M/s US Technologies International Pvt. Ltd. vs The Commissioner of Income Tax, Civil Appeal No. 7934 of 2011 with Civil Appeal Nos. 1258-1260 of 2019, on 10.04.2023, held:- "7. Heard learned counsel appearing on behalf of the respective parties at length. 7.1 The short question which is posed for the consideration of this Court is in case of belated remittance of the TDS after deducting the TDS whether such an assessee is liable to pay penalty under Section 271C of the Act, 1961? 7.2 The question which is also posed for the consideration of this Court is what is the meaning and scope of the words "fails to deduct" occurring in Section 271C (1) (a) and whether an assessee who caused delay in remittance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or sub-section (1) of Section 272BBB or] clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of Section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. Section 276B of the Act 276B. Failure to pay tax to the credit of Central Government under Chapter XIID or XVIIB.-If a person fails to pay to the credit of the Central Government,- (a) the tax deducted at source by him as required by or under the provisions of Chapter XVIIB; or (b) the tax payable by him, as required by or under,- (i) sub-section (2) of Section 115O; or (ii) the second proviso to Section 194B, he shall be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven years and with fine." 7.5 At the outset, it is required to be noted that all these cases are with respect to the belated remittance of the TDS though deducted by the assessee and therefore, Section 271C (1) (a) shall be applicable. At the cost of repetition, it is observed that it is a case of belated rem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 7.8 Section 201(1A) provides that in case a tax has been deducted at source but the same is subsequently remitted may be belatedly or after some days, such a person is liable to pay the interest as provided under Section 201(1A) of the Act. The levy of interest under Section 201(1A) thus can be said to be compensatory in nature on belated remittance of the TDS after deducting the same. Therefore, consequences of non payment/belated remittance/payment of the TDS are specifically provided under Section 201(1A). 7.9 Similarly, Section 276B talks about the prosecution on failure to pay the TDS after deducting the same. At this stage, it is required to be noted that Section 271C has been amended subsequently in the year 1997 providing Sections 271C (1) (a) and 271C (1) (b). As observed hereinabove, fails to pay the whole or any part of the tax would be falling under Section 271C (1) (b) and the word used between 271C (1) (a) and 271C (1) (b) is "or". At this stage, it is required to be noted that Section 276B provides for prosecution in case of failure to "pay" tax to the credit of Central Government. The word "pay" is missing in Section 271C (1) (a). 8. Now so far as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 276B of the Act. Even the CBDT has taken note of the fact that no penalty is envisaged under Section 271C of the Income Tax Act for non deduction TDS and no penalty is envisaged under Section 271C for belated remittance/payment/deposit of the TDS. 8.1 Even otherwise, the words "fails to deduct" occurring in Section 271C (1) (a) cannot be read into "failure to deposit/pay the tax deducted." 8.2 Therefore, on true interpretation of Section 271C, there shall not be any penalty leviable under Section 271C on mere delay in remittance of the TDS after deducting the same by the concerned assessee. As observed hereinabove, the consequences on non payment/belated remittance of the TDS would be under Section 201(1A) and Section 276B of the Act, 1961." 8. The Income Tax Tribunal held:- It is evidently clear that assessee received the rent income, and the Tenant (Deductor) has deducted TDS but has not deposited the TDS so deducted into the Central Government Account. Considering these facts, we note that issue under consideration is no longer res integra. The Hon'ble High Court of Gujarat in the case of Kartik Vijaysinh Sonavane held that where TDS has been deducted by employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished." 16. The Supreme Court in Shiv Kumar Jatia vs. State of NCT of Delhi, Criminal Appeal nos. 1263, 1264 and 1265-1267 of 2019, held:- "27. The liability of the Directors/the controlling authorities of company, in a corporate criminal liability is elaborately considered by this Court in the case of Sunil Bharti Mittal. In the aforesaid case, while considering the circumstances when Director/person in charge of the affairs of the company can also be prosecuted, when the company is an accused person, this Court has held, a corporate entity is an artificial person which acts through its officers, Directors, Managing Director, Chairman, etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. At the same time it is observed that it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the Statute specifically provides for. It is further held by this Court, an individual who has perpetrated the commission of an offence on behalf of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that principally the allegations are made only against the company and other staff members who are in charge of day to day affairs of the company. In absence of specific allegations against the Managing Director of the company and having regard to nature of allegations made which are vague in nature, we are of the view that it is a fit case for quashing the proceedings, so far as the Managing Director is concerned." 