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TMI Blog1987 (1) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... and (d) of the Central Excises and Salt Act, 1944 (hereinafter referred to as "the Act"), read with Section 120B of the Indian Penal Code. Petitioner No. 1 - Mulki Suryanarayanrao Rau and Petitioner No. 2 - Ramachandra Vyankatesh Deshpande in Criminal Writ Petition No. 1014 of 1986 are the original accused Nos. 8 and 9 respectively and Petitioner No. 1. Vinayak Narayan Datye and Petitioner No. 2 - Kalambettu Subraya Bhat in Criminal Writ Petition No. 1066 of 1986 are the original accused Nos. 10 and 28 respectively. These four petitioners shall hereinafter be referred to as "accused Nos. 8, 9, 10 and 28". 3. By these petitions accused Nos. 8, 9, 10 and 28 seek to quash the process issued against them by the learned Chief Judicial Magistrate, Pune. 4. It would be appropriate to state brief facts of the case before I embark upon appreciating the submission made by the learned Counsel appearing on behalf of either side. They are as under. 5. As stated above, accused No. 1 is M/s. Kirloskar Brothers Ltd. Accused No. 2 is the Chairman and accused Nos. 3 to 18 were/are the Directors and accused Nos. 19 to 30 are the senior executive officers of the said company. According to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been included in the assessable value. 7. The complainant then explained the modus operandi of the accused persons for evading excise duty stating that : "In the course of investigation, it was found that object of evading Central Excise duty and at the same time recovering economic price of compressors was duly and successfully achieved by adopting the following methods :- (a) Additional amounts under the head of handling charges, freight, insurance, repair charges, and surcharge were recovered. (b) From 1-1-1981 to 14-1-1982 blanket charge of Rs. 40 per compressors was collected on all models of compressors towards freight and insurance on all sales effected through area offices. However, the aforesaid amount of Rs. 40 varied in some cases up to even Rs. 200 at depots like Secunderabad and Calcutta. (c) From 15-1-1982 the amounts of freight and insurance varied from Rs. 45 to Rs. 75 such charges varying according to the models of compressors supplied to customers, the said position continued till 17-10-1982. (d) On 22nd October, 1983, accused No. 1 circulated a letter on the subject of price revision of hermetically sealed compressors and under instruction No. 3, f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ober, 1982 and accused No. 10 on 7th December, 1982 whereas the alleged offences are said to have been committed up to 9th December, 1985 on which day there was a raid. Mr. Desai then urged that in the entire complaint there is no averment to suggest that any of these accused persons did any overt act or indulged in any illegal omission to attract substantive offences under the various sub-sections of Section 9 of the Act and there is also no evidence to suggest that they had entered into any conspiracy in order to evade payment of excise duty. He further urged that none from accused Nos. 8, 9, 10 and 28 could be held liable on the principle of vicarious liability as they in their capacity as Directors and Secretary of the company can be held vicariously liable only under Section 9AA of the Act which came into force only on 27th December, 1985. Mr. Desai repeatedly urged that as Directors and Secretary, these accused persons cannot be held responsible because the day-to-day affairs of the company were managed by the Managing Director. Mr. Desai, therefore, submitted that this is a fit case in which this Court should exercise its inherent powers to prevent abuse of the process of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C of the Central Excise Rules, 1944. I say that in compliance with these requirements of the law, accused No. 1 did file price list from time to time declaring the wholesale price as provided under Section 4 of the Act. After the aforesaid price list is to approved by the proper officer, determination of excise duty is merely a clerical task inasmuch as the assessee has to refer to the rate of duty (current) and the value approved by the proper officer and pay the determined duty to the Central Excise Department at the time of clearance of the goods .........". Then in para 11, after setting out as to how accused No. 1-Company, in compliance with the rules, has to declare Central Excise duty and how they could clear the goods only after payment of the Central Excise duty so determined, it is averred : "What happened in this case was that accused No. 1 and the other accused deliberately declared a lower price and violated the provisions of Rules 9 (1) and 173C read with Section 11A of the Central Excises and Salt Act, 1944, and the rules made thereunder." Paragraph 11 further reads pointing out the most important averments directly involving the present accused persons as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. The aforesaid blanket charge of Rs. 44 per compressor was not the freight charge actually incurred. I say that the investigation showed that the collection of handling charges was nothing but a part of the scheme conceived by accused Nos. 1 to 30 to collect extra amounts under whatever heads just to wipe out the differences between the real price of the compressor and the price declared to the Central Excise Department. I say and submit that accused Nos. 1 to 30 were fully aware that the collections were unauthorised and they ought to have included them in the assessable value and that the said charges were recovered in order to evade payment of the legitimate and due duty on the said compressors. I say and submit that the aforesaid plan of charging extra money as and by way of handling charges and raising debit advises against buyers is a clear indication of the design and oblique motive of accused Nos. 1 to 30 in the whole affair." 