S. Muralidhar, J.
1. In this petition under Section 482 of the Code of Criminal Procedure 1973 ( CrPC ) two of the accused persons in a criminal complaint, CC No. 444 of 2005 titled Kamal Khanna v. Sidharth Ray and Ors. pending in the court of the learned Metropolitan Magistrate (MM), New Delhi seek the quashing of the said complaint and all proceedings consequent thereto. The two petitioners are K.C. Palaniswamy and R. Karunanithi. The petitions by two other accused, R. Athappan and Gopinath Athapppan, stood withdrawn by them in terms of the order dated 21st February 2006 passed by this Court. The cause title of the present case accordingly reflects this change.
2. The aforementioned complaint was filed by Kamal Khanna, Income Tax Officer (ITO), Ward 49 (4), New Delhi against Data Access (India) Limited (Company) [arrayed as Accused No. 16] and 16 other persons who were described as Directors or Senior Officers of the said Company. This complaint was filed under Section 279B read with Section 279 of the Income Tax Act, 1961 (IT Act) for the financial year 2003-04 and 2004-05. The allegation in the complaint was that a survey operation under Section 133A IT Act was carried out in the business premises of the Company on 16th September 2004 and the books of accounts of the Company for the period 2003-04 onwards were examined. It was found that for the financial year 2003-04, the Company had deducted tax at source under several heads, but had not deposited it with the Government Treasury. The Company was treated as the assessee in default within the meaning of Section 201(1) and 201(1A) IT Act. In terms of an order dated 30th November 2004 a demand of Rs. 11,69,800/- (TDS Rs. 9,41,18,904 plus interest Rs. 75,60,381/-) was created for the financial year 2003-04. At the time of filing of the complaint on 30th March 2005, the proceedings under Section 201(1) and 201(1A) IT Act for the subsequent years were still stated to be under progress.
3. A show cause notice was issued on 3rd December 2004 to the Company. It is stated in response thereto on 23rd December 2004 the Company replied as under: The TDS outstanding amount referred to in your above said two letters pertains to the period from 1.4.2004 to 31.3.2004 and from 1.4.2004 to July 2004 In the audited balance sheet of the Company for the year ended 31.3.2004 the company showed outstanding liability towards TDS at Rs. 8,61,67,206/- and the current year s TDS liability is Rs. 6,76,69,182/- and the total liability is Rs. 15,38,36,388/-.
At the outset, we furnish the list of the persons who, at the time the offence was committed, were in charge of, and were responsible to, the company, Data Access (India) Limited for the conduct of the business of the company. These persons were in the management of company until 1.7.2004 and thereafter. Some of these persons continued to be in the management of the company even until 29.10.2004
1. Mr. Siddartha Ray
2. Mr. Purva Rakesh
3. Mr. Avinash Misra
4. Mr. Surojit Sen
5. Mr. Alok Saha
6. Mr. Deepak Sahai
7. Mr. David Manion
8. Mr. Yuen Tin Fan
9. Mr. Alexander Anthony Arena.
So far as TDS outstanding is concerned, as submitted earlier, this liability accrued before 1.7.2004 and the directors who were on the Board of the company prior to 1.7.2004 are the only persons responsible for the default and we request you to kindly initiate prosecution proceedings against them. We will co-operate with the department in these proceedings.
4. Thereafter notices were issued on 10th January 2005 by the Department to Siddhartha Ray and K.C. Palaniswamy respectively requiring them to show cause as to why they should not be prosecuted. In response to the said notice Siddharth Ray replied on 18th January 2005 stating that he had resigned with effect from 30th August 2004 and had filed Form 32 with the Registrar of Companies (ROC) on November 1, 2004 He further stated:
When the new management took over the management and financial control of the company, there was full disclosure of all liabilities of the company as to June 30, 2004 including statutory liabilities. After taking the management and financial control of the company the new management, led by Mr. K.C. Palanisamy, Managing Director engaged themselves in acts of diversion of funds of the company away from the company for their personal gains.
5. Thereafter the ITO filed the aforementioned criminal complaint CC No 444 of 2005 in the Court of the learned MM, New Delhi on 30th March 2005 setting out the aforementioned details. The complaint further alleged that there was no satisfactory explanation why the accused did not deposit the TDS deducted during the financial years 2003-04 and 2004-05. It was therefore prayed that they should be prosecuted and punished for the offence in terms of Section 276B read with Section 279 IT Act. Summons was issued by the learned MM to the 18 accused persons including the petitioners. Thereafter the present petition seeking the quashing of the complaint was filed. As noted earlier, this petition is only by the original Petitioner No. 2 K.C.Palaniswamy and Petitioner No. 4 R.Karunanithi.
6. The petitioners state that accused 1 to 9 were unsuccessful in managing the affairs of the Company and in May 2004 approached the petitioners for financial help. The petitioners were informed by the erstwhile management that the Company was not in violation of any law including the Act. It was stated that Petitioner No. 2, through Cheran Holdings Pvt. Ltd.(CHPL), a company controlled by him, paid Rs. 33 crores to Accused No. 1 Siddharth Ray and purchased a controlling interest in Data Access (India) Limited [ the Company ]. A Shareholders Agreement was entered into on 1st July 2004 whereby it was agreed that upon Accused No. 1 Siddharth Ray fulfilling certain obligations, additional funding would be brought in by CHPL. Petitioner No. 2 K.C.Palaniswamy was appointed as an Additional Director of the Company on 1st July 2004 and as Managing Director of the Company along with Accused No. 1 Siddharth Ray on 24th July 2004 Petitioner No. 4 R.Karunanithi was appointed as an Additional Director on 24th July 2004 According to these petitioners Siddharth Ray failed to fulfil his obligations and made it impossible for them to continue. He purported to resign from the Board on 31st October 2004 Soon thereafter, Petitioner No. 4 resigned on 5th November and Petitioner No. 2 on 18th November 2004 The Department s show cause notice was thereafter issued to Sidharth Ray and K.C.Palaniswamy on 10th January 2005 in respect of the non-deposit of the TDS for the financial year 2003-2004
7. The petitioners contend that at the time of the alleged commission of offence by the Company for the financial year 2003-04 neither of them was a director in- charge of the affairs of the Company or responsible to it for the conduct of its business. Therefore they could not be made liable within the purview of Section 278B(i) of the IT Act. The Petitioners contend that they are sought to be made liable for the default committed by the Company in failing to remit the TDS for two distinct periods: for the financial year 1st April 2003 till 31st March 2004 and second for the financial year beginning 1st April 2004 up to 30th November 2004 The petitioners entered the picture only on 1st July 2004 and exited some time in November 2004 and therefore could not be made liable for any offence committed during the financial year 2003-2004 As regards the period 1st April till 30th November 2004, since admittedly the demand had not been raised, the prosecution of the petitioners for that period was premature. In any event it way beyond the scope of the present complaint which was filed on 30th March 2005 even before the close of the year 2004-2005.
8. It is submitted one other co-accused in the same criminal complaint, Chandran Ratnaswamy, had filed Criminal Appeal No. 782 of 2006 in the Supreme Court. The following order was passed by the Supreme Court on 21st July 2006 allowing the said appeal:
Mr. Mohan Parasaran, learned Additional Solicitor General, appearing for the Revenue, candidly and fairly states that in the complaint filed against the appellant under Section 276-B read with Section 279 of the Income Tax Act before the Additional Chief Metropolitan Magistrate, Delhi (Complaint No. 440 of 2005), no allegations have been made against the appellant. In fact, para 9 of the complaint sets out the names of certain persons who continued to be in management of the Company until 29th October 2004 The appellant is not one of those persons named. The complaint is in respect of the Financial Years 2003-04 and 2004-05. Under these circumstances, the impugned judgment is set aside and the aforesaid complaint as against the appellant is quashed. The appeal is allowed accordingly.
9. It is submitted by Mr. Naresh Kaushik, learned Counsel for the petitioners that their case is no different from that of Chandran Ratnaswami. It is submitted that the minimum ingredients of the complaint under Section 279B read with Section 279 IT Act is missing. There is no specific allegation against either of them in the entire complaint and therefore not even a prima facie case can be said to be made out against them for the offence under Section 278-B IT Act. It is submitted that in the entire complaint only the letter of Siddhartha Ray is quoted to show that according to Sidharth Ray it was the new management led by K.C. Palaniswamy who had diverted the funds of the Company for their personal gains. This was therefore not an allegation by the department and in any event it did not show that the petitioners were in any way responsible for the Company not remitting the TDS. Barring this one line there is no other reference to K.C. Palaniswamy. There is not even this allegation in relation to the other petitioner R.Karunanithi. It is submitted that in the circumstances, the learned MM was in error in directing summons to issue to the petitioners.
10. Appearing for the Department Mr. R.D. Jolly, learned Senior Standing counsel contends that the offence of not deducting TDS and not remitting the TDS that has been deducted are in the nature of continuing offences. Even if the petitioners entered the picture as Directors only on 1st July 2004 since the Company had not by then remitted the TDS, the offence continued and therefore the liability would also attach to the petitioners in addition to the Company in terms of Section 278(B) IT Act.
