Madras High Court
Saroja Vivekananda vs The Assistant Commissioner Of Central ... on 21 December, 2017
Author: M.S.Ramesh
Bench: M.S.Ramesh
IN THE HIGH COURT OF JUDICATURE AT MADRAS Reserved on : 11.12.2017 Pronounced on : 21.12.2017 CORAM: THE HONOURABLE MR. JUSTICE M.S.RAMESH Crl.O.P.No.15 of 2017 and Crl.M.P.Nos.11 & 12 of 2017 Saroja Vivekananda, Managing Director, M/s.Visaka Industries Limited, Manickanatham Village, Paramathy Post, Namakkal District. .. Petitioner Vs. The Assistant Commissioner of Central Excise, Salem-II Division, No.21, Theerthamalai Arcade, New Bus Stand West, Salem-636 004. .. Respondent Prayer: Criminal Original Petition filed under Section 482 Cr.P.C., praying to call for the records pertaining to the proceedings in C.C.No.18 of 2016, pursuant to the private complaint dated 04.10.2016 lodged by the respondent herein, on the file of the learned Chief Judicial Magistrate, Namakkal and to quash the same. For Petitioner : Mr.A.L.Somaiyaji, Sr. Counsel for Mrs.Dakshyani Reddy For Respondent : Mr.V.Sundareswaran Senior Standing Counsel O R D E R
The proceedings impugned in the present Criminal Original Petition is a private complaint filed for offences alleged to have been committed under Sections 9 and 9(AA) of the Central Excise Act, 1944. The petitioner herein has been arrayed as second accused in the said proceedings.
2.The brief facts of the case is that pursuant to the resolution of the Board of Directors of M/s.Visaka Industries Limited, the petitioner was appointed as Managing Director of the said Company with effect from 24.06.2009. The present impugned complaint is in connection with excise duty liability on asbestos cement sheets for the years 2003-04 and 2004-05, wherein a demand of Rs.13,23,85,374/- came to be confirmed by the commission of Central Excise, Salem on 06.05.2009. As against the said order, an appeal came to be preferred by the Company before the Customs, Excise and Service Tax Appellate Tribunal (hereinafter referred to as CESTAT). By an order dated 08.12.2011, CESTAT had directed the petitioner to pay a sum of Rs.4.5 Crores towards the duty and had stayed the appeal. The order of CESTAT was unsuccessfully appealed up to the Hon'ble Supreme Court of India. It is in this background that the impugned complaint came to be filed against the order-in-original dated 06.05.2009 inspite of the interim order of stay for alleged offences under Section 9 and 9(AA) of the said Act r/w. Section 120(B) IPC.
3.Heard Mr.A.L.Somayaji, learned Senior counsel for the petitioner and Mr.V.Sundareswaran, learned Senior Standing Counsel for the respondent.
4.Mr.A.L.Somayaji, learned Senior counsel appearing for the petitioner submitted that the impugned complaint itself is not maintainable since the order-in-original dated 06.05.2009 has been stayed by the CESTAT. According to the learned Senior counsel, the petitioner herein was not the Managing Director of M/s.Visaka Industries Limited during the years 2003-04 and 2004-05 and was not in-charge of the affairs of the Company and its day-to-day operations of the company during that time. By relying on the provisions of Sections 9(1) and 9(AA) of the said Act, he submitted that the criminal prosecution could only be launched as against the individual who was in-charge of and responsible for the conduct of the business of the Company at the time when the offence was alleged to have been committed. Since the petitioner came to be appointed as Managing Director with effect from 24.06.2009, she was not in-charge of the day-to-day operations of the company and as such, the offence under Sections 9 and 9(AA) of the Act are not made out as against this petitioner. The learned Senior counsel also relied upon the guidelines dated 23.10.2015 for launching of prosecution under the said Act issued by the Central Board of Excise and Customs, Department of Revenue, Ministry of Finance, Government of India and submitted that as per the guidelines, prosecution should not be launched indiscriminately on all the directors of the company but should be restricted to persons who were in-charge of the day-to-day operations of the company and since the petitioner was not the managing director during the relevant period, implicating the petitioner for the offence in the impugned complaint is opposed to the guidelines. Reiterating on the same point, he drew the attention of this Court to the various averments made in the complaint, wherein the petitioner herein was categorically implicated in her capacity as the managing director in the light of Section 9AA of the Act read with the guidelines of the Central Board of Excise and Customs and submitted that the complaint as against the petitioner herein is liable to be quashed.
5.Mr.V.Sundareswaran, learned Senior Standing counsel for the respondents on the other hand submitted that mere using of the term 'Managing Director' will not absolve the petitioner's liability since she was holding the post of directorship in the company and the issue as to whether she was actively involved in her capacity as a director during the relevant period has to be determined only during the course of trial and quashing of the proceedings at this stage is unwarranted.
6.I have given careful consideration to the submissions made by the respective counsels.
7.It is not in dispute that the petitioner herein was not the Managing Director of the Company during the years 2003-04 and 2004-05. This position is ratified from Form 32 of the Companies Act which evidences that the petitioner became the Managing Director of the Company with effect from 26.10.2009. In the impugned complaint, the petitioner, who has been alleged as a second accused, has been described as a Managing Director of the said company. The cause of action in the impugned complaint pertains to evasion of payment of Central Excise duty towards the period 2003-04 and 2004-05. There is a specific statement made in the complaint that as M/s.Visaka Industries Limited, as a private limited company, the person in-charge of or is responsible for the affairs of the company is the Managing Director is deemed to be guilty. In the present case in hand, Mrs.Saroja Vivekananda, Managing Director of M/s.Visaka Industries Limited, Paramathy is likely to be prosecuted under Section 9 of the Central Excise Act. In the concluding portion of the complaint, it is further stated that wherein since investigations and statements recorded amply point to the fraudulent activity carried out by Mrs.Saroja Vivekanand, Managing Director of M/s.Visaka Industries Limited and Mr.N.Santhosh Kumar, Proprietor of M/s.Natesan Engineers & Contractors, they are held responsible for the conduct of all the nefarious business activities which rendered liable for punishment under Sections 9 and 9(AA) of the Act.
8.The above averments made in the complaint precisely implicates the petitioner in her capacity as a Managing Director of the Company. There is no indication in the complaint that the other directors of the company are responsible either for the day-to-day affairs of the company or liable for the criminal prosecution for evading payment of the duty.
9.I am not in agreement with the submissions of the learned Senior Standing Counsel for the respondents that the petitioner, since was holding the post of director for the relevant period, is liable for having committed the offences under the said Act. The averments in the complaint categorically implicates the petitioner in her capacity as a Managing Director. The complaint further reads that the petitioner herein is liable to be proceeded with since she was the Managing Director of the company. Such a specific averment cannot be read otherwise, to mean that the Managing Director of the Company may also include a Director. The law on this aspect is very clear. For the sake of convenience, the relevant provisions and guidelines are extracted hereunder:
Section 9(AA) of the Central Excise Act, 1944:
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 comapnay, 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 had exercised all due diligence to prevent the commission of such offence.
(2) Notwithstanding 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. Guidelines:
Person liable to be prosecuted:
3.1 Whoever commits any of the offences specified under sub-section (1) of Section 9 of the Central Excise Act, 1944 or sub-section (1) of Section 89 of the Finance Act, 1994, can be prosecuted. Section 9AA (1) of Central Excise Act, 1944 provides that where an offence under this Act has been committed by a company, every person who, at the time 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 the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Section 9AA(2) of Central Excise Act, 1944 provides that 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 be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation to Section 9AA provides that (a) Company means anybody corporate and includes a firm or other association of individuals and (b) director in relation to a firm means a partner of the firm. These provisions under Section 9AA of Central Excise Act, 1944 have been made applicable to Service Tax also vide Section 83 of the Finance Act, 1994.
4.3 Sanction of prosecution has serious repercussions for the assessee and therefore along with the above monetary limits, the nature of evidence collected during the investigation should be carefully assessed. The evidences collected should be adequate to establish beyond reasonable doubt that the person, company or individual had guilty mind, knowledge of the offence, or had fraudulent intention or in any manner possessed mens-rea (guilty mind) for committing the offence.
6.2 Prosecution should not be launched in cases of technical nature, or where the additional claim of duty/tax is based totally on a difference of opinion regarding interpretation of law. Before launching any prosecution, it is necessary that the department should have evidence to prove that the person, company or individual had guilty knowledge of the offence, or had fraudulent intention to commit the offence, or in any manner possessed mes rea (guilty mind) which would indicate his guilt. It follows, therefore, that in the case of public limited companies, prosecution should not be launched indiscriminately against all the Directors of the company but it should be restricted to only against persons who were in charge of day-to-day operations of the factory and have taken active part in committing the duty/tax evasion or had connived at it.
10.Under Section 9(AA) of the Act, the persons who would be deemed to be guilty of an offence by a company are such persons who at the time of commission of the offence was in-charge of and was responsible to the day-to-day affairs of the company and to the conduct of the business of the company can be proceeded with and punished. The provision has been clarified in the guidelines. In fact, the guidelines is more of a warning to the prosecution to refrain from indiscriminately launching complaints against all the directors of the company and issues a warning that sanction for such prosecution should be carefully assessed on the basis of evidences or should be adequate to establish the offence beyond reasonable doubt that the person had an intention to commit the offence.
11.As stated above, the complaint proceeds on the footing that the person who was in-charge of the company's day-to-day affairs and its management is the Managing Director alone and therefore, the petitioner herein has been arrayed as an accused. From an overall reading of the complaint, it can be inferred that, had the respondent arrayed the then real Managing Director as an accused in the complaint, the petitioner herein, though was the director of the company, may not have been shown as an accused. As a matter of fact, the other directors of the company during the relevant period have not been arrayed as accused in the impugned complaint. It could therefore only be concluded that the intention of the respondent was to prosecute the then Managing Director of the company, who held the post during the years 2003-04 and 2004-05.
12.The issue as to whether all the directors of the company can be implicated as accused for offence committed by a company has been dealt in various judgments of the Hon'ble Supreme Court of India as well as the High Courts. While dealing on this point as to whether the director of the company is deemed to be in-charge of and responsible to the conduct of the business of the company and thereby guilty of the offence was dealt by the Hon'ble Supreme Court in Appeal (Crl.)664 of 2002 dated 20.09.2005 between S.M.S. Pharmaceuticals Ltd., and Neeta Bhalla & another, wherein it was observed as follows:-
a) It is necessary to specifically aver in a complaint under Section 141 that at the time the offence was committed, the person accused was in charge of, and responsible for the conduct of business of the company. This averment is an essential requirement of Section 141 and has to be made in a complaint. Without this averment being made in a complaint, the requirements of Section 141 cannot be said to be satisfied.
b)The answer to question posed in sub-para (b) has to be in negative. Merely being a director of a company is not sufficient to make the person liable under Section 141 of the Act. A director in a company cannot be deemed to be in charge of and responsible to the company for conduct of its business. The requirement of Section 141 is that the person sought to be made liable should be in charge of and responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a director in such cases.
c)The answer to question (c ) has to be in affirmative. The question notes that the Managing Director or Joint Managing Director would be admittedly in charge of the company and responsible to the company for conduct of its business. When that is so, holders of such positions in a company become liable under Section 141 of the Act.
13.Admittedly, the petitioner is not a Managing Director of the Company during the relevant period and the consequence of prosecuting such a person was the facts of a case before the Bombay High Court in Sharadchandra Shripad Marthe Vs. Gurushant Gangadhar Kamble and another reported in 1987 (11) ECC 166. The facts of the said case is almost identical to the facts in hand and the findings therein reads as follows:
23.To my mind the present case is such where I would be justified in invoking the inherent powers of this Court. I am satisfied from the undisputed averments that the petitioner joined the company as a Director only on 19th November 1985, a few days before the raid was effected and had not participated in any of the earlier proceedings leading to the conspiracy of evasion of excise duty during the period 1981 to 1984. it would be an exercise in futility to allow the prosecution to continue against petitioner accused No.17. It would also amount to an abuse process of Court and gross injustice to the petitioner. It would also not be worthwhile to call upon the petitioner to approach the trial Court for taking steps for his discharge in the face of this admitted position. In order to meet the ends of justice, therefore, I allow this petition and quash the process issued against the petitioner, original accused No.17.
14.The learned Senior Standing counsel for the respondent by relying on the following three judgments submitted that the inherent powers of the High Court under Section 482 should be exercised sparingly for quashing of the complaint. In R.P.Kapur Vs. State of Punjab [1960 AIR 862], the Hon'ble Apex Court had summarized the categories of cases where inherent powers can be exercised to quash the proceedings. One among them was that when the allegations constitute an offence but there is no legal evidence adduced in support of the charge or the evidence adduced clearly or manifestly failed to prove the charge, the inherent powers can be invoked. In the present case in hand, the complaint implicates the petitioner only in her capacity as a Managing Director. Since she did not hold the post of Managing Director at the relevant time, the complaint cannot reach a logical conclusion to hold the petitioner herein guilty on the ground that she was the Managing Director during the relevant period.
15.For the foregoing reasonings, I am of the view that the proceedings against the petitioner herein should not continue and she must not be made to face the rigor of a criminal trial. Accordingly, the Criminal Original Petition stands allowed and consequently, the proceedings in C.C.No.18 of 2016 on the file of the learned Chief Judicial Magistrate, Namakkal is quashed. Connected Miscellaneous Petitions are closed.
21.12.2017 Speaking Index:Yes Internet:Yes DP To
1.The Chief Judicial Magistrate, Namakkal.
2.The Assistant Commissioner of Central Excise, Salem-II Division, No.21, Theerthamalai Arcade, New Bus Stand West, Salem-636 004.
3.The Public Prosecutor, High Court, Madras.
M.S.RAMESH.J, DP Pre-Delivery Order made in Crl.O.P.No15 of 2017 and Crl.M.P.Nos.11 & 12 of 2017 21.12.2017