12. The rest of the paragraphs of the complaint disclose the entire modus operandi that was resorted to and the manner in which the tax evasion took place. Some of the averments made in paragraph 36 may be mentioned here : "In the course of inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y averment in respect of the charge, whatever it may be, is that the three Director-accused persons were the Directors of the Kirloskar Brothers Ltd. during the period from 1-1-1981 to 19-10-1982 and as such they committed offences punishable under Section 9(1) of the Act read with Section 120B of the Indian Penal Code. Similarly, it was also pointed out by Mr. Desai that the prosecution strongly relied upon, in the affidavits and at the time of hearing, the observations made by the Supreme Court in the case of Municipal Corporation of Delhi v. Purshottam Dass Jhunjhunwala and Others, A.I.R. 1983 S.C. 158 and in the case of Municipal Corporation of Delhi v. Ram Kishan Rohtagi and Others, A.I.R. 1983 S.C. 67 but these rulings are irrelevant to the present case. The Counsel further contended that the observations in both these judgments are in the background of the issue as to when the Directors of company could be held vicariously liable for offences under Section 7 read with Sections 16 and 17 of the Prevention of Food Adulteration Act as Section 17 creates vicarious liability provided that there is a categorical averment that the Directors were in charge of and responsible to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yed by them. It is pertinent to note here that in the complaint which was found to be perfectly in order by their Lordships of the Supreme Court in A.I.R. 1983 S.C. 158, the same allegations as in our case were considered to be enough but in our case the prosecution has gone a step further in the sense that it is clearly averred in the complaint that the accused persons had been parties to a criminal conspiracy. 15. Mr. Desai then urged that in order to appreciate the submission of Mr. Samant as regards the role of conspirators alleged to have been played by the present accused persons, it is necessary to deal with the scope of a charge of conspiracy. He thus submitted that conspiracy is a highly technical offence with which the accused person can be substantively charged and there must be categorical averments of the circumstances from which a logical and irresistible inference could be drawn that the accused was a party to the crime contemplated by Section 120B of the Indian Penal Code. He also submitted that agreement of conspiracy is a positive fact which could be proved by direct evidence or circumstantial evidence. The evidence should show that there was a meeting of minds ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f in the furtherance of the conspiracy certain persons are induced to do an unlawful act without the knowledge of the conspiracy of the plot they cannot be held to be conspirators, though they may be guilty of an offence pertaining to the specific unlawful act. The offence of conspiracy is complete when two or more conspirators have agreed to do or cause to be done an act which is itself an offence, in which case no overt act need be established. An agreement to do an illegal act which amounts to a conspiracy will continue as long as the members of the conspiracy remain in agreement and as long as they are acting in accord and in furtherance of the object for which they entered into the agreement." 18. In Dr. Dattatraya Narayan Samant and Others v. State of Maharashtra, 1982 Cri. L.J. 1025 this Court had held :- "The most important ingredient of the offence of conspiracy is the agreement between two or more persons to do an illegal act. The illegal act may or may not be done in pursuance of the agreement, but the very agreement is an offence punishable under Section 120B of the Penal Code. Entering into an agreement by two or more persons to do an illegal act or legal act by il ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t criminal purpose in common between them and although the common design is the root of the charge, it is not necessary to prove that two parties came together and actually agreed in terms to have this common design, and to pursue it by common means and so to carry it into execution. It was also pointed out in that case that it was not necessary to prove that the conspirators actually met, nor it was necessary to show that they corresponded or communicated in any way and there may be cases in which the Court will infer a conspiracy even though the defendants are unknown to each other. 