17. In Dayle De' Souza vs Government of India Through Deputy Chief Labour Commissioner (C) and Anr., in Criminal Appeal No. .... of 2021 (arising out of SLP (CRL.) No. 3913 of 2020), decided on October 29, 2021, the Supreme Court held:- "24. In Sharad Kumar Sanghi v. Sangita Rane, (2015) 12 SCC 781 this Court observed that:- "11. In the case at hand as the complainant's initial statement would reflect, the allegations are against the Company, the Company has not been made a party and, therefore, the allegations are restricted to the Managing Director. As we have noted earlier, allegations are vague and in fact, principally the allegations are against the Company. There is no specific allegation against the Managing Director. When a company has not been arrayed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words "as well as the company" appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corporate reputation is affected when a Director is indicted." In similar terms, the Court further held: (SCC p. 688, para 59) "59. In view of our aforesaid analysis, we arrive at the irresistible conclusion that for maintaining the prosecution under Section 141 of the Act, arraigning of a company as an accused is imperative. The other categories of offenders can only be brought in the drag-net on the touchstone of vicarious liability as the same has been stipulated in the provision itself." xx xx xx 12. The provisions of Section 141 postulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment has adverse consequences, and therefore, prosecution of the company is mandatory. The exception would possibly be when the company itself has ceased to exist or cannot be prosecuted due to a statutory bar. However, such exceptions are of no relevance in the present case. Thus, the present prosecution must fail for this reason as well." 18. In Susela Padmavathy Amma vs M/S Bharti Airtel Limited, in Criminal Appeal Nos. ............ of 2024 (arising out of SLP (Criminal) No. 12390-12391 of 2022), decided on 15.03.2024, the Supreme Court held:- "7. In the case of State of Haryana vs. Brij Lal Mittal and others, this Court observed thus: "8. Nonetheless, we find that the impugned judgment of the High Court has got to be upheld for an altogether different reason. Admittedly, the three respondents were being prosecuted as directors of the manufacturers with the aid of Section 34(1) of the Act which reads as under: "34. Offences by companies.-(1) Where an offence under this Act has been committed by a company, every person who at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsible for the conduct of the business of the Company." 16. A similar view has been taken by this Court in the case of Lalankumar Singh and others vs. State of Maharashtra to which one of us (B.R. Gavai, J.) was a party." 19. A company can be made an accused in a criminal case, but it is important to note that alongside the company, the individuals responsible for the alleged crime within the company, like directors or key decision-makers, must also be named as accused, as a company alone cannot have the necessary "mens rea" (guilty mind) to commit an offense, the liability is generally attributed to the individuals who acted on behalf of the company. Legal entity:- A company is considered a separate legal entity, which means it can be held liable for criminal acts committed in its name. Vicarious liability:- When a company is accused of a crime, the individuals responsible for the actions that led to the offense, usually those in senior management positions, can be held vicariously liable. 20. As such the prosecution of only the company as the sole accused (of the company) is prima facie bad in law. 21. Admittedly, there is existence of an agreement between the part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oncessions made by them and as referred to in paragraphs 17 and 19 hereinabove. Accordingly, the claim is allowed as under: (i) Prayer (a) of the Statement of Claim is granted with interest at the rate of 24% per annum on the unpaid amount after 30 days from the date of the invoice till the date of the Award and thereafter, at the rate of 9% per annum from the date of the Award till payment and/or realization. (ii) Prayer (b) of the Statement of Claim is also allowed to the extent of Rs.46,97,020/-. It is clarified that the Claimants are not entitled to any interest on this amount of Rs.46,97,020/-. (iii) The Claimants are entitled to the costs of the arbitral proceedings quantified at Rs. 1,50,000/-. 26. The Claimants are directed to make payment of the Arbitrator's fees quantified at Rs.25,000/-. The said payment shall be made on or before 18th March 2014. 