2025 (11) TMI 1859 - HC - VAT / Sales Tax

Partial quashing of prosecution in forged C-Forms case under Sections 420, 467, 468 IPC and Section 10-A

Mohanlal Garg And Others Versus Surendra Singh Yadav

HC considered cognizance for offences under Sections 420, 467, 468 IPC and Section 10-A of the Central Sales Tax Act, 1956, based on use of forged C-Forms ... Cognizance taken against the petitioners for offences under Sections 420, 467 and 468 of IPC and Section 10-A of Central Sales Tax Act, 1956 - firm/company misappropriated a certain sales tax amount - forged C and F forms - HELD THAT:- The Divisional Deputy Commissioner, Gwalior Division-2, wrote letters to the Additional Commissioner, Commercial Tax, Zone 2, Ghaziabad (Uttar Pradesh) to verify the C-Forms of M/s Giriraj Enterprises. Upon verification, the respective Authorities informed the Gwalior office that the seal on the C-Form did not belong to his Office and was missing the office's section number. Furthermore, the Department's name had officially changed to Commercial Tax on 01.01.2008. However, the seal on the verified C-Form, purportedly issued on 20.02.2009, still bore the outdated department name, Trade Tax. Regarding M/s Giriraj Enterprises, its registration and business had been permanently closed since 19.06.2002. The fraudulent Form-C numbers 424577852, 323655472, and 414577851, submitted by the accused firm/company for assessment, are attached as Annexures 22 to 24. Now, the question arises regarding the fraud committed by the said firm in the Assessment Year 2007-08 and whether the present petitioners were associated with the company at that time. A perusal of the record shows that copies of the letters (annexed at Pages 40 & 61 of the petition) regarding the acceptance of the resignations of Petitioner No. 1 (Mohan Lal Garg) and Petitioner No. 3 (Gopal Das Garg) in the meeting of the Board of Directors of the Company are on record. The letters addressed to the Registrar of Companies on those dates, along with Form 32, are also on record, and their veracity has not been disputed by any counter-affidavit. Thus, it is clear that petitioner No. 1 (Mohanlal Garg) resigned from the company on 03.09.2005, and petitioner No. 3 (Gopal Das Garg) resigned on 01.09.1999. However, no document has been annexed with regard to the resignation of petitioner No. 2 (Govind Prasad Garg), except Form No. 32, which was filled by the Company itself and was not verified by the Registrar of Companies. Therefore, prima facie, the involvement of petitioner No. 2 in the alleged commission of the offence cannot be ruled out. Thus, it is clear that petitioner No. 1 (Mohan Lal Garg) and petitioner No. 3 (Gopal Das Garg) were not engaged as Directors in the firm at the time the fraud was committed. Therefore, this Court is of the considered view that, concerning petitioner No. 1 and petitioner No. 3, the consequential proceedings pending in R.C.T. No. 922 of 2024 before the Court of Judicial Magistrate First Class, Morena, arising out of the complaint filed by the respondent-Officer In-charge, are hereby quashed. The petition is allowed in part. 1. ISSUES PRESENTED AND CONSIDERED (1) Whether, in exercise of powers under Section 528 of BNSS, the criminal proceedings arising from cognizance taken under Sections 420, 467, 468 IPC and Section 10-A of the Central Sales Tax Act, 1956, could be quashed as against petitioners who had resigned from the company prior to the alleged commission of fraud in Assessment Year 2007-08. (2) Whether the material on record established that petitioner no. 1 and petitioner no. 3 were associated with or responsible for the affairs of the company at the time of the alleged tax fraud based on forged Form C and Form F declarations. (3) Whether, on the available material, the involvement of petitioner no. 2 in the alleged offences could be prima facie ruled out so as to warrant quashing of proceedings against him. (4) Whether the Trial Court ought to be directed to proceed against the responsible officers/Directors of the company who were in control at the relevant time when the fraud was allegedly committed. 2. ISSUE-WISE DETAILED ANALYSIS Issue (1) & (2): Power to quash proceedings under Section 528 BNSS and liability of former Directors who resigned prior to the alleged fraudulent acts Legal framework (as discussed) (a) The petition was filed under Section 528 of BNSS for quashing the order of cognizance and consequential criminal proceedings for offences under Sections 420, 467, 468 IPC and Section 10-A of the Central Sales Tax Act, 1956. (b) The Court considered the principle laid down in D.B. Negandhi, wherein criminal proceedings were quashed in respect of persons who had ceased to be Directors prior to the relevant period of alleged offence. (c) The Court referred to the wider principle from Dayal Singh v. State of Uttaranchal regarding the duty of Courts in criminal proceedings to ensure that while no innocent person is punished, a guilty person also does not escape, and that the Court must ensure a fair and objective process. Interpretation and reasoning (d) The complaint alleged that the company/firm submitted forged Form C and Form F declarations pertaining to Assessment Year 2007-08, to fraudulently obtain concessional tax and cause loss to the State exchequer. (e) The Court examined the documentary material produced by the petitioners, particularly the Board resolutions and communications to the Registrar of Companies along with Form 32, evidencing resignation of Directors:    (i) Petitioner no. 1 (Mohanlal Garg) - resignation accepted on 03.09.2005.    (ii) Petitioner no. 3 (Gopal Das Garg) - resignation accepted on 01.09.1999. (f) The Court noted that these documents, including letters to the Registrar of Companies and Form 32 for petitioner nos. 1 and 3, were on record and their veracity had not been disputed by any counter-affidavit. (g) The alleged fraudulent acts - submission of forged Form C and Form F declarations for tax assessment - related to Assessment Year 2007-08 and were based on forms furnished in 2010. On the admitted and undisputed record, petitioner nos. 1 and 3 had ceased to be Directors long before this period. (h) Applying the principle in D.B. Negandhi, the Court reasoned that a person who had resigned and was not a Director at the time when the alleged fraudulent transactions occurred cannot be held liable for the criminal acts of the company committed after such resignation. (i) The Court found no material to suggest that petitioner nos. 1 and 3 were signatories to, or responsible for, the submission of the disputed Form C and Form F declarations or that they were otherwise in charge of or involved in the conduct of business at the relevant time. (j) In light of the undisputed documentary evidence of resignation well before the relevant period and the absence of any contrary material, the Court held that continuation of criminal proceedings against petitioner nos. 1 and 3 would not be justified. Conclusions (k) The Court concluded that petitioner nos. 1 and 3 were not engaged as Directors of the company at the time when the alleged fraud for Assessment Year 2007-08 was committed, and no prima facie case was made out against them for the offences alleged. (l) Exercising powers under Section 528 of BNSS, the Court quashed the consequential proceedings in R.C.T. No. 922 of 2024 pending before the Judicial Magistrate First Class, Morena, arising out of the complaint, insofar as they related to petitioner nos. 1 and 3. Issue (3): Prima facie involvement of petitioner no. 2 and refusal to quash proceedings against him Interpretation and reasoning (a) As regards petitioner no. 2 (Govind Prasad Garg), the petitioners relied only on Form 32 to contend that he had resigned as Director prior to the relevant period. (b) The Court observed that, unlike in the case of petitioner nos. 1 and 3, no independent documents such as Board resolutions or contemporaneous letters evidencing acceptance of resignation of petitioner no. 2 were annexed, apart from Form 32. (c) The Court noted that Form 32 for petitioner no. 2 was merely filled by the company and was not shown to have been verified by the Registrar of Companies, thereby reducing its evidentiary weight at this stage. (d) On this basis, the Court held that, prima facie, the involvement of petitioner no. 2 in the alleged offences could not be ruled out at the threshold. Conclusions (e) The Court declined to quash the criminal proceedings against petitioner no. 2, holding that his possible involvement required to be examined in trial, and the petition was allowed only in part, i.e., confined to petitioner nos. 1 and 3. Issue (4): Direction to proceed against responsible officers/Directors at the relevant time Interpretation and reasoning (a) Having quashed the proceedings for two petitioners on the ground that they were not Directors at the time of the alleged fraud, the Court emphasised, consistent with the dictum in Dayal Singh, that criminal law must also ensure that guilty persons do not escape accountability. (b) The Court noted allegations of huge sales tax loss to the State exchequer on account of forged Form C and Form F declarations by the company in Assessment Year 2007-08. (c) The Court considered it necessary that the criminal process should be effectively directed against those officers/Directors who were actually in control of and responsible for the affairs of the company at the relevant time when the forgery and fraud were allegedly committed. Conclusions (d) The Court directed the Judicial Magistrate First Class concerned to proceed against the erring responsible officers/Directors of the company, if not already initiated, by conducting an enquiry based on the complaint filed by the then Officer-in-charge, in relation to the fraud alleged for Assessment Year 2007-08.