TaxTMI 
TaxTMI 
2025 (2) TMI 53
X X X X Extracts X X X X
X X X X Extracts X X X X
....t of the complainant company w.e.f. 02.06.1997. Subsequently she was made the Accounts Executive and she used to handle the entire finance and accounts department of the complainant company. She was also a Bank Signatory of the complainant company. In order to enable the accused no. 1 to perform her job smoothly and efficiently, the accused no. 1 was provided with company's letter-heads, company's seal, official files, official stationary, classified documents, party ledgers, company's balance sheets, IT Files, bank statements, accounting softwares etc. She was also disclosed/divulged with various official communications, correspondences, customer information, various trade secrets, technical know-how, business data and confidential information which forms part of the exclusive property of the complainant company and which the said accused person is/was not likely to disclose to third party or use for her personal work and/or misuse the same as per her terms of employment. As part of her duty, the accused no. 1 used to prepare and maintain the accounts of the complainant company, deduct TDS from the invoices, prepare TDS certificates as per the prevalent prescribe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....filed their notes of argument. 4. From the materials on record, the following is evident:- (i) The parties admittedly had a business relationship. (ii) The accused no. 2 company/claimant/petitioner herein had an amount due from the complainant. (iii) As seen from the Arbitral award it appears that payments was made by the complainant by way of cheque which it appears was dishonoured. 5. The remedy for cheque being dishonoured is to be prayed for by the petitioner herein under the appropriate provisions of law. 6. Admittedly payment was made by complainant/company to the petitioner/company. 7. The Supreme Court in M/s US Technologies International Pvt. Ltd. vs The Commissioner of Income Tax, Civil Appeal No. 7934 of 2011 with Civil Appeal Nos. 1258-1260 of 2019, on 10.04.2023, held:- "7. Heard learned counsel appearing on behalf of the respective parties at length. 7.1 The short question which is posed for the consideration of this Court is in case of belated remittance of the TDS after deducting the TDS whether such an assessee is liable to pay penalty under Section 271C of the Act, 1961? 7.2 The question which is al....
X X X X Extracts X X X X
X X X X Extracts X X X X
....71FAB, Section 271FB, Section 271G, Section 271GA, [Section 271 GB,]]] [Section 271H,] [Section 271I,] [Section 271J,] clause (c) or clause (d) of sub section (1) or sub-section (2) of Section 272A, sub-section (1) of Section 272AA] or [Section 272B or] [sub-section (1) or sub-section (1A) of Section 272BB] or sub-section (1) of Section 272BBB or] clause (b) of sub-section (1) or clause (b) or clause (c) of sub-section (2) of Section 273, no penalty shall be imposable on the person or the assessee, as the case may be, for any failure referred to in the said provisions if he proves that there was reasonable cause for the said failure. Section 276B of the Act 276B. Failure to pay tax to the credit of Central Government under Chapter XIID or XVIIB.-If a person fails to pay to the credit of the Central Government,- (a) the tax deducted at source by him as required by or under the provisions of Chapter XVIIB; or (b) the tax payable by him, as required by or under,- (i) sub-section (2) of Section 115O; or (ii) the second proviso to Section 194B, he shall be punishable with rigorous imprisonment for a term which shall not be less than ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... It is not for the Court to read something more into it, contrary to the intent and legislative wisdom. 7.7 At this stage, it is required to be noted that wherever the Parliament wanted to have the consequences of nonpayment and/or belated remittance/payment of the TDS, the Parliament/Legislature has provided the same like in Section 201(1A) and Section 276B of the Act. 7.8 Section 201(1A) provides that in case a tax has been deducted at source but the same is subsequently remitted may be belatedly or after some days, such a person is liable to pay the interest as provided under Section 201(1A) of the Act. The levy of interest under Section 201(1A) thus can be said to be compensatory in nature on belated remittance of the TDS after deducting the same. Therefore, consequences of non payment/belated remittance/payment of the TDS are specifically provided under Section 201(1A). 7.9 Similarly, Section 276B talks about the prosecution on failure to pay the TDS after deducting the same. At this stage, it is required to be noted that Section 271C has been amended subsequently in the year 1997 providing Sections 271C (1) (a) and 271C (1) (b). As observed hereinab....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that tax liability to the said extent would stand shifted to the shoulders of the party who failed to effect deduction, in the form of penalty. On deduction of tax, if there is delay in remitting the amount to Revenue, it has to be satisfied with interest as payable under Section 201(1A) of the Act, besides the liability to face the prosecution proceedings, if launched in appropriate cases, in terms of Section 276B of the Act. Even the CBDT has taken note of the fact that no penalty is envisaged under Section 271C of the Income Tax Act for non deduction TDS and no penalty is envisaged under Section 271C for belated remittance/payment/deposit of the TDS. 8.1 Even otherwise, the words "fails to deduct" occurring in Section 271C (1) (a) cannot be read into "failure to deposit/pay the tax deducted." 8.2 Therefore, on true interpretation of Section 271C, there shall not be any penalty leviable under Section 271C on mere delay in remittance of the TDS after deducting the same by the concerned assessee. As observed hereinabove, the consequences on non payment/belated remittance of the TDS would be under Section 201(1A) and Section 276B of the Act, 1961." 8. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., as its Director. A notice of demand was served only on the appellant. The complaint was lodged only against the appellant without arraigning the company as an accused. 12. The provisions of Section 141 postulate that if the person committing an offence under Section 138 is a company, every person, who at the time when the offence was committed was in charge of or 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." 16. The Supreme Court in Shiv Kumar Jatia vs. State of NCT of Delhi, Criminal Appeal nos. 1263, 1264 and 1265-1267 of 2019, held:- "27. The liability of the Directors/the controlling authorities of company, in a corporate criminal liability is elaborately considered by this Court in the case of Sunil Bharti Mittal. In the aforesaid case, while considering the circumstances when Director/person in charge of the affairs of the company can also be prosecuted, when the company is an accused person, this Court has held, a corporate entity is an artificial person which acts through its officers, Directors....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... can be the ground for quashing the proceedings under Section 482 of Cr.P.C. In the case on hand principally the allegations are made against the first accused-company which runs Hotel Hyatt Regency. At the same time, the Managing Director of such company who is accused no.2 is a party by making vague allegations that he was attending all the meetings of the company and various decisions were being taken under his signatures. Applying the ratio laid down in the aforesaid cases, it is clear that principally the allegations are made only against the company and other staff members who are in charge of day to day affairs of the company. In absence of specific allegations against the Managing Director of the company and having regard to nature of allegations made which are vague in nature, we are of the view that it is a fit case for quashing the proceedings, so far as the Managing Director is concerned." 17. In Dayle De' Souza vs Government of India Through Deputy Chief Labour Commissioner (C) and Anr., in Criminal Appeal No. .... of 2021 (arising out of SLP (CRL.) No. 3913 of 2020), decided on October 29, 2021, the Supreme Court held:- "24. In Sharad Kumar Sanghi v. Sangi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ppellant is no longer res integra. A decision of a three-Judge Bench of this Court in Aneeta Hada v. Godfather Travels & Tours (P) Ltd. governs the area of dispute. The issue which fell for consideration was whether an authorised signatory of a company would be liable for prosecution under Section 138 of the Negotiable Instruments Act, 1881 without the company being arraigned as an accused. The three-Judge Bench held thus: (SCC p. 688, para 58) "58. Applying the doctrine of strict construction, we are of the considered opinion that commission of offence by the company is an express condition precedent to attract the vicarious liability of others. Thus, the words "as well as the company" appearing in the section make it absolutely unmistakably clear that when the company can be prosecuted, then only the persons mentioned in the other categories could be vicariously liable for the offence subject to the averments in the petition and proof thereof. One cannot be oblivious of the fact that the company is a juristic person and it has its own respectability. If a finding is recorded against it, it would create a concavity in its reputation. There can be situations when the corpo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l court, we find that the finding of the High Court to revisit the judgment will be unfair to the appellant-nominated person who has been facing trial for more than last 30 years. Therefore, the order of remand to the trial court to fill up the lacuna is not a fair option exercised by the High Court as the failure of the trial court to convict the Company renders the entire conviction of the nominated person as unsustainable." 