11. At the outset it should be noticed that Mr. Jolly was unable to show how the case of these petitioners was in any way different from that of the co-accused Chandran Ratnaswamy in respect of whom the proceedings stand quashed by the Supreme Court as is evident from the order dated 21st July 2006 passed in Criminal Appeal No. 782 of 2006 (Chandran Ratnaswami v. Income Tax Officer). The petitioners should therefore succeed on this ground alone. Further he was unable to show any specific averment in the entire complaint in respect of R.Karunanithi, the Petitioner No. 4 The complaint only makes allegations against the accused collectively and therefore is vague and general. Clearly, not even a prima facie case is made out against Petitioner No. 4 R.Karunanithi.
12. As regards the Petitioner No. 2 K.C. Palaniswamy reference is made to the quotation from the letter dated 18th January 2005 written by Siddhartha Ray, the co-accused in the matter, which states that the new management led by K.C. Palaniswamy had diverted the funds of the Company for their personal gains. The said line is does not in any way remotely suggest anything about the non- deduction of the TDS or the non-remittance by the Company of the TDS deducted. It does not attribute anything specific in that regard to K.C.Palaniswamy. Therefore the complaint when read as a whole does not bring out a prima facie case even against K.C. Palaniswamy.
13. Section 278(B) IT Act which is invoked to fasten liability on the petitioners reads as under:
Section 278B Offences by Companies.
1) 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
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.
(2) Notwithstanding anything contained in Sub-section (1), 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 guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Explanation : For the purposes of this section, - (a) ``Company'` means a body corporate, and includes - (i) A firm; and
(ii) An association of persons or a body of individuals whether incorporated or not; and
(b)'`Director'` in relation to -
(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.
14. Sub-section (1) of Section 278B IT Act is on the same lines as Section 141 of the Negotiable Instruments Act, 1881 (NI Act). It has been explained in several decisions of the Supreme Court, including S.M.S. Pharmaceuticals v. Neeta Bhalla (I) : 2005CriLJ4140 that the complaint under Section 138 read with Section 141 NI Act must necessarily contain the bare minimum averment to show that the director who is sought to be made liable for the offence committed by the Company was at the time of commission of the offence in charge of the affairs of the Company and responsible to it for the conduct of its business. Even if the words of the statute need not be repeated there must be some averment to that effect in the complaint. In other words, the directors cannot be roped in only because there were in that position without anything else being attributed to them.
15. The aforementioned law as explained by the Supreme Court in the context of Section 141 NI Act will apply to the identically worded Section 278B IT Act as well. The complaint in the instant case when examined in light of the decision in Neeta Bhalla clearly does not meet the requirement of the law.
16. The main submission advanced by Mr. Jolly is that the offence for the purposes of Section 201(1) and Section 201(1A) IT Act read with Section 278B is a continuing one and therefore even at the time the petitioners were directors, the offence continued and therefore they would be liable along with the Company. For the reason explained hereafter, this Court does not find merit in this submission. In the first place, nowhere does the complaint suggest that the offence is a continuing one as is sought to be contended now by the learned Senior Standing Counsel for the Department.
17.1 Secondly, and more importantly, given the fact that Section 278B is a penal provision, it is required to be strictly construed. That provision itself does not state that the offence could be a continuing one. On the other hand the language of the provision indicates to the contrary. It states, 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 The language of the provision therefore supports the position that the offence of a failure to deduct or remit the TDS is a one-time offence and not a continuing one.
17.2 The concept of a continuing offence has been invariably invoked by the Courts in the context of determining whether taking cognizance of an offence is barred by limitation. The difficulty in determining this is evident from at least two decisions of the Supreme Court. In State of Bihar v. Deokaran Nenshi : 1973CriLJ347 it was held (SCC, p.892):
A continuing offence is one which is susceptible of continuance and is distinguishable from the one which is committed once and for all. It is one of those offences which arises out of a failure to obey or comply with a rule or its requirement and which involves a penalty, the liability for which continues until the rule or its requirement is obeyed or complied with. On every occasion that such disobedience or non-compliance occurs and reoccurs, there is the offence committed. The distinction between the two kinds of offences is between an act or omission which constitutes an offence once and for all and an act or omission which continues, and therefore, constitutes a fresh offence every time or occasion on which it continues. In the case of a continuing offence, there is thus the ingredient of continuance of the offence which is absent in the case of an offence which takes place when an act or omission is committed once and for all.
