Holding

Failure to deposit TDS within the statutory period is a default liable to prosecution, a juristic person and its directors can be prosecuted as principal officers, and the procedural objections raised do not bar the criminal proceedings.

Summary

Madhumilan Syntex Ltd., a public limited company, failed to deposit Tax Deducted at Source (TDS) within the statutory period for AY 1989-90, though it later paid the amount with interest. The Income Tax Officer issued a show‑cause notice under Section 276B read with Section 278B, treating the company and its directors as "principal officers" and seeking criminal prosecution. The company and directors applied for discharge under CrPC Section 245, but the trial court, Sessions Court and High Court rejected the applications; the High Court dismissed the petition in limine and, after restoration, insisted on a same‑day hearing. On appeal, the Supreme Court held that the delayed payment constituted a default punishable under the Act, that a juristic person can be prosecuted, and that the directors could be deemed principal officers without a separate notice. The Court rejected the arguments of reasonable cause, delay, and procedural impropriety, and dismissed the appeal.

Issues considered

Whether failure to deposit TDS within the prescribed period, even if later paid with interest, amounts to a default punishable under Section 276B of the Income Tax Act.
Whether a company, as a juristic person, can be prosecuted under the Income Tax Act.
Whether directors can be treated as "principal officers" under Section 2(35) without a separate notice and whether the complaint is maintainable.
Whether the High Court erred in dismissing the petition in limine without recording reasons and in insisting on a same‑day hearing after restoration.
Whether the lapse of time (over fifteen years) bars criminal prosecution.
Whether Section 278AA (reasonable cause) shields the appellants from prosecution.

Legislation cited

Code of Criminal Procedure, 1973s. 245
Companies Act, 1956
Income Tax Act, 1961s. 194C, s. 200, s. 2(20), s. 2(31), s. 2(35), s. 276B, s. 278AA, s. 278B, s. 279
Income Tax Rules, 1962s. Rule 30

Subjects

Income TaxTDSCriminal prosecutionDefaultPrincipal officerCorporate criminal liabilitySection 276BSection 278BSection 279Section 278AADelayReasonable causeHigh Court procedural orderSection 245 CrPC

Judgment

A MADHUMILAN SYNTEX LTD. AND ORS.
v.
UNION OF INDIA & ANR.
i'
MARCH 23, 2007 '
B [C.K. THAKKERAND P. K. BALASUBRAMANYAN, JJ.]

Constitution of India-Articles 136 & 142-lncome Tax Act, 1961-
Sections 2(20), 2(31), 2(35), 194C, 200, 276B, 278AA, 278B & 279-lncome
C Tax Rules, 1962-Rule 30-Code of Criminal Procedure, 1973-Section
245-Failure of assessee--company to deposit Tax Deducted at Source (TDS)
to the credit ofthe Central Government within prescribed time-Tax deposited
with interest subsequently-Show-cause notice issued against the Company
and its Directors treating them as principal officers under the Act for initiatfon
of criminal proceedings-Complaint before trial court by Revenue-
D Applications for discharge filed before trial court was rejected-Sessions
Court and High Court dismissed the appeals-Correctness of-Held, failure
to deposit TDS amount within prescribed period is a default liable to
prosecution under the Act-Delayed deposit of tax with interest/penalty does
not take away the power of the Revenue to initiate criminal proceedings
enunciated under the Act.
E
Revenue issued a show-cause notice as to why prosecution under section
276B read with section 200 of the Income Tax Act, 1961.should not be initiated
against appellants-Company and its Directors-for failure to pay Tax
Deducted at Source (fDS) to the credit of the Central Government within the
F prescribed time. The appellants replied stating that there was reasonable cause
for non-payment of the amount within the prescribed period; and that the
amount ofTDS had been paid along with interest and hence it is not liable to
prosecution under the Act

Commissioner of Income T~x granted sanction to prosecute the
G appellants under section 279 of the Act. Accordingly, a complaint was filed
against the appellants before trial court. The appellants filed applications
under section 245 Cr.P.C. before the trial court for discharging them from
the case contending that the proceedings were initiated with ma/a fide
intention. The appellants further stated that they could not be treated as

H 378
MADHUMILAN SYNTEX LTD. v. U.0.1. 379
'principal officers' under section 2(35) of the Act and that in the complaint it A
was not shown that they were in charge of and were responsible for the conduct
of the business of the company. The trial court rejected the applications. The
Revision Petition filed before Sessions Court was also dismissed. A
Miscellaneous Criminal Petition filed by the appellants before High Court
under section 482 Cr.P.C was dismissed for default of appearance. Later an B
application for restoration filed was allowed, the matter was heard on the same
day and was dismissed in limine by the High Court.

In appeal to this Court, the appellants contended that, after allowing the
restoration application, the High Court erred in insisting the appellant to
argue the matter on the same day on merits; that the High Court erred in C
dismissing the Petition in limine without recording any reasons; that there
was not much delay in depositing TDS and that it had been deposited with
interest and hence there was no reason to prosecute the Company and/or its
Directors; that the Company is a legal or juristic person and hence it cannot
be punished and thereby the Directors or Officers of the Company also cannot
be punished; that the complaint filed against the appellants is ill-founded or D
not maintainable; that the appellants 2-4 cannot be said to be 'principal
officers' under the Act since the complaint does not state that such persons
are connected with the management and administration of the Company; that .
a separate notice ought to have been issued before issuance of show-cause
notice that the Directors are to be treated as Principal Officers under the E
Act; that, in view of 'reasonable cause' shown by them, their case is squarely
covered by section 278AA of the Act and hence the proceedings should be
dropped against them; that since almost two decades have passed after the
commission of alleged default by them, this Court, by exercising plenary
powers under Article 136 read with Article 142 of the Constitution, may order
to drop the proceedings initiated against them. F
The respondents, on the other hand, supported the order passed by the
Courts below.

Dismissing the appeal, the Court
G
HELD: 1. Appearance of a party or his advocate and prayer for recalling
an order of dismissal for default may be a good ground for restoring the matter
but it cannot be said to be a good ground for restoration of the matter for
hearing in future. In other words, a matter may be restored for hearing and
not for adjournment. Therefore, this Court is unable to uphold the contention
of the appellants that the Court could not have insisted on the advocate to argue H
380 SUPREME COURT REPORTS [2007] 4 S.C.R.

A the matter after the dismissal for default was recalled and restoration was
ordered. [Para 17) (386-H; 387-A-B)

2. It was not a substantive appeal which was heard by a Court. If the
High Court did not think it fit to exercise inherent powers in the light of the
controversy raised, question involved and the stage at which the applicants
B had approached the Court, it cannot be said that the Court must pass a detailed
speaking order or record reasons in support of such order.
(Para 18) [387-C-D)

3.1 Reading the relevant provisions of the Income Tax Act, 1961, it - ..
C cannot be said that the prosecution against a Company or its Directors in
default of deducting or paying tax is not envisaged by the Act. A Company is
not a natural person but 'legal' or 'juristic' person. That, however, does not
mean that Company is not liable to prosecution under the Act.
(Paras 23, 24) (389-D-E)

D Standard Chartered Bank & Ors. v. Directorate of Enforcement & Ors.,
(2005) 4 SC 530 CB ; (2005) 5 SC 267 CB, relied on.

3.2 No independent and separate notice is necessary and when, in the "'-
show-cause notice issued under section 276B read with section 278B, it was
stated that the Directors were to be considered as principal officers under
E the Act and a complaint was filed, such complaint is entertainable by a Court
provided it is otherwise maintainable. Hence, the sanction to prosecute granted
by the second respondent cannot be held illegal or unlawful nor the complaint
can be held bad in law. [Paras 45 and 46) (395-C-D)

Municipal Corporation of Delhi v. Ram Kishan Rohtagi & Ors., AIR
F (1983) SC 67; Municipal Corporation of Delhi v. Purshotam Dass
Jhunjunwala & Ors., AIR (1983) SC 158; Puran Devi & Ors. v. Z. S. Klar,
Income Tax Officer, (1988) 169 ITR 608; K. Subramanyam v. Income Tax Officer,
(1993) 199 ITR 723; Jamshedpur Engineering & Machine Manufacturing
Company Ltd v. Union of India & Ors., (1995) 214 ITR 556; M A. University
& Ors. v. Deputy Commissioner of Income Tax (Assessment) (1996) 218 ITR
G 606; Sham Sunder v. State of Haryana, [1989) 4 SCC 630; State of Karnataka
v.Pratap Chand & Ors., (1981) 2 SCC 335; Monaben Ketanbhai Shah &
Anr. v. State. of Gujarat & Ors., [2004) 7 SCC 15: JT (2004) 6 SC 309 and
S.MS. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr., (2005) 8 SCC 89: JT
'-
(2005) 8 SC 450, referred to.

H 4. Once a statute requires to pay tax and stipulates period within which
MADHUMILAN SYNTEX LTD. v. U.0.1. 381
A
such payment is to be made, the payment must be made within that period. If
the payment is not made within that period, there is default and an appropriate
action can be taken under the Act Interpretation canvassed by the appellant
that no prosecution can be ordered against them since the TDS was deposited
and that there was no default, would make the provision relating to prosecution
nugatory. (Paras 48) (395-G) B
Vinar & Co. & Anr. v. Jncome Tax Officer & Ors., (1992) 193 ITR 300
Cal, disapproved.

5. The contention of the appellant that. the case is squarely covered by
section 278AA of the Act and that no offence has been committed in view of C
'reasonable cause' shown by the appellants cannot be upheld since that
question can be decided on the basis of evidence which would be adduced by
the parties before a competent Court [Para 50) [396-B]

6. The provision for imposition of penalty for non-payment of tax under
the Act does not take away the power to prosecute accused persons if an D
offence has been committed by them. [Para 51) (396-C-D)

Rashida Kamaluddin Syed & Anr. v. Shaikh Saheblal Mardan (Dead)
through Lrs. & Anr., JT (2007) 4 SC 159, relied on.

7. The prosecution could not be over in view of the fact that applications E
were made by the appellants for their discharge under Section 245 Cr.P.C.
initially in the trial Court, then in the Sessions Court and then in the High
Court. Even after dismissal of the petition by the High Court Even after
dismissal of the petition by the High Court, the appellants approached this
Court and obtained interim stay of further proceedings. It is because of the F
pendency of the proceedings and grant of interim relief that the case remained
pending. It, therefore, cannot be urged that there was failure, negligence or
inaction on the part of the prosecuting agency in not proceeding with the
matter. The ground of delay cannot help the appellants.
(Para 53) (396-H; 397-A]
G
-- 1999.
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 1377 of

From the Judgment and Order dated 12.3 .1999 of the High Court of
Madhya Pradesh, Indore Bench at Indore in M.C.R. No. 4703/1998.
H
Ranjit Kumar and Binu Tamta for the Appellants.
382 SUPREME COURT REPORTS [2007] 4 S.C.R.

A K. Radhakrishnan, Tufail A. Khan, K.K. Dhawan, and B.V. Balararn Das
for the Respondents.

The Judgment of the Court was delivered by

C.K. THAKKER, J. I. The present appeal is filed by the appellants
B against an order passed by the High Court of Madhya Pradesh {Indore
Bench) on March I2, I999 rejecting in limine Miscellaneous Criminal Petition
No. 4730of1998.

2. The facts giving rise to the present appeal are that appellant No. I
Madhumilan Syntex Ltd. is a Public Limited Company registered under the
C Companies Act, 1956. Appellant Nos. 2 to 4 are its Directors. Appellant-
Company deals in the production and business of yarn at Madhumilan Cinema
Building, Ahata. The tax assessment of the Company is done by the Deputy
Commissioner of Income Tax (Tax Assessment), Special Range No. I, Indore.
It was the case of the respondents that for the Assessment Year 1989-90,
D Returns were submitted by the Company on December 29, 1989. On verification
of the Returns, it was found that though an amount of Rs.i,29,348/- was
deducted by the Company as Tax Deducted at Source ('TDS' for short), it was
not credited by the Company in the account of the Central Government as
required by Sections l 94C and 200 of the Income Tax Act, 1961 (hereinafter _
referred to as 'the Act') read with Rule 30 of the Income Tax Rules, I 962 ··
E (hereinafter referred to as "the Rules"). It is, however, not in dispute that the
amount ofTDS was credited by the Company with interest later on. But there
was delay on the part of the Company in depositing such amount. Income Tax
Officer (TDS), Bhopal, therefore, issued a notice to the appellants on March
l I, 1999 alleging therein that there was failure to credit TDS to the Central
F Government as required by Section 276B of the Act by them. The appellants
had thus committed an offence punishable under Section 278~ of the Act. A
show-cause notice was, therefore, issued against the appellant-Company as
also against appellant Nos. 2 to 4 (and one Smt. Chandraprabha Modi) being
principal officers of the appellant-Company. The Income Tax Officer, TDS,
Bhopal asked the appellants to show-cause as to why proceedings should
G not be initiated against them. The appellants were asked to submit their reply
on or before March I 8, 1991 failing which it would be presumed that they had
nothing to say in the matter and action would be taken accordingly. It was
also stated in the notice that the appellant Nos. 2 to 4 (and Smt. Chandraprabha ·
--
·Modi) were to be considered as 'principal officer' within the meaning of
H Section 2(35) of the Act.
MADHUMILAN SYNTEX LTD. v. U.0.1. [C.K. THAKKER, J.] 383

3. The appellants filed a reply to the show-cause notice raising various A
objections. It was, inter alia, contended that they had not committed any
offence nor violated provisions of the Act. It was stated that it was not a case
of'no payment' ofTDS. The amount of tax along with interest had been paid
and statutory provisions had been complied with. There was some delay in
receiving loan from Industrial Development Bank of India (IDBI) due to which B
TDS could not be paid in time. Moreover, because of construction of one unit
by the Company, there was shortage of liquid funds and hence the payment
could not be made. There was thus a 'reasonable cause' for non-payment of
amount within the prescribed period but the payment had been made with
interest and there was no loss to Revenue. It was, therefore, submitted that
no case had been made out for taking action against the appellants and notice C
was required to be revoked.

4. The Commissioner of Income Tax, Bhopal-respondent No. 2 herein,
vide his order dated February 4, 1992 granted sanction to prosecute appellants
under Section 279 of the Act observing therein that the assessee had committed
default under Section l 94C of the Act in paying TDS to the credit of the D
Central Government. It was also observed that the reason put forward by the
Company was not correct. He, therefore, granted sanction to prosecute the
appellant-Company as well as the Directors of the Company. In view of
sanction to prosecute, accorded by the Commissioner, a complaint was filed
against the appellants on February 26, 1992 in the Court of the Additional E
Chief Judicial Magistrate (Economic Crime), Indore.

5. The appellants filed applications under Section 245 of the Code of
Criminal Procedure, 1973 (hereinafter referred to as 'the Code') for discharge
from the case contending that they had not committed any offence and the
provisions of the Act had no application to the case. It was alleged that p
proceedings were initiated mala fide. In several other similar cases, no
prosecution was ordered and the action was arbitrary as also discriminatory.
Moreover, there was 'reasonable cause' for delay in making payment and the
case was covered by Section 278AA of the Act. The Directors further stated
that they could not be treated as 'principal officers' under Section 2(35) of
the Act and it was not shown that they were 'in charge' of and were G
'responsible for' the conduct of business of the Company. No material was
placed by the complainant as to how the Directors participated in the conduct
of business of the Company and for that rec.:son also, they should be discharged.

6. The trial Court, however, rejected the prayer of the appellants. H
384 SUPREME COURT REPORTS (2007] 4 S.C.R.

A According to the Court, the contention raised by the appellants required
evidence as to whether a particular accused was or was not a 'principal
officer' of the Company and it can be considered only at the trial and an
appropriate decision could be taken. According to the Court over and above
the Company, other accused persons wt.re Directors and as they were treated
B as principal officers, the prayer for discharge could not be granted. The
applications were accordingly rejected.

7. The appellants being aggrieved by the above order of the trial Court,
filed Revision Petition being Criminal Revision No. 358of1994 in the Court
of the Sessions Judge, Indore under Section 397 read with Section 399 of the
C Code. The First Additional Sessions Judge, Indore (MP), vide his order dated
July 10, 1998 rejected the revision filed by the appellants-applicants and
confirmed the order passed by the trial Court.

8. The appellants moved the High Court of M.P. (Indore Bench), by
filing Miscellaneous Criminal Petition under Section 482 of the Code on
D December 14, 1998. It appears that the petition was dismissed for defau'tt of
appearance on February 2, 1999. An application for restoration was filed on
March 12, 1999 which was allowed and the matter was restored to file but was
heard on the same day, and by the impugned order, it ~as summarily rejected.
The said order has been challenged by the appellants in this Court.

E 9. On July 26, 1999, notice was issued and further proceedings were
stayed. Leave was granted on December 15, 1.999 and stay was ordered to
continue. The matter has now been placed for final hearing before us.

10. We have heard learned counsel for the parties.

F 11. Mr. Ranjit Kumar, Senior Advocate appearing for the appellants
raised several contentions. He submitted that the orders passed by the Courts
below as well as by the High Court deserve to be set aside. According to him,
the present case is neither a case of 'non deduction' of tax nor of 'non
payment' of tax. The tax required to be deducted at source had been deducted
G by the Company and the said amount had ·also been credited in the account
of Central Government. Only thing was that there was some delay on the part
of the Company in crediting the amount. In some cases, there was delay of
few days only (two days). As such, there was no reason to prosecute the
Company and/or its Directors. It also cannot fall within _the mischief of the
Act so as to give rise to criminal liability. It was also submitted that Company
H is not a natural person but merely a legal or juristic person and hence it
•• MADHUMILAN SYNTEX LTD. v. U.O.l. [C.K. THAKKER, J.) 385
cannot be punished. If it is so, obviously, for such act, Directors or Officers A
of the Company also cannot be punished. The action of the respondents,
therefore, is illegal and not warranted by law. The counsel also submitted that
... .,.,- appellant Nos. 2 to 4 cannot be said to be 'principal officers' under the Act
and no prosecution can be initiated against them. It was urged that to be a
'principal officer' with reference to a Company, it must be shown that such
person is "connected with the management or administration of the Company" B
and who has been served with a notice that he would be treated as principal
officer of the Company. No such notice had been issued by the respondents.
Notice which had been issued in the instant case is to show cause as to why
prosecution should not be launched against them as they were to be treated
as principal officers under the Act. Such notice cannot be said to be a notice C
to treat a particular officer as 'principal officer' under the Act. It was also
submitted that criminal prosecution is a drastic step and should not be taken
lightly particularly when there are several provisions in the Act providing for
payment of interest, penalty, etc. Recourse to prosecution should be had as
a last resort. According to the appellants, there was non-application of mind
on the part of the second respondent-Commissioner oflncome Tax in granting D
sanction under Section 279 of the Act. The second respondent has not
considered the relevant facts, reasons and grounds relied upon by the
appellants as to why the amount could not be deposited. The circumstances
pleaded by the appellants in their reply to the show cause notice clearly
disclosed that there was 'reasonable cause' for delay in depositing the amount E
and it was not a fit case for prosecution of appellants .

•2. The counsel also urged that in any case, appellant No.4 is a lady
who cannot be said to be in charge of business or management and at least
to that extent, the order to prosecute her is not sustainable.
F
13. As to the order passed by the High Court, it was submitted that on
two grounds the order deserves to be set aside. Firstly, the matter was
dismissed for default and when application for restoration was filed, the High
Court allowed the application, restored the matter but insisted the appellants
to proceed with the matter on merits on the same day which could not have
been done. Secondly, the petition was dismissed summarily by a cryptic order G
without recording reasons. The matter raised important questions of law
which could not have been dismissed in such a manner.

14. Finally, it was submitted that the so called default relates to 1989- '
90, and almost two decades have passed. Moreover, the Revenue has not
H
386 SUPREME COURT REPORTS (2007] 4 S.C.R.

A suffered. In the facts and circumstances, therefore, by exercising plenary
powers under Article 136 read with Article 142 of the Constitution, the
proceedings may be ordered to be dropped even if they could have been
taken. The appellants had suffered a lot and this Court may now close the
F
proceedings.

B 15. Mr. K. Radha Krishnan, Senior Advocate for the respondents, on the
other hand, supported the order passed by thf' Courts below. According to
him, when the tax was deducted at source and was not paid within the
prescribed period and sanction to prosecute the appellants was granted by
the second respondent, the action of filing a criminal complaint cannot be said
C to be illegal, unlawful or otherwise objectionable. Other points as to 'reasonable
cause', circumstances in which the payment could not be made within the
statutory period and other defences can be considered at the time of trial and
not now. At the stage of framing of chaige, the Court only considers whether
prima facie case has been made out. Once there is material to show that the
amount was not paid in the manner provided by law, proceedings cannot be
D quashed.

16. Having given anxious and thoughtful consideration to the rival
contentions of the parties, in our opinion, it cannot be said that by ordering
charges to be framed, any illegality has been committed by the trial Court.