27. The claimants shall also make payment, separately by cheque, towards stenographer's charges, cost of printing of the Award, venue charges for all meetings held, quantified at Rs.12,000/-. The aforesaid payment shall also be made on or before 18th March 2014 " 24. An arbitral award, once finalized, is consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, with clear and unambiguous message that in such an event judicial intervention would be very limited and minimal. However, the Act contains provisions for challenging the arbitral awards. These provisions are Section 34 and Section 48 of the Act. Section 34(2)(b) and Section 48(2) of the Act, inter alia, provide that an arbitral award may be set aside if the Court finds that the 'subject matter of the dispute is not capable of settlement by arbitration under the law for the time being in force.' Even when such a provision is interpreted, what is to be shown is that there is a law which makes subject matter of a dispute incapable of settlement by arbitration. The aforesaid position in law has been culled out from the combined readings of Sections 5, 16 and 34 of the Act. When arbitration proceedings are triggered by one of the parties because of the existence of an arbitration agreement between them, Section 5 of the Act, by a non-obstante clause, provides a clear message that there should not be any judicial intervention at that stage scuttling the arbitration proceedings. Even if the other party has objection to initiation of such arbitration proceedings on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement in the so-called dispute in question, and on such an objection being raised, the arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings." Aforesaid is the position when Arbitral Tribunal is constituted at the instance of one of the parties and other party takes up the position that such proceedings are not valid in law. What would be the position in case a suit is filed by the plaintiff and in the said suit the defendant files an application under Section 8 of the Act questioning the maintainability of the suit on the ground that parties had agreed to settle the disputes through the means of arbitration having regard to the existence of an arbitration agreement between them? Obviously, in such a case, the Court is to pronounce upon arbitrability or non-arbitrability of the disputes. In the instant case, there is no dispute about the arbitration agreement inasmuch as there is a specific arbitration clause in the partnership deed. However, the question is as to whether the dispute raised by the respondent in the suit is incapable of settlement through arbitration. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rbitration is by a party charging the fraud, the Court will not necessarily accede to it and would never do so unless a prima facie case of fraud is proved. The aforesaid judgment was followed by this Court in N. Radhakrishnan while considering the matter under the present Act. In that case, the respondent had instituted a suit against the appellant, upon which the appellant filed an application under Section 8 of the Act. The applicant made serious allegations against the respondents of having committed malpractices in the account books, and manipulation of the finances of the partnership firm. This Court held that such a case cannot be properly dealt with by the arbitrator, and ought to be settled by the Court, through detailed evidence led by both parties. When the case involves serious allegations of fraud, the dicta contained in the aforesaid judgments would be understandable. However, at the same time, mere allegation of fraud in the pleadings by one party against the other cannot be a ground to hold that the matter is incapable of settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d discussion on the term 'arbitrability' by pointing out three facets thereof, viz.: 1) whether the disputes are capable of adjudication and settlement by arbitration? 2) whether the disputes are covered by the arbitration agreement? 3) whether the parties have referred the disputes to arbitration? As we are concerned with the first facet of the arbitrability of dispute, on this aspect the Court pointed out that in those cases where the subject matter falls exclusively within the domain of public fora, viz. the Courts, such disputes would be non-arbitrable and cannot be decided by the Arbitral Tribunal but by the Courts alone. The justification and rationale given for adjudicating such disputes through the process of Courts, i.e. public fora, and not by Arbitral Tribunals, which is a private forum, is given by the court in the following manner: "35. The Arbitral Tribunals are private fora chosen voluntarily by the parties to the dispute, to adjudicate their disputes in place of courts and tribunals which are public fora constituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ictionary.) 