27. In terms of the ratio above, a company being a juristic person cannot be imprisoned, but it can be subjected to a fine, which in itself is a punishment. Every punishment has adverse consequences, and therefore, prosecution of the company is mandatory. The exception would possibly be when the company itself has ceased to exist or cannot be prosecuted due to a statutory bar. However, such exceptions are of no relevance in the present case. Thus, the present prosecution must fail for this reason as well." 18. In Susela Padmavathy Amma vs M/S Bharti Airtel Limited, in Criminal Appeal Nos. ............ of 2024 (arising out of SLP (Criminal) No. 12390-12391 of 2022), decided on 15.03.2024, the Supreme Court held:- "7. In the case of State o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as at the helm of affairs of the Company and in charge of and responsible for the conduct of the business at the time of commission of an offence will be liable for criminal action. (See Pooja Ravinder Devidasani v. State of Maharashtra [Pooja Ravinder Devidasani v. State of Maharashtra, (2014) 16 SCC 1 : (2015) 3 SCC (Civ) 384 : (2015) 3 SCC (Cri) 378 : AIR 2015 SC 675] .) 10. In other words, the law laid down by this Court is that for making a Director of a Company liable for the offences committed by the Company under Section 141 of the Act, there must be specific averments against the Director showing as to how and in what manner the Director was responsible for the conduct of the business of the Company." 16. A similar view has been taken by this Court in the case of Lalankumar Singh and others vs. State of Maharashtra to which one of us (B.R. Gavai, J.) was a party." 19. A company can be made an accused in a criminal case, but it is important to note that alongside the company, the individuals responsible for the alleged crime within the company, like directors or key decision-makers, must also be named as accused, as a company alone cannot have the neces....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. There is, in my view, no issue raised as to the jurisdiction of the Arbitrator to proceed with the arbitration proceedings. 24. It is clear from the documents, correspondence and material on record that the Respondents have admitted their liability. In fact, payments were made by cheques which came to be dishonoured and for which the notices in respect thereof were issued to the Respondents. It is altogether a different matter that the Claimants did not file or initiate any proceedings under Section 138 of the Negotiable Instruments Act, save and except for sending the notices as set out in the Statement of Claim. 25. The Claimants have proved the amounts as claimed, subject to the concessions made by them and as referred to in paragraphs 17 and 19 hereinabove. Accordingly, the claim is allowed as under: (i) Prayer (a) of the Statement of Claim is granted with interest at the rate of 24% per annum on the unpaid amount after 30 days from the date of the invoice till the date of the Award and thereafter, at the rate of 9% per annum from the date of the Award till payment and/or realization. (ii) Prayer (b) of the Statement of Claim is also allow....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tried and decided by the arbitrator and a civil court would be more competent which has the requisite means to decide such complicated matter. In this backdrop, it would be appropriate to revisit the law on this aspect before adverting to the question as to whether the approach of the High Court was correct in following the judgment in N. Radhakrishnan in the instant case. In this behalf, we have to begin our discussion with the pertinent observation that insofar as the Arbitration and Conciliation Act, 1996 is concerned, it does not make any specific provision excluding any category of disputes terming them to be non-arbitrable. Number of pronouncements have been rendered laying down the scope of judicial intervention, in cases where there is an arbitration clause, with clear and unambiguous message that in such an event judicial intervention would be very limited and minimal. However, the Act contains provisions for challenging the arbitral awards. These provisions are Section 34 and Section 48 of the Act. Section 34(2)(b) and Section 48(2) of the Act, inter alia, provide that an arbitral award may be set aside if the Court finds that the 'subject matter of the dispu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l court cannot have jurisdiction to go into that question. 