Prosecuting corporate directors without including the company as a party contravenes established legal principles regarding vicarious liability.

1. The present petitions have been filed by the Petitioners under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023[“BNSS”]/(Section 482 of Cr.P.C.) seeking quashing of Complaint Case No. 3067/2020 titled as “ITO v. Nilesh Agarwal” and Complaint Case No. 3068/2020 “ITO v. Rakesh Agarwal”, as well as the summoning orders dated 06.06.2024 passed by the Ld. ACMM (Special Acts), Central District, Tis Hazari Courts, New Delhi [“trial court”].

2. Since the issues involved are common and arise out of identical facts, both petitions are being decided together by this common judgment.

FACTUAL BACKGROUND

3. The allegations of the prosecution are that M/s SNR Buildwell Pvt. Ltd. [“the Company”]failed to discharge tax liabilities for the Assessment Years 2014-15, 2015-16 and 2016-17 leading the Income Tax Department to raise demandof tax dues amounting toRs.4,44,82,912/-.During pendency of recovery proceedings, it was found that the Company, through its Director Rakesh Agarwal, transferred an Audi Car (bearing Registration No. UK 07 BE 2759) in favour of his daughter-in-law without adequate consideration. The Department treated this transfer as void under Section 281 of the Income Tax Act, 1961 and proceeded to prosecute the Directors under Section 276 of the Act.

3.1 Sanction for prosecution was accorded by the Principal Commissioner of Income Tax to prosecute the petitioner under section 276 of the Income Tax Act. The complaints were filed against the petitioners before the trial court, but notably the Company itself was not arrayed as an accused.The petitioners objected that in absence of the company being a party, prosecution against them is not maintainable.

3.2 By the impugned orders dated 06.06.2024, the trial court held that the complaints were maintainable, thereby rejecting their objections and listed the matter for framing of notice. Aggrieved thereby, the Petitioners approached this Court.

SUBMISSIONS ON BEHALF OF THE PETITIONERS

4. Learned counsel for the Petitioners contended that the prosecution is fundamentally flawed and assailed the maintainability of the complaint on the ground that the company, M/s SNR Buildwell Pvt. Ltd., has not been impleaded as an accused. It was submitted that the allegations in the complaint are entirely based on the acts and liabilities of the company, and the petitioners have been arraigned solely in their capacity as Directors. Reliance was placed on Section 278B of the Income Tax Act, 1961 , which specifically provides that “where an offence under the Act has been committed by a Company, the Company as well as every person in charge of, and responsible to the Company for the conduct of its business shall be deemed to be guilty”.In such circumstances, prosecution of the Directors alone is impermissible in law.

4.1 Placing reliance on Aneeta Hada v. Godfather Travels & Tours (2012) 5 SCC 661, it was argued that arraignment of the company is a condition precedent for imposing vicarious liability upon its officers and is a sine qua non for maintaining prosecution against its Directors. The principle has been also re-affirmed in Sharad Kumar Sanghi v. Sangita Rane (2015) 12 SCC 781, Sushil Sethi v. State of Arunachal Pradesh (2020) 3 SCC 240, and Dayle De’Souza v. Union of India (2021) 20 SCC 135 wherein it was held that where the acts alleged are attributable to the Company, Directors alone cannot be prosecuted without impleading the Company. It is submitted that since the company is not impleaded as a party before the Court, the con