9911796707
TMI Blog2025 (2) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... e. As such the prosecution of only the company as the sole accused (of the company) is prima facie bad in law. Admittedly, there is existence of an agreement between the parties for the business transaction which included an arbitration clause and by invoking the said clause the reference was made to the Arbitrator by the petitioner herein who has been made the accused no. 2 in the proceedings before the trial Court. In the present case the arbitral award has been passed on 4th March, 2014. The complainant having initially participated in the arbitral proceeding has initiated the present criminal proceeding on 29th March, 2023. The arbitral award was granted in favour of the petitioner company herein on the basis of documents and evidence before the learned arbitrator.There is no whisper of the said arbitral proceedings nor its award in the petition of complaint. The complainant having suffered an arbitral award, initiated the criminal proceedings after 9 long years, which prima facie appears to be malafide and motivated. Having admitted, making payment by way of cheque to the petitioner herein (later dishonoured), the income tax rules requires mandatory deduction of TDS by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prescribed Rules of Income Tax Department, fulfill other statutory compliances for and on behalf of the complainant company independently. In passage of time the complainant company gave huge business to the accused no. 2 and had been maintaining a current/running account with the accused no. 2. The complainant company had been regularly servicing the said current account until the year 2012 when the business of the complainant company suffered huge loss and the complainant company started going through financial constrains. In such circumstances, the complainant company suddenly received a purported letter of demand dated October 31, 2012 from the accused no. 2 whereby a disputed sum of money was claimed by the accused no. 2 on account of purported supply of materials and it was also falsely claimed in the said letter that at the complainant company had deducted TDS amounting to Rs. 48,65,306/- in favour of the accused no. 2 towards acknowledgment of such alleged debt. The complainant company did not deduct an amount of Rs. 48,65,306/- towards TDS in favour of the accused no. 2 far less issuing TDS certificate of such amount in favour of the accused no. 2. It is further st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 271C (1) (a) and whether an assessee who caused delay in remittance of TDS deducted by him, can be said a person who "fails to deduct TDS"? 7.3 In order to appreciate the rival contentions and to answer the aforesaid questions, it is necessary to have analysis of Statutory provisions. 7.4 The relevant provisions are as under:- "Section 201(1A) of the Act Without prejudice to the provisions of sub-section (1), if any such person, principal officer or company as is referred to in that sub-section does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest, -- (i) at one per cent for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and (ii) at one and one half per cent for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid, and such interest shall be paid before furnishing the statement in accordance with the provisions of sub section (3) of Section 200:] Section 271C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . At the cost of repetition, it is observed that it is a case of belated remittance of the TDS though deducted by the assessee and not a case of non-deduction of TDS at all. 7.6 As per Section 271C (1) (a), if any person fails to deduct the whole or any part of the tax as required by or under the provisions of Chapter XVIIB then such a person shall be liable to pay by way of penalty a sum equal to the amount of tax which such person failed to deduct or pay as aforesaid. So far as failure to pay the whole or any part of the tax is concerned, the same would be with respect to Section 271C (1) (b) which is not the case here. Therefore, Section 271C (1) (a) shall be applicable in case of a failure on the part of the concerned person/assessee to "deduct" the whole of any part of the tax as required by or under the provisions of Chapter XVIIB. The words used in Section 271C (1) (a) are very clear and the relevant words used are "fails to deduct." It does not speak about belated remittance of the TDS. As per settled position of law, the penal provisions are required to be construed strictly and literally. As per the cardinal principle of interpretation of statute and more particularly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. The word "pay" is missing in Section 271C (1) (a). 8. Now so far as the reliance placed upon the CBDT's Circular No. 551 dated 23.01.1998 by learned ASG is concerned, at the outset, it is required to be noted that the said circular as such favours the assessee. Circular No. 551 deals with the circumstances under which Section 271C was introduced in the Statute, for levy of penalty. Paragraph 16.5 of the above Circular reads as follows: "16.5: Insertion of a new section 271C to provide for levy of penalty for failure to deduct tax at source under the old provisions of Chapter XXI of the Income Tax Act no penalty was provided for failure to deduct tax at source. This default, however, attracted prosecution under the provisions of Section 276B, which prescribed punishment for failure to deduct tax at source or after deducting failure to pay the same to the Government. It was decided that the first part of the default, i.e., failure to deduct tax at source should be made liable to levy of penalty, while the second part of the default, i.e., failure to pay the tax deducted at source to the Government which is a more serious offence, should continue to attract prosecution. The Am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Kartik Vijaysinh Sonavane held that where TDS has been deducted by employer of assessee, it will always been open for department to recover same from said employer and credit of same could not have been denied to assessee. 