4. A bare reading of Section 16 makes it explicitly clear that the Arbitral Tribunal has the power to rule on its own jurisdiction even when any objection with respect to existence or validity of the arbitration agreement is raised, and a conjoint reading of sub-sections (2), (4) and (6) of Section 16 would make it clear that such a decision would be amenable to be assailed within the ambit of Section 34 of the Act. 5. In this view of the matter, we see no infirmity in the impugned order so as to be interfered with by this Court. The petitioner, who is a party to the arbitral proceedings may raise the question of jurisdiction of the arbitrator as well as the objection on the ground of non-existence of any arbitration agreement in the so-called dispute in question, and on such an objection being raised, the arbitrator would do well in disposing of the same as a preliminary issue so that it may not be necessary to go into the entire gamut of arbitration proceedings." Aforesaid is the position when Arbitral Tribunal is constituted at the instance of one of the parties and other party takes up the position tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct matter of dispute from arbitration and decision thereof necessary by the civil court. In Abdul Kadir Shamsuddin Bubere v. Madhav Prabhakar Oak, serious allegations of fraud were held by the Court to be a sufficient ground for not making a reference to arbitration. Reliance in that regard was placed by the Court on a decision of the Chancery Division in Russell v. Russell[7]. That was a case where a notice for the dissolution of a partnership was issued by one of the partners, upon which the other partner brought an action alleging various charges of fraud, and sought a declaration that the notice of dissolution was void. The partner who was charged with fraud sought reference of the disputes to arbitration. The Court held that in a case where fraud is charged, the Court will in general refuse to send the dispute to arbitration. But where the objection to arbitration is by a party charging the fraud, the Court will not necessarily accede to it and would never do so unless a prima facie case of fraud is proved. The aforesaid judgment was followed by this Court in N. Radhakrishnan while considering the matter under the present Act. In that case, the respondent had....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s not even brought to the notice of this Court. Therefore, the same has neither been followed nor considered. Secondly, the provision contained in Section 16 of the Arbitration Act, 1996 were also not brought to the notice by this Court. Therefore, in my opinion, the judgment in N. Radhakrishnan does not lay down the correct law and cannot be relied upon." We shall revert to the question of per incuriam at a later stage. At this juncture, we may point out that the issue has been revisited by another Division Bench of this Court in Booz Allen & Hamilton Inc. v. SBI Home Finance Limited and others. In this case, one of the questions that had arisen for determination was, in the context of Section 8 of the Act, as to whether the subject matter of the suit was 'arbitrable' i.e. capable of being adjudicated by a private forum (Arbitral Tribunal). In this context, the Court carried out detailed discussion on the term 'arbitrability' by pointing out three facets thereof, viz.: 1) whether the disputes are capable of adjudication and settlement by arbitration? 2) whether the disputes are covered by the arbitration agreement? 3) whether the parties ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urts are conferred jurisdiction to grant eviction or decide the disputes. 37. It may be noticed that the cases referred to above relate to actions in rem. A right in rem is a right exercisable against the world at large, as contrasted from a right in personam which is an interest protected solely against specific individuals. Actions in personam refer to actions determining the rights and interests of the parties themselves in the subject-matter of the case, whereas actions in rem refer to actions determining the title to property and the rights of the parties, not merely among themselves but also against all persons at any time claiming an interest in that property. Correspondingly, a judgment in personam refers to a judgment against a person as distinguished from a judgment against a thing, right or status and a judgment in rem refers to a judgment that determines the status or condition of property which operates directly on the property itself. (Vide Black's Law Dictionary.) 