MUMBAI: A sessions court has held that unless shown that a director is involved in the day-to-day activities and conduct of business of a company, he is not liable to face criminal prosecution on its behalf. The court observed this while setting aside a lower court’s order initiating criminal process against a shipping company’s now former director in three cases for delay in depositing almost Rs 7.5 crore tax deducted at source (TDS) between 2014 and 2017.
The sessions court observed that the chief finance officer, who was responsible for the day-to-day financial matters including recovery of TDS from customers and depositing it in the account of the central government, was prima facie responsible for criminal prosecution for the alleged default.
“But the director, who is not in charge of and not responsible for day-to-day business of the company, is not liable for criminal prosecution, unless specