Case Note & Summary
The petitioner, Anish Modi, was an independent non-executive nominee director of S. Kumar Nationwide Limited from 27 June 2007 to 12 November 2011. For the financial year 2008-2009, the company failed to deposit TDS of Rs.2,98,29,252 within the prescribed period, though the amount was subsequently paid in September 2010. Respondent No.1, the Union of India through the Assistant Commissioner of Income Tax (TDS), filed a criminal complaint against the company and its directors, including the petitioner as accused No.8, for offences under Section 276-B read with Section 278-B of the Income Tax Act, 1961. The learned Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai, issued process on 18 February 2014 and later issued fresh summons on 21 July 2022. The petitioner claimed he became aware of the proceedings only on 5 September 2022 when he received a copy of the summons. He filed a writ petition seeking to quash the criminal case and the orders issuing process. The main legal issue was whether criminal proceedings could be sustained against a nominee director without specific allegations regarding his role and responsibility. The petitioner argued that the complaint lacked specific averments about his involvement, that he was not the principal officer under Section 2(35) of the Act, and that the process was issued mechanically. The respondent contended that the petitioner was a director and thus liable under Section 278-B. The court analyzed the provisions of Section 278-B, which deems a person in charge of and responsible for the conduct of the business at the time of the offence to be guilty, and noted that the complaint did not contain any specific allegations against the petitioner. The court held that in the absence of such allegations, the proceedings against the petitioner were an abuse of process and liable to be quashed. The court also observed that the order issuing process was mechanical and without application of mind. Consequently, the court allowed the petition, quashed the criminal case against the petitioner, and set aside the orders dated 18 February 2014 and 21 July 2022 insofar as they pertained to him.
Headnote
A) Criminal Law - Quashing of Criminal Proceedings - Lack of Specific Allegations - Sections 276-B, 278-B, Income Tax Act, 1961 - The petitioner, an independent non-executive nominee director, was arrayed as accused for failure to deposit TDS. The complaint did not contain any specific averments about his role or that he was in charge of and responsible for the conduct of the business. Held that in the absence of such allegations, the proceedings are an abuse of process and liable to be quashed (Paras 8-10). B) Criminal Procedure - Issuance of Process - Mechanical Order - Section 204, Code of Criminal Procedure, 1973 - The Magistrate issued process without application of mind, merely reproducing the complaint allegations. Held that the order issuing process must reflect due application of judicial mind, and a mechanical issuance is unsustainable (Paras 7, 11). C) Company Law - Liability of Directors - Nominee Director - Section 278-B, Income Tax Act, 1961 - The petitioner was a nominee director of a financial institution and not involved in day-to-day management. The complaint did not allege that he was in charge of or responsible for the conduct of the business. Held that a nominee director cannot be automatically deemed liable for the company's default without specific averments (Paras 8-10).
Issue of Consideration
Whether criminal proceedings under Section 276-B read with Section 278-B of the Income Tax Act, 1961, can be sustained against an independent non-executive nominee director in the absence of specific allegations regarding his role and responsibility in the company's affairs.
Final Decision
The petition is allowed. The Criminal Case No.52/SW/2014 pending before the learned Additional Chief Metropolitan Magistrate, 38th Court, Ballard Pier, Mumbai, is quashed and set aside insofar as it pertains to the petitioner. The orders dated 18 February 2014 and 21 July 2022 are also set aside to the extent they relate to the petitioner. Rule is made absolute in those terms.
Law Points
- Criminal proceedings cannot be initiated against a director without specific averments regarding his role
- Issuance of process must be with application of mind
- Nominee director not liable unless shown to be in charge of and responsible for conduct of business
- Section 276-B requires mens rea or culpable negligence
- Section 278-B deems only those directors liable who were in charge at the time of offence