38. Generally and traditionally all disputes relating to rights in personam are considered to be amenable to arbitration; and all disputes relating to rights in rem are required to be ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Court in Meguin GMBH v. Nandan Petrochem Ltd., 2007 (5) R.A.J 239 (SC), in the context of an application filed under section 11 has gone ahead and appointed an arbitrator even though issues of fraud were involved. Recently, the Supreme Court in its judgment in Swiss Timing Ltd v. Organising Committee, Arb. Pet. No. 34/2013 dated 28.05.2014, in a similar case of exercising jurisdiction under section 11, held that the judgment in Radhakrishnan is per incuriam and, therefore, not good law." A perusal of the aforesaid two paragraphs brings into fore that the Law Commission has recognized that in cases of serious fraud, courts have entertained civil suits. Secondly, it has tried to make a distinction in cases where there are allegations of serious fraud and fraud simplicitor. It, thus, follows that those cases where there are serious allegations of fraud, they are to be treated as non-arbitrable and it is only the civil court which should decide such matters. However, where there are allegations of fraud simplicitor and such allegations are merely alleged, we are of the opinion it may not be necessary to nullify the effect of the arbitration agreement between the parties as such issues ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....at where there are simple allegations of fraud touching upon the internal affairs of the party inter se and it has no implication in the public domain, the arbitration clause need not be avoided and the parties can be relegated to arbitration. While dealing with such an issue in an application under Section 8 of the Act, the focus of the Court has to be on the question as to whether jurisdiction of the Court has been ousted instead of focusing on the issue as to whether the Court has jurisdiction or not. It has to be kept in mind that insofar as the statutory scheme of the Act is concerned, it does not specifically exclude any category of cases as non-arbitrable. Such categories of non-arbitrable subjects are carved out by the Courts, keeping in mind the principle of common law that certain disputes which are of public nature, etc. are not capable of adjudication and settlement by arbitration and for resolution of such disputes, Courts, i.e. public for a, are better suited than a private forum of arbitration. Therefore, the inquiry of the Court, while dealing with an application under Section 8 of the Act, should be on the aforesaid aspect, viz. whether the nature of dispute is suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... procured or is otherwise invalid. Interpreting the statutory provision Courts have laid stress on the limitations on exercise of jurisdiction by the Court for setting aside or interfering with an award in umpteen cases. Some of the well recognised grounds on which interference is permissible are : 1) Violation of principle of natural justice in passing the award; 2) Error apparent on the face of the award; 3) The arbitrator has ignored or deliberately violated a clause in the agreement prohibiting dispute of the nature entertained; 4) The award on the face of it is based on a proposition of law which is erroneous, etc. In U.P. Hotels and Others vs. U.P. State Electricity Board, (1989) 1 SCC 359, this Court in paras 17& 18 observed as follows: "17. It appears that the main question that arises is : whether the decision of this Court in Indian Aluminium co .vs. Kerala State Electricity Board (1975) 2 SCC 414 case was properly understood and appreciated by the learned Umpire and whether he properly applied the agreement between the parties in the light of the aforesaid decision. It was contended that the question whether the sums ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s on the face of the award that the arbitrator has proceeded illegally, as, for instance, by deciding on evidence which was not admissible, or on principles of construction which the law does not countenance, there is error in law which may be ground for setting aside the award. 18. It was contended by Mr. F.S. Nariman, counsel for the appellant, that a specific question of law being a question of construction had been referred to the Umpire and, hence, his decision, right or wrong, had to be accepted. In view of Clause 18, it was submitted that in this case a specific reference had been made on the interpretation of the agreement between the parties, hence, the parties were bound by the decision of the Umpire. Our attention was drawn to the observations of this Court in M/s. Hindustan Tea Co. v. M/s.K.Sashikant & Co.,1986 Supp SCC 506, where this Court held that under the law, the arbitrator is made the final arbiter of the dispute between the parties, referred to him. The award is not open to challenge on the ground that the arbitrator has reached a wrong conclusion or has failed to appreciate facts. Where the award which was a reasoned one was challenged on the ground t....