22. Mr. Samant submitted that such a conspiracy and agreement was existing from 1-1-1981 as has been averred in the complaint itself and the other agreement in support of the conspiracy have been given in a parallel note wherein it has been shown conclusively that the continuing conspiracy which began on 1-1-1981 continued right up to 30-11-1985 and during this period, accused Nos. 8, 9 and 10 retired from the conspiracy on 19-10-1982 and 7-12-1982 but the conspiracy continued and the conspirators changed their techniques and resorted to various methods, viz., entering into warranty agreement, givin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since the minute book is referred to in the complaint, this Court should look into it for itself, if necessary. He relied upon a ruling of this Court in the case of Bomanji Kavasji Boman Behram and Others v. Mehernosh Minochar Mehta and Others, 1980 Bom. LR 503 to substantiate his argument that in the said case a Division Bench of this Court had looked into the documents referred to in the complaint. He also pointed out that while deciding Criminal Writ Petition No. 335 of 1986 Sharadchandra Shripad Marathe v. Gurushant Gangadhar Kamble [1986 (25) E.L.T. 915 (Bom.) in this very manner my learned brother Puranik, J. had also looked into the certified copy of the record of the Registrar of Companies. I do not think, it is necessary at this stage to look into some of the documents on which the defence may rely to prove its innocence because all that is necessary is to find out whether there is prima facie evidence on the record for issue of process for which it is enough for this Court at this stage to look into the allegations made in the complaint. We may here usefully rely on a Supreme Court ruling in case of Smt. Nagawa v. Veeranna Shivalingappa Konjalgi and Others, A.I.R. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solicitors in Bombay, and A.B. Pant, accused No. 11. The scope and functions of the said committee were to decide upon all legal matters in general and particularly with reference to the Companies Act, MRTP Act, Taxation laws, labour and industrial laws. I say and submit that the aforesaid resolution passed by the Board of Directors would indicate that accused No. 1 and accused Nos. 2 to 30 were aware of the problems facing accused No. 1 in respect of Central Excise duty and it was only with this object in view that the Law Committee came to be constituted. This appointment of Law Committee assumes great significance in the light of further important documents which were seized in the course of investigation." 26. In reply, Mr. Desai stated that referring to this resolution by the complainant was a futile attempt at pointing out the alleged conspiracy on the part of all the accused persons. He submitted that this resdiution only indicates that the Board of Directors did consider a problem concerning excise and this resolution became necessary by this date the company had become a Board managed company and there was no person like the Managing Director to take decision in a matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isable goods which he knows or has reason to believe are liable to confiscation under this Act or any rule made thereunder; (c) fails to supply any information which he is required by rules made under this Act to supply, or (unless with a reasonable belief, the burden of proving which shall be upon him, that the information supplied by him is true) supplies false information; (d) attempts to commit, or abets the commission of, any of the offences mentioned in Clauses (a) and (b) of this section; shall be punishable - (i) in the case of an offence relating to any excisable goods, the duty leviable thereon under this Act exceeds one lakh of rupees, with imprisonment for a term which may extend to seven years and with fine: Provided that in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the Court such imprisonment shall not be for a term of less than six months; (ii) in any other case, with imprisonment for a term which may entend to three years or with fine or with both." 28. The argument of Mr. Desai is that without prejudice to the contention of the defence that no offence was committed under Section 9 of the Act, it may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors. He also relied upon a ruling of Allahabad High Court in case of R.K. Khandelwal and Another v. State, 1965 (2) Cri. L.3. 439 in which it was held : "No director or partner of a company can be convicted of the offence under Section 27 of the Drugs Act unless it is proved that the sub-standard drug was sold with his consent or connivance or was attributable to any neglect on his part, or it is proved that he was a person in charge of, and responsible to the company for the conduct of the business of the company." And still one more case relied upon by Mr. Desai is the State of Karnataka v. Pratap Chand and Others, [1981] 128 ITR 573 in which it was helds "A partner is liable to be convicted for an offence committed by the firm if he was in charge of and responsible to the firm for the conduct of the business of the firm or if it is proved that the offence was committed with the consent or connivance of, or was attributable to any neglect on the part of, the partner concerned. A person 'in charge' must mean that the person should be in overall control of the day to day business of the firm." And lastly he relied upon a Calcutta High Court ruling in case of Bhagwati Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prosecution should be given an opportunity to lead complete evidence and its case cannot be shut out by granting the relief such as the one asked for in these petitions. There is lot of substance in the submission of Mr. Desai that the corporation is a legal and juristic entity and that the Board of Directors is not equivalent to a corporation and every Director individually is nobody vis-a-vis the company and that the Directors can act only jointly at a Board meeting. It is also true that evasion of duty by a corporation does not automatically attract the penal liability to the Directors in the absence of Section 9AA of the Act. But in our case the Directors are sought to be penalised on their individual acts and not merely because they are Directors as such. Mr. Samant has repeatedly urged that in this case the Directors are not sought to be penalised on the principle of vicarious liability as provided under Section 9AA of the Act. 30. In addition to the submissions of Mr. Samant that in our case the Directors are not sought to be penalised for the criminal acts with the help of Section 9AA of the Act, it is also important to note the observations of the Supreme Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tune of more than rupees five crores could not have been done without the knowledge and active acquiescence of the Directors, in. the perpetuation of this fraud. 