9. Thus it is the duty of the party making the payment, to deduct TDS and deposit the same with the income tax authority. 10. Accused no. 1 is an employee of the complainant company. 11. Accused no. 2 is the other company with which the complainant had a business relationship. 12. None of the persons who were in charge of overall and daily (day to day) affairs of the accused no. 2/ company have been impleaded as accuseds along with the said company. 13. The Hon'ble Supreme Court of India in Himanshu -versus-B. Shivamurthy & Another, (2019) 3 SCC 797, on January 17, 2019, has held:- "In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to Section 138, the High Court was in error ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n individual who has perpetrated the commission of an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. Further it is also held that an individual can be implicated in those cases where statutory regime itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision. 29. By applying the ratio laid down by this Court in the case of Sunil Bharti Mittal it is clear that an individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent. Further the criminal intent alleged must have direct nexus with the accused. Further in the case of Maksud Saiyed vs. State of Gujarat & Ors. this Court has examined the vicarious liability of Directors for the charges levelled against the Company. In the aforesaid judgment this Court has held that, the Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ic allegation against the Managing Director. When a company has not been arrayed as a party, no proceeding can be initiated against it even where vicarious liability is fastened under certain statutes. It has been so held by a three-Judge Bench in Aneeta Hada v. Godfather Travels and Tours (P) Ltd. in the context of the Negotiable Instruments Act, 1881. xx xx xx 13. When the company has not been arraigned as an accused, such an order could not have been passed. We have said so for the sake of completeness. In the ultimate analysis, we are of the considered opinion that the High Court should have been well advised to quash the criminal proceedings initiated against the appellant and that having not been done, the order is sensitively vulnerable and accordingly we set aside the same and quash the criminal proceedings initiated by the respondent against the appellant." 25. This position was again clarified and reiterated by this Court in Himanshu v. B. Shivamurthy and Another, (2019) 3 SCC 797. The relevant portion of the judgment reads thus: "6. The judgment of the High Court has been questioned on two grounds. The learned counsel appearing on behalf of the appellant submits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provision itself." xx xx xx 12. The provisions of Section 141 postulate that if the person committing an offence under Section 138 is a company, every person, who at the time when the offence was committed was in charge of or 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. 13. In the absence of the company being arraigned as an accused, a complaint against the appellant was therefore not maintainable. The appellant had signed the cheque as a Director of the company and for and on its behalf. Moreover, in the absence of a notice of demand being served on the company and without compliance with the proviso to Section 138, the High Court was in error in holding that the company could now be arraigned as an accused." 26. Applying the same proposition of law as laid down in Aneeta Hada (supra), this Court in Hindustan Unilever Limited v. State of Madhya Pradesh, (2020) 10 SCC 751 applying pari materia provision in Prevention of Food Adulteration Act, 1954, held that: "23. Clause (a) of sub-section (1) of Section 17 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 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 that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence." It is thus seen that the vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was in charge of and was also responsible to the company for the conduct of its business. Simply because a person is a director of the company it does not necessarily mean that he fulfils both the above requirements so as to make him liable. Conversely, without being a director a person can be in charge of and responsible to the company for the conduct of its business. From the complaint in question we, however, find that except a bald statement that the respondents were directors of the manufacturers, there is no other all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (of the company) is prima facie bad in law. 21. Admittedly, there is existence of an agreement between the parties for the business transaction which included an arbitration clause and by invoking the said clause the reference was made to the Arbitrator by the petitioner herein who has been made the accused no. 2 in the proceedings before the trial Court. 22. The complainant as respondent before the learned Arbitrator did not continue to attend the arbitration proceedings. Subsequently, the learned Arbitrator considering the materials on record adjudicated the dispute by passing an arbitral award dated 4th March, 2014. 23. The relevant findings of the learned Arbitrator is as follows :- "…………23. Having considered all the correspondence and material on record and the Minutes of the Meetings as passed from time to time since the beginning of the arbitration proceedings, it is clear that save and except for the letter dated 23rd September 2013 addressed by the Respondents to the Sole Arbitrator, there has been no response whatsoever by the Respondents. They have constantly remained absent despite notices given to them that the proceedings would be cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,000/-. The aforesaid payment shall also be made on or before 18th March 2014 " 24. An arbitral award, once finalized, is considered legally binding and has the effect of a court judgment, meaning the parties involved are obligated to comply with its terms, essentially acting as a final and conclusive resolution to the dispute submitted to arbitration, however, limited grounds exist to challenge an award in court if deemed to be against public policy or if procedural errors occurred during the arbitration process. Finality:- An arbitral award is generally considered final and binding on the parties involved, unless successfully challenged in court under specific circumstances. Enforceability:- Similar to a court judgment, an arbitral award can be enforced through legal means if a party fails to comply with its terms. Res Judicata:- The principle of "res judicata" applies to arbitral awards, meaning that once a dispute is settled through arbitration, the same parties cannot raise the same issues in a subsequent legal proceeding. 25. Limited Review:- While courts can review an arbitral award, they typically have a restricted scope to intervene and will only overtu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tage scuttling the arbitration proceedings. Even if the other party has objection to initiation of such arbitration proceedings on the ground that there is no arbitration agreement or validity of the arbitration clause or the competence of the Arbitral Tribunal is challenged, Section 16, in clear terms, stipulates that such objections are to be raised before the Arbitral Tribunal itself which is to decide, in the first instance, whether there is any substance in questioning the validity of the arbitration proceedings on any of the aforesaid grounds. It follows that the party is not allowed to rush to the Court for an adjudication. Even after the Arbitral Tribunal rules on its jurisdiction and decides that arbitration clause is valid or the Arbitral Tribunal is legally constituted, the aggrieved party has to wait till the final award is pronounced and only at that stage the aggrieved party is allowed to raise such objection before the Court in proceedings under Section 34 of the Act while challenging the arbitral award. The aforesaid scheme of the Act is succinctly brought out in the following discussion by this Court in Kvaerner Cementation India Ltd. v. Bajranglal Agarwal & Anr.[3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deed. However, the question is as to whether the dispute raised by the respondent in the suit is incapable of settlement through arbitration. As pointed out above, the Act does not make any provision excluding any category of disputes treating them as non-arbitrable. Notwithstanding the above, the Courts have held that certain kinds of disputes may not be capable of adjudication through the means of arbitration. The Courts have held that certain disputes like criminal offences of a public nature, disputes arising out of illegal agreements and disputes relating to status, such as divorce, cannot be referred to arbitration. Following categories of disputes are generally treated as non-arbitrable: (i) patent, trademarks and copyright; (ii) anti-trust/competition laws; (iii) insolvency/winding up; (iv) bribery/corruption; (v) fraud; (vi) criminal matters. Fraud is one such category spelled out by the decisions of this Court where disputes would be considered as non-arbitrable. 'Fraud' is a knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his detriment. Fraud can be of different forms and hues. Its ingredients ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... settlement by arbitration and should be decided by the civil court. The allegations of fraud should be such that not only these allegations are serious that in normal course these may even constitute criminal offence, they are also complex in nature and the decision on these issues demand extensive evidence for which civil court should appear to be more appropriate forum than the Arbitral Tribunal. Otherwise, it may become a convenient mode of avoiding the process of arbitration by simply using the device of making allegations of fraud and pleading that issue of fraud needs to be decided by the civil court. The judgment in N. Radhakrishnan does not touch upon this aspect and said decision is rendered after finding that allegations of fraud were of serious nature. As noted above, in Swiss Timing Ltd. case, single Judge of this Court while dealing with the same issue in an application under Section 11 of the Act treated the judgment in N. Radhakrishnan as per incuriam by referring to the other judgments in the case of P. Anand Gajapathi Raju v. P.V.G. Raju and Hindustan Petroleum Corpn. Ltd. v. Pinkcity Midway Petroleums. Two reasons were given in support which can be found in para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tituted under the laws of the country. Every civil or commercial dispute, either contractual or non-contractual, which can be decided by a court, is in principle capable of being adjudicated and resolved by arbitration unless the jurisdiction of the Arbitral Tribunals is excluded either expressly or by necessary implication. Adjudication of certain categories of proceedings are reserved by the legislature exclusively for public fora as a matter of public policy. Certain other categories of cases, though not expressly reserved for adjudication by public fora (courts and tribunals), may by necessary implication stand excluded from the purview of private fora. Consequently, where the cause/dispute is inarbitrable, the court where a suit is pending, will refuse to refer the parties to arbitration, under Section 8 of the Act, even if the parties might have agreed upon arbitration as the forum for settlement of such disputes. 36. The well-recognised examples of non-arbitrable disputes are: (i) disputes relating to rights and liabilities which give rise to or arise out of criminal offences; (ii) matrimonial disputes relating to divorce, judicial separation, restitution of conjugal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there exist conflicting decisions of the Apex Court on this issue. While it has been held in Bharat Rasiklalv. Gautam Rasiklal, (2012) 2 SCC 144 that when fraud is of such a nature that it vitiates the arbitration agreement, it is for the Court to decide on the validity of the arbitration agreement by determining the issue of fraud, there exists two parallel lines of judgments on the issue of whether an issue of fraud is arbitrable. In this context, a 2 judge bench of the Supreme Court, while adjudicating on an application under section 8 of the Act, in Radhakrishnan v. Maestro Engineers, 2010 1 SCC 72 held that an issue of 28 fraud is not arbitrable. This decision was ostensibly based on the decision of the three judge bench of the Supreme Court in Abdul Qadir v. Madhav Prabhakar, AIR 1962 SC 406. However, the said 3 judge bench decision (which was based on the finding in Russel v. Russel [1880 14 Ch.D 471]) is only an authority for the proposition that a party against whom an allegation of fraud is made in a public forum, has a right to defend himself in that public forum. Yet, following Radhakrishnan, it appears that issues of fraud are not arbitrable. 51. A distinction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and, therefore, it cannot be deemed to have overruled the proposition of law laid down in N. Radhakrishnan. In view of our aforesaid discussions, we are of the opinion that mere allegation of fraud simplicitor may not be a ground to nullify the effect of arbitration agreement between the parties. It is only in those cases where the Court, while dealing with Section 8 of the Act, finds that there are very serious allegations of fraud which make a virtual case of criminal offence or where allegations of fraud are so complicated that it becomes absolutely essential that such complex issues can be decided only by civil court on the appreciation of the voluminous evidence that needs to be produced, the Court can sidetrack the agreement by dismissing application under Section 8 and proceed with the suit on merits. It can be so done also in those cases where there are serious allegations of forgery/fabrication of documents in support of the plea of fraud or where fraud is alleged against the arbitration provision itself or is of such a nature tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 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 arbitrator. It does not involve any complex issue. If such a cheque is issued from the hotel account by the appellant in favour of his son, it is easy to prove the same and then the onus is upon the appellant to show as to what was the reason for giving that amount from the partnership firm to his son and he will have to account for the same. Likewise, the allegation of the respondents that daily collections are not deposited in the bank accounts is to be proved by the respondents which is again a matter of accounts." 27. In Indu Engineering & Textiles Ltd. vs Delhi Development Authority, AIR 2001 SC 2668, decided on 11 July, 2001, the Supreme Court held:- "……………..The scope for interference by the court with an award passed by the arbitrator is limited. Section 30 of the Arbitration Act, 1940 (for short 'the Act') provides in somewhat mandatory terms that an award shall not be set aside except on one or more of the grounds enumerated in the provision. The three grounds set out in the Section are: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 reiterated that reasonableness of the reasons given by an arbitrator in making his award cannot be challenged. In that case before this Court, there was no evidence of violation of any principle of natural justice, and in this case also there is no violation of the principles of natural justice. It may be possible that on the same evidence some court might have arrived at some different conclusion than the one arrived at by the arbitrator but that by itself is no ground for setting aside the award of an arbitrator. Also see the observations in Halsbury's Laws of England, 4th edn., Vol.2, at pages 334 and 335, para 624, where it was reiterated that an arbitrator's award may be set aside for error of law appearing on the face of it, though that jurisdiction is not lightly to be exercised. If a specific question of law is submitted to the arbitrator for his decision and he decides it, the fact that the decision is erroneous does not make the award bad on its face so as to permit it being set aside; and where t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