38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be adjudicated by courts and public tribunals, being unsuited for private arbitration. This is not however a rigid or inflexible rule. Disputes relating to subordinate rights in personam arising from rights in rem have always been considered to be arbitrable." The Law Commission has taken note of the fact that there is divergence of views between the different High Courts where two views have been expressed, one is in favor of the civil court having jurisdiction in cases of serious fraud and the other view encompasses that even in cases of serious fraud, the Arbitral Tribunal will rule on its own jurisdiction. It may be pertinent here to reproduce the observations of the Law Commission as contained in paragraphs 50 & 51 of the 246th Law Commission Report, which are as under: ""50. The issue of arbitrability of fraud has arisen on numerous occasions and there exist conflicting decisions of the Apex Court on this issue. While it has been held in Bharat Rasiklalv. Gautam Rasiklal, (2012) 2 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor and such allegations are merely alleged, we are of the opinion it may not be necessary to nullify the effect of the arbitration agreement between the parties as such issues can be determined by the Arbitral Tribunal. Before we apply the aforesaid test to the facts of the present case, a word on the observations in Swiss Timing Ltd.'s case to the effect that judgment of N. Radhakrishnan was per incuriam, is warranted. In fact, we do not have to labour on this aspect as this task is already undertaken by this Court in State of West Bengal & Ors. v. Associated Contractors. It has been clarified in the aforesaid case that Swiss Timings Ltd. was a judgment rendered while dealing with Section 11( 6) of the Act and Section 11 essentially confers power on the Chief Judge of India or the Chief Justice of the High Court as a designate to appoint an arbitrator, which power has been exercised by another Hon'ble Judge as a delegate of the Chief Justice. This power of appointment of an arbitrator under Section 11 by the Court, notwithstanding the fact that it has been held in SBP & Co. v. Patel Engineering Ltd. & Anr. as a judicial power, cannot be deemed to have precedential value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the aforesaid aspect, viz. whether the nature of dispute is such that it cannot be referred to arbitration, even if there is an arbitration agreement between the parties. When the case of fraud is set up by one of the parties and on that basis that party wants to wriggle out of that arbitration agreement, a strict and meticulous inquiry into the allegations of fraud is needed and only when the Court is satisfied that the allegations are of serious and complicated nature that it would be more appropriate for the Court to deal with the subject matter rather than relegating the parties to arbitration, then alone such an application under Section 8 should be rejected. When we apply the aforesaid principles to the facts of this case, we find that the only allegation of fraud that is levelled is that the appellant had signed and issued a cheque of Rs. 10,00,050/- dated 17.06.2010 of 'Hotel Arunagiri' in favour of his son without the knowledge and consent of the other partners i.e. the respondents. It is a mere matter of accounts which can be looked into and found out even by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight of the aforesaid decision. It was contended that the question whether the sums payable under clause 9 included discounts. On the aforesaid basis it was contended that there was an error of law and such error was manifest on the face of the award. Even assuming, however, that there was an error of law in arriving at a conclusion, such an error is not an error which is amenable to correction even in a reasoned award under the law. Reference may be made to the observations of this Court in Coimbatore District P.T. Samgam v. Bala Subramania Foundry (1987) 3 SCC 723, where it was reiterated that an award can only be set aside if there is an error on its face. Further, it is an error of law and not mistake of fact committed by the arbitrator which is justiciable in the application before the court. Where the alleged mistakes or errors, if any, of which grievances were made were mistakes of facts if at all, and did not amount to error of law apparent on the face of the record, the objections were not sustainable and the award could not be set aside. See also the observations of this Court in Delhi Municipal Corpn. Vs. M/s. Jagan Nath Ashok Kumar, (1987) 4 SCC 497, where this Court re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts. Where the award which was a reasoned one was challenged on the ground that the arbitrator had acted contrary to the provisions of Section 70 of the Contract Act, it was held that the same could not be set aside."........." 28. In the present case the arbitral award has been passed on 4th March, 2014. 29. The complainant having initially participated in the arbitral proceeding has initiated the present criminal proceeding on 29th March, 2023. 30. The arbitral award was granted in favour of the petitioner company herein on the basis of documents and evidence before the learned arbitrator. 31. There is no whisper of the said arbitral proceedings nor its award in the petition of complaint. 32. The complainant having suffered an arbitral award, initiated the criminal proceedings after 9 long years, which prima facie appears to be malafide and motivated. 33. Having admitted, making payment by way of cheque to the petitioner herein (later dishonoured), the income tax rules requires mandatory deduction of TDS by the complainant. 34. Thus considering the said facts and circumstances the materials on record prima facie do not contain the ingredients required to constitute the of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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