E 17. As far as an objection against the order passed by the High Court
is concerned, we are not impressed by the argument of the learned counsel.
It is true that the petition was dismissed for default on 2nd February, 1999.
It is also true that an application for restoration of the matter was made by
the appellants on March 12, 1999 and the matter w::is restored to file asking
F the advocate for the applicants to argue the case. But, it cannot be contended
that the <;ourt could not have insisted on the appellants-applicants and/or
I=
their counsel to proceed to conduct the case on merits. We have come across
J-
several cases in High Courts as well as in this Court where a case is dismissed I

for default to secure the presence of the learned counsel. Normally, when the
matter is called out and the advocate is absent, a Court may adjourn the
G matter to next date of hearing. But it may also dismiss the matter for default
so as to secure appearance of the advocate. He may apply for restoration •
,..____

of the case either by written application or by oral prayer and the Court may
restore it asking him to argue the case so tha£ an appropriate order may be
passed on merits. Appearance of a party or his advocate and prayer for
H recalling an order of dismissal for default may be a good ground for restoring
MADHUMILAN SYNTEX LTD. v. U.0.1. [C.K. THAKKER, J.] 387

the matter but it ca?not be said to be a good ground for restoration of the A
matter for hearing ih future. In other words, a matter may be restored for
hearing and not for1 adjournment. We are, therefore, unable to uphold the
argument of the learned counsel that the Court could not have insisted on
the advocate to argJe die matter after the order of dismissal for default was
recalled and restoration was ordered.
B
18. Similarly, we do not see force in the contention that the petition
could not have been dismissed in limine without recording reasons. It was not
a substantive appeal which was heard by a Court. An application for discharge
of accused was rejected by the trial Court. Revision petition was also dismissed
by the Sessions Court and the said order was challenged before the High C
Court under Section 482 of the Code (Inherent power of High Court). If the
High Court did not think it fit to exercise inherent powers in the light of the
controversy raised, question involved and the stage at which the applicants
had approached the Court, it cannot be said that the Court must pass detailed
speaking order or record reasons in support of such order. That contention
also, therefore, has no force. D
19. Before adverting to the controversy raised in the appeal, it is
necessary to consider the relevant provisions of the Act. Chapter XVII deals
with "Collection and Recovery of Tax" and 'Deduction at Source' in certain
cases. It requires certain persons to deduct tax at source and also consequences
of failure to deduct or pay such tax. Whereas Section 200 provides that any E
person deducting any sum under the Act has to pay within the prescribed
period the sum so deducted to the credit of the Central Government, Section
201 Jays down consequences of failure to deduct or to pay such tax.

20. Chapter XXII relates to offences and prosecutions. Section 276B
deals with "Failure to pay tax. The section at the relevant time read as under;
F

"276B. Failure to pay the tax deducted at source. If a person fails
to pay to the credit of the Central Government, the tax deducted at
source by him as required by or under the provisions of Chapter XVII-
B he shall be punishable with rigorous imprisonment for a term which G
shall not be less than three months but which may extend to sev~n
years and with fine."

21. Section 278B covered cases where offences were committed by
Companies. The section: stated;
.
H
388 SUPREME COURT REPORTS [2007) 4 S.C.R.
-·
A "278B. Offences by companies. (I) 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
the company shall be deemed to be guilty of the offence and shall be
liable to be proceeded against and punished accordingly.
B
Provided that nothing contained in this sub-section shall render any
such person liable to any punishment 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.

c (2) Notwithstanding anything contained in sub-section (I); 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
D guilty of that offence and shall be liable to be proceeded against and
punished accordingly.

Expianation.-For the purposes of this section,-

(a) "company" means a body corporate, and includes
E
(i) a firm; and

(ii) an association of persons or a body of individuals whether
incorporated or not; and

(b) "director", in relation to-
F
(i) a firm, means a partner in the firm;

(ii) any association of persons or a body of individuals, means
any member controlling the affairs thereof."

G 22. Clause (20) of Section 2, inter a/ia, defines 'Director' in relation to
a Company having the meaning assigned to it in the Companies Act, 1956.
[Section 2(13) ofthe Companies Act, 1956 defines 'Director'. The definition
is inclusive and includes "any person occupying the position of Director by
whatevel"' name called"]. Clause (31) of Section 2 defines 'person' which
H includes Company. Clause (35) defines 'principal officer' and it reads; l'
389

-
MADHUMILAN SYNTEX LTD. v. U.0.1. [C.K. THAKKER, J.]

"(35) "principal officer", used with reference to a local authority or a A
company or any other public body or any association of persons or
any body of individuals, means-

(a) the secretary, treasurer, manager or agent of the· authority, company,
association or body; or
B
(b) any person connected with the management or administration of
the local authority, company, association or body upon whom the
Assessing Officer has served a notice of his intention of treating him
as the principal officer thereof."

23. From the above provisions, it is clear that wherever a Company is C
required to deduct tax at source and to pay it to the account of the Central
Government, failure on the part of the Company in deducting or in paying
such amount is an offence under the Act and has been made punishable. It,
therefore, cannot be said that the prosecution against a Company or its
Directors in default of deducting or paying tax is not envisaged by the Act.
D
24. It is no doubt true that Company is not a natural person but 'legal'
or 'juristic' person. That, however, does not mean that Company is not liable
to prosecution under the Act. 'Corporate criminal liability' is not unknown to
law. The law is well settled on the point and it is not necessary to discuss
it in detail. We may only refer to a recent decision of the Constitution Bench E
of this Court in Standard Chartered Bank & Ors. v. Directorate ofEnforcement
& Ors., [2005] 4 SCC 530: JT (2005) 5 SC 267. In Standard Chartered Bank,
it was contended on behalf of the Company that when a statute fixes criminal
liability on corporate bodies and also provides for imposition of substantive
sentence, it could not apply to persons other than natural persons and
Companies and Corporations cannot be covered by the Act. The majority, F
however, repelled the contention holding that juristic person is also subject
to criminal liability under the relevant law. Only thing is that in case of
subst~ntive sentence, the order is not enforceable and juristic person cannot
be ordered to suffer imprisonment. Other consequences, however, would
ensue, e.g. payment of fine etc.
G
25. K.G. Balakrishnan, J. (as His Lordship then was), speaking for the
majority, summarized the law thus:

"As the company cannot be sentenced to imprisonment, the court
cannot impose that punishment, but when imprisonment and fine is
·' the prescribed punishment the court can impose the punishment of H
390 SUPREME COURT REPORTS [2007] 4 S.C.R.

A fine which could be enforced against the company. Such a discretion
is to be read into the Section so far as the juristic person is concerned.
Of course, the court cannot exercise the same discretion as regards ·
a natural person. Then the court would not be passing the sentence
in accordance with law. As regards company, the court can always
impose a sentence of fine and the sentence of imprisonment can be
B ignored as it is impossible to be carried out in respect of a company.
This appears to be the intention of the legislature and we find no
difficulty in construing the statute in such a way. We do not think that
there is a blanket immunity for any company from any prosecution for
serious offences merely because the prosecution would ultimately
c entail a sentence of mandatory imprisonment. The corporate bodies,
such as a firm or company undertake series of activities that affect the
life, liberty and property of the citizens. Large scale financial
irregularities are done by various corporations. The corporate vehicle
now occupies such a large portion of the industrial, commercial and
sociological sectors that amenability of the corporation to a criminal
D law is essential to have a peaceful);ociety with stable economy."

26. In our opinion, therefore, it cannpt be successfully contended that -'-.
prosecution could not have been ordered against the Company and no c'llirge
could have been framed.

E 27. So far as Directors are concerned, it is alleged in the show-cause
notice as well as in the complaint that they were 'principal officers' of the
Company. In the show-cause notice, it was asserted that the appellants were
considered as principal officers under Section 2(35) of the Act. In the complaint
also, it was stated that the other accused were associated with the business
F of the Company and were treated as principal officers under Section 2(35) of
the Act and hence they could be prosecuted. Dealing with an application for
discharge, the trial Court observed that accused No. I was Company whereas
other accused were Directors. Whether they could be said to be principal
officers or not would require evidence and it could be considered at the stage
of trial and the application was rejected. In Revision, the First Additional
G Sessions Judge took similar view.

28. The learned counsel contended that the Courts committed an error
of law in ordering prosecution against the Directors. The counsel, in this
connection, invited our attention to certain decisions. In Municipal
H Corporation of Delhi v. Ram Kishan Rohtagi & Ors.. AIR (1983) SC 67, the
MADHUMILAN SYNTEX LTD. v. U.0.1. [C.K. THAKKER, J.) 391
accused invoked the jurisdiction of the High Court under Section 482 of the A
Code praying for quashing of criminal proceedings initiated against them
under the Prevention of Food Adulteration Act, 1947. Whereas accused No.
I was Manager of the Company, accused Nos. 2-5 were Directors. A complaint
was filed by the Food Inspector of the Municipal Corporation, inter alia,
alleging that 'Morton toffees' sold by the accused did not conform to the
standards prescribed for the commodity. The Metropolitan Magistrate issued B
summons to all the accused for violating the provisions of the Act. It was
contended on behalf of the accused that proceedings were liable to be
quashed as it was not shown that accused persons were in~charge of and
responsible for the conduct of business. The High Court allowed the petition
and quashed the proceedings. Aggrieved Municipal Corporation challenged C
the decision. This Court was called upon to consider as to whether the High
Court was right in quashing the proceedings against the accused.

29. The Court reproduced clause (5) of the complaint which read thus-

"That the accused No. 3 is the Manager, of accused No. 2 and D
accused Nos. 4 to 7 are the Directors of accused No. 2 and as such
,>
they were in charge of and responsible for the conduct of business
of accused No. 2 at the time of sampling."

(emphasis supplied)
E
30. Considering the above clause, this Court held that as far as the
Manager was concerned "it was not and could not be reasonably argued that
no case is made out against him because from the very nature of his duties,
it is manifest that he must-be in the knowledge about the affairs of the sale
and manufacture of the disputed sample". But so far as accused Nos. 4 to
7 were concerned, it was alleged that they were Directors. Interpreting the F
words 'as such' the Court observed that there was no clear averment that the
Directors were in charge of and responsible for the conduct of business and
· the complainant has merely presumed that the Directors of the Company must
be guilty because they were holding a particular office.

31. This Court, in the circumstances, observed; G

"So far as the Manager is concerned, we are satisfied that from
,.,,...,-! the very nature of his duties it can be safely inferred that he would
undoubtedly be vicariously liable for the offence, vicarious liability
• being an incident of an offence under the Act. So far as the Directors
H
392 SUPREME COURT REPORTS (2007] 4 S.C.R.

A are concerned, there is 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 the Directors from
which a reasonable inference can be drawn that they could also be
vicariously liable. In these circumstances, therefore we find ourselves
in complete agreement with the argument of the High Court that no
B case against the Directors (accused Nos .. 4 to 7) has been.made out
ex facie on the allegations made in the complaint and the proceedings
against them were rightly quashed."

32. A similar question came up for consideration before the Court in
C Municipal Corporation of Delhi v. Purshotam Dass Jhunjunwala & Ors.,
AIR (1983) SC 158. There also, a complaint was filed under the Prevention
of Food Adulteration Act, 1947 against the Directors of the Company.

33. In para 5 of the complaint, it was stated;

"That accused Ram Kishan Bajai is the Chairman, accused R.P.
D Neyatia is the Managing Director and accused Nos. 7 to 12 are the
Directors of the Hindustan Sugar Mills Ltd and were in charge ofand
responsible to it for the conduct of its business at the time of
commission of offence. "

(emphasis supplied)
E
34. Setting aside the order of the High Court quashing the proceedings
against the Directors and distinguishing Ram Kishan Rohtagi, the Court held
that there was a clear averment as to the active role played by the accused
and the extent of their liability. Aprimafacie case for summoning of accused
F was, therefore, made out and the High Court was wrong in ·holding that
allegations were vague. Further details could be given only in evidence.

35. In Puran Devi & Ors. v. Z.S. Klar, Income Tax Officer, (1988)169
ITR 608, the High Court of Punjab & Haryana held that a person or a partner
of a firm prosecuted for false verification of return must have been in charge
G of and responsible to the firm for the conduct of its business. Necessary
allegations, therefore, must be made in the complaint.

36. In K. Subrarrianyam v. Income Tax Officer, (1993) 199 ITR 723, the _._,....,
High Court of Madras held that before prosecuting'! person under the·Act,
it must be proved that the person was 'in charge' of and 'responsible to' the
H Firm or Company for the conduct of business. The Court observed that the
'
-+
MADHUMILAN SYNTEX LTD. v. U.0.1. [C.K. THAKKER. J.] 393
.... word used is 'and' and not 'or'. Both the ingredients, therefore, have to be A
pleaded and proved by the prosecution and the burden is on the prosecution
that the accused was 'in charge of and 'responsible to' the Finn or Company.

37. In Jamshedpur Engineering & Machine Manufacturing Company
Ltd. & Ors. v. Union of India & Ors., (1995) 214 ITR 556, the High Court of
Patna (Ranchi Bench) held that no vicarious liability can be fastened on all B
Directors of a Company. If there are no averments in the complaint that any
Director was 'in charge of or 'responsible for' conduct of business,
prosecution against those Directors cannot be sustained.

38. In MA. University & Ors. v. Deputy Commissioner of Income Tax
(Assessment), (1996) 218 ITR 606, the High Court of Kerala held that when C
there was failure to deduct tax at the source by a firm, prosecution can be
launched for violating the provisions of the Act against the Firm. But if the
complaint is filed against partners also, there must be specific allegation that
such partners were responsible for conduct of business of firm. In absence
of such allegation, proceedings against the partners cannot continue. D

) 39. Attention of the Court was also invited to a decision of this Court
in Sham Sunder v. State of Haryana, [1989] 4 SCC 630. In Sham Sunder,Jhis
Court indicated that it is not uncommon that some of the partners of a firm
may not even be knowing what is going on day to day in the firm. There
may be partners known as 'sleeping partners' who are not required to take E
any part in the business of the firm. Then there may be ladies and minors
who are admitted to the partnership firm only for the benefit of business.
They also may not be aware about the business of the firm. It would be a
travesty of justice to prosecute all the partners and ask them to prove that
the offence was committed without their knowledge. The requisite condition, F
according to this Court, was that it is for the prosecution to prove that the
partner was responsible for carrying on business and was, during the relevant
time, in charge of the business.

40. Reference was also made to State of Karnataka v. Pratap Chand &
Ors., [1981] 2 SCC 335. In that case, this Court held that 'person in charge' G
would mean a person in over all control of day to day business. A person
who is not in over all control of such business cannot be held liable and
convicted for the act of firm.

41. In Monaben Ketanbhai Shah & Anr. v. State of Gujarat & Ors.,
[2004] 7 sec 15: JT (2004) 6 SC 309, dealing with the provisions of Sections H
394 SUPREME COURT REPORTS [2007] 4 S.C.R.

A 138 and 141 of the Negotiable Instruments Act, 1881, this Court observed that
when a complaint is flied against a firm, it must be alleged in the complaint
that the partners were in active business. Filing of the partnership deed
would be of no consequence for determining the question. Criminal liability
can be fastened only on those who at the time of commission of offence were
B in charge of and responsible for the conduct of business of the firm. The
Court proceeded to observe that it was because of the fact that there may
be sleeping partners who were not required to take any part in the business
of the firm; there may be ladies and others who may not be knowing anything
about such business. The primary responsibility is on the complainant to
make necessary averments in the complaint so as to make the accused
C vicariously liable. "For fastening the criminal liability, there is no presumption
that every partner knows about the transaction. The obligation of the appellants
to prove that at the time the offence was committed they were not in charge
of and were not responsible to the firm for the conduct of the business of
the firm, would arise only when first the complainant makes necessary
averments in the complaint and established that fact."
D
42. Finally, the counsel referred to S.MS. Pharmaceuticals Ltd v. Neeta
Bhalla & Anr., [2005] 8 SCC 89 : JT (2005) 8 SC 450, wherein this Court held
that essential averments must be made in the complaint that the person
against whom complaint is made was in charge of and responsible for the
E conduct of business of the Company. Without such averment, no criminal
liability would arise.

43. From the statutory provisions, it is clear that to hold a person
responsible under the Act, it must be shown that he/she is a 'principal officer'
under Section 2(35) of the Act or is 'in charge of and 'responsible for' the
F business of the Company or Firm. It is also clear from the cases referred to
above that wl;iere necessary averments have been made in the complaint,
ini~iation of criminal proceedings, issuance of summons or framing of charge,
cannot be held illegal and the Court would not inquire into or decide
correctness or otherwise of the allegations levelled or averments made by the
complainant. It is a matter of evidence and an appropriate order can be passed
G at the trial.

44. In the case on hand, in the show cause notice dated March 11, 1991
issued under Section 2768 read with Section 2788 of the Act, it was expressly
stated by the Income Tax Officer, TDS, Bhopal that the Directors were
H considered to be Principal Officers under Section 2(35) of the Act. In the
+ MADHUMILAN SYNTEX LTD. v. U.0.I. [C.K. THAKKER, J.] 395
complaint dated February 26, 1992 filed by respondent No.2-Commissioner A
also, it was stated that appellants were considered as Principal Officers. In the
above view of the matter, in our opinion, contention of the learned counsel
for the appellants cannot be accepted that the complaint filed against the
appellants, particularly against appellant Nos. 2-4 is ill-founded or not
maintainable.
B
45. It was urged that a separate notice and/or communication ought to
have been issued before issuance of show cause notice under Section 276
B read with Section 278B of the Act that the Directors were to be treated as
Principal Officers under the Act. In our opinion, however, no such independent
and separate notice is necessary and when in the show cause notice it was C
stated that the Directors were to be considered as Principal Officers under the
Act and a complaint was filed, such complaint is entertainable by a Court
provided it is otherwise maintainable.

46. In view of the aforesaid discussion, the sanction to prosecute
granted by the second respondent cannot be held illegal or unlawful nor the D
complaint can be held bad in law.
)
47. The next contention that since TDS had already been deposited to
the account of the Central Government, there was no default and no
prosecution can be ordered cannot be accepted. Mr. Ranjit Kumar invited our
attention to a decision of the High Court of Calcutta in Vinar & Co. & Anr. E
v. Income Tax Officer & Ors., (1992] 193 ITR 300. Interpreting the provisions
of Section 276B, a Single Judge of the High Court observed that "there is no
provision in the Income Tax Act imposing criminal liability for delay in
deduction or for non-payment in time. Under Section 2768, delay in payment
of income tax is not an offence". According to the learned Judge, such a F
provision is subject to penalty under Section 201 (I) of the Act.

48. We are unable to agree with the above view of the High Court. Once
a statute requires to pay tax and stipulates period within which such payment
is to be made, the payment must be made within that period. If the payment
is not made within that period, there is default and an appropriate action can G
be taken under the Act. Interpretation canvassed by the learned counsel
would make the provision relating to prosecution nugatory .

.- 49. The learned counsel is right in stating that one of the appellan!s is
a female-member. The counsel is also right in contending that in some of the
cases referred to by him, this Court held that normally a lady member may not H
396 SUPREME COURT REPORTS [2007] 4 S.C.R.

A be aware of day to day business of the Firm or the Company. Without laying :. . _
down general rule, it would be sufficient if we observe that in the case on
hand, she was also treated as 'principal officer' under the Act and hence
proceedings cannot be dropped at this stage against her.

50. As to contention that the case is squarely cov~red by Section
B 278AA of the Act and that no offence has been committed in view of
'reasonable cause' shown by the appellants, we may state that the question
can be decided on the basis of evidence which would be adduced by the
parties before a competent Court. Hence, even that contention, does not ,...
detain us.
c . 51. It is true that the Act provides for imposition of penalty for non
payment of tax. That, however, does not take away the power to prosecute
accused persons if an offence has been committed by them. A similar
., contention was raised before this Court in Rashida Kama/uddin Syed & Anr.
v. Shaikh Saheb/a/ Mardan (Dead) Through LRs & Anr., JT (2007) 4 SC 159
D that since a civil suit was filed for recovery of amount, no criminal proceedings
could have been initiated.

52. Negating the contention, one of us (C.K. Thakker, J.) stated;

"Finally, the contention that a civil suit is filed by the complainant
E and is pending has also not impressed us. If a civil suit is pending,
an gppropriate order will be passed by the competent Court. That,
however, does not mean that if the accused have committed any
offence, jurisdiction of criminal court would be ousted. Both the
proceedings are separate, independent and one cannot abate or
defeat the other."
F
(emphasis supplied)

53. It is true that the matter relates to remote past. Alleged non-payment
of TDS pertains to 1989-90. It is also true that the complaint was filed in the
beginning of 1992 and more than fifteen years have passed but it cannot be
G ignored that prosecution could not be over in view of the fact that applications
were made by the appellants for their discharge under Section 245 of the Code
initially in the trial Court, then in the Sessions Court and then in the High
Court. Even after dismissal of the petition by the High Court, the appellants
approached this Court and obtained interim stay of further proceedings. It is
H because of the pendency of proceedings and grant of interim relief that the
+
MADHUMILAN SYNTEX LTD. v. U.0.1. [C.K. THAKKER, J.] 397

case remained pending. It, therefore, cannot be urged that there was failure, A
__ negligence or inaction on the part of the prosecuting agency in not proceeding
with the matter. The ground of delay, in our considered opinion, cannot help
the appellants.

54. Finally, the learned counsel submitted that an appropriate direction
may be issued to the trial Court so that personal presence of respondent Nos. B
2-4 may be dispensed with and they may be granted exemption from
appearance. Jn our opinion, it would not be appropriate to issue such direction
to the Court. We have, however, no doubt that if such a prayer is made by
the appellants, the Court would consider the prayer in its proper perspective
and will pass an appropriate order. If personal presence of appellant Nos. 2- C
4 is not necessary, the Court would grant exemption on such terms and
conditions as it would think appropriate.

55. For the foregoing reasons, the appeal deserves to be dismissed and
is hereby dismissed.
D
56. Before parting with the matter, however, we may clarify that we have
} not entered into merits of the matter and have decided the question raised
by the appellants as to maintainability of criminal complaint. We may not be
understood to have expressed any opinion one way or the other on merits
and as and when the matter will come up for trial, it will be decided strictly
on its own merits without being inhibited by the observations made by us E
hereinabove. All contentions of all parties are kept open.

B.S. Appeal dismissed.