31. As regards accused No. 28, the submission of Mr. Desai is that he performs only statutory functions under the Companies Act as under :-" Section 75 - Delivering for registration returns of allotments, and contracts relating to allotment of shares for consideration other than cash; Section 97 - Giving notice to the Registrar of an increase of share capital; Section 113 - Issuing certificates of shares, debentures and debenture stock; Section 118 - Allowing inspection of the debenture register; Sections 125 to 127 - Delivering particulars of mortgages and charges for registration; Section 149 - Making the statutory declaration for commencement of business; Sections 160, 161 and 162 - Signing the annual return and certifying the documents annexed thereto; Section 163 - Allowing inspection of and furnishing copies of register of members; Section 304 - Allowing inspection of the register of directors; Section 322 - Where a director's liability is made unlimited, giving the notice required to be given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utory duty is not tenable. 32. Mr. Desai then submitted that the liability to pay the excise duty is of the corporation only as can be seen from the scheme of the Act and the Rules framed thereunder which shows that the duties are payable by the manufacturer or the producer who has to obtain the licence in advance and in our case it is accused No. 1-Company who has such a licence. In this respect, he invited my attention to Sections 11 and 11A of the Act and Rules 9, 173Q and 221. In my opinion, this attempt on the part of Mr. Desai would only widen the scope of his arguments in the instant matter for quashing the process issued by the Magistrate because these provisions of law obtain only under adjudication proceedings which are in the nature of revenue recovery proceedings and do not partake the character of criminal proceedings. Let it be said here that those considerations which obtain for adjudication proceedings could not possibly have anything to do with the criminal proceedings. 33. The last limb of the argument of Mr. Desai is that it would be in the interest of justice that this Court exercises its inherent powers under Section 482 of the Criminal Procedure Code to pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the complaint taken at its face value did not make out a prima facie case against the petitioners or opposite party No. 3. In 1984 (18) E.L.T. 181 (P H) = 1984 ECR 2343 (P H), in the absence of any specific allegations against the Directors of the company, they could not be held liable. In A.I.R. 1983 S.C. 67, so far as the Directors were concerned, there was not even a whisper nor a shred of evidence nor anything to show apart from the presumption drawn by the complainant, that there is any act committed by them from which a reasonable inference could be drawn that they could be vicariously held liable. In A.I.R. 1960 S.C. 866, the Supreme Court explained the principles governing the inherent powers of the High Court under Section 561 A of the old Criminal Procedure Code, but refused to quash the proceedings in the facts of the case as no case had been made out for quashing by the appellant. Writ Petition Nos. 335 and 219 of 1986, arose from the present case itself and there my learned brother Puranik, J. quashed the proceedings on the grounds that the petitioner in Writ Petition No. 335 of 1986 [Sharadchandra Shripad Marathe v. Gurushant Gangadhar Kamble (supra)] had joined t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laint, the learned Chief Judicial Magistrate, Pune, issued process because prima facie this was a fit case for issuing process. The impugned order of the Magistrate, therefore, suffers from no legal infirmity and I see no good reasons to quash the proceedings taken against accused Nos. 8, 9, 10 and 28. 36. I would better conclude this judgment by quoting the observations made by the Supreme Court in the case of State of Maharashtra v. Champalal Punjaji Shah 1981 (3) S.C.C 610 that : "It is one of the said and distressing features of our criminal justice system that an accused person, resolutely minded to delay the day of reckoning, may quite conveniently and comfortably do so, if he can but afford the cost involved, by journeying back and forth, between the Court of first instance and the superior Courts, at frequent interlocutory stages. Applications abound to quash investigations, complaints and charges on all imaginable grounds, depending on the ingenuity of client and counsel. Not infrequently, as soon as a Court takes cognizance of a case requiring sanction or consent to prosecute, the sanction or consent is questioned as improperly accorded, as soon as a witness is examin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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