17.3 The question that arose in Deokaran Nenshi was whether the failure to file returns under Regulation 3 of the India Metalliferous Mines Regulations 1926 read with Section 66 of the Mines Act 1952 constituted a continuing offence. Answering the question in the negative it was held by the Supreme Court as under (SCC, p.894)
Regulation 3 read with Section 66 of the Mines Act makes failure to furnish annual returns for the preceding year by the January 21, of the succeeding year an offence. The language of Regulation 3 clearly indicates that an owner, manager etc. of a mine would be liable to the penalty if he were to commit an infringement of the Regulation and that infringement consists in the failure to furnish returns on or before January 21, of the succeeding year. The infringement, therefore, occurs on January 21, of the relevant year and is complete on the owner failing to furnish the annual returns by that day. The Regulation does not lay down that the owner, manager etc. of the mine concerned would be guilty of an offence if he continues to carry on the mine without furnishing the returns or that the offence continues until the requirement of Regulation 3 is complied with. In other words, Regulation 3 does not render a continued disobedience or non-compliance of it an offence. As in the case of a construction of a wall in violation of a rule of a bye-law of a local body, the offence would be complete once and for all as soon as such construction is made, a default occurs in furnishing the returns by the prescribed date. There is nothing in Regulation 3 or in any other provision in the Act or the Regulations which renders the continued non-compliance an offence until its requirement is carried out.
17.4 It must be pointed out that in a subsequent decision Bhagirath Kanoria v. State of M.P. : [1985]1SCR626 where a question arose whether the failure to pay the employer s contribution of provident fund was a continuing one, the Supreme Court answered it in the affirmative by holding (SCC, p.228): The question whether a particular offence is a continuing offence must necessarily depend upon the language of the statute which creates that offence, the nature of the offence and, above all, the purpose which is intended to be achieved by constituting the particular act as an offence. Turning to the matters before us, the offence of which the appellants are charged is the failure to pay the employer s contribution before the due date. Considering the object and purpose of this provision, which is to ensure the welfare of workers, we find it impossible to hold that the offence is not of a continuing nature. The appellants were unquestionably liable to pay their contribution to the provident fund before the due date and it was within their power to pay it, as soon after the due date had expired as they willed. The late payment could not have absolved them of their original guilt but it would have snapped the recurrence. Each day that they failed to comply with the obligation to pay their contribution to the fund, they committed a fresh offence. It is putting an incredible premium on lack of concern for the welfare of workers to hold that the employer who has not paid his contribution or the contribution of the employees to the provident fund can successfully evade the penal consequences of his act by pleading the law of limitation. Such offences must be regarded as continuing offences, to which the law of limitation cannot apply.
17.5 The Supreme Court in Bhagirath Kanoria observed that is earlier decision in Deokaran Nenshi must be confined to cases of failure to furnish returns. It cannot be extended to cases like those before us in which, the contravention is not of a procedural or formal nature and goes against the very grain of the statute under consideration.
18. The above two decisions are a pointer to the difficulty in classifying an offence as a continuing one. They explain that this has to be determined with reference to the language of the statute, the nature of the offence and, above all, the purpose which is intended to be achieved by constituting the particular act as an offence. However, what is significant is that in neither case was the Court considering whether the offence committed by a Company can be said to be a continuing one vis-a-vis its directors who were not on the scene when the Company first committed the offence. Further, the question which arose in both cases was in the context of limitation, which is not an issue in the present case. In the considered view of this Court, even assuming that the concept of a continuing offence, which is usually invoked for the purposes of limitation, is extended ipso facto to fasten liability, it can at best apply to the company in respect of which the offence is continuing and not to its Directors who may come on to the Board of the company subsequent to the commission of the offence by the company. This is also indicated from the language of Section 278B(1) IT Act which uses the past tense when it talks of every person who, at the time the offence was committed, was in charge of, and was responsible to, the company The petitioners were not the directors of the Company for the financial year ending 31st March 2004 for which alone the demand has been raised. Therefore they cannot be made liable for the offence by the Company for that year. As regards the subsequent period 2004-2005, since no demand had been raised at the time of filing the complaint, there was no question of commission of any offence for such period.
19. In view of the aforementioned reasons, this Court is satisfied that the petitioners are entitled to succeed in this petition. Accordingly, this petition is allowed. The petitioners K.C. Palaniswamy and R. Karunanithi will stand discharged in Complaint Case No. 444 of 2005 (Kamal Khanna v. Sidharth Ray and Ors.) pending in the Court of the learned MM, New Delhi.
20. This petition as well as the pending application are accordingly disposed of. A certified copy of the order be sent to the concerned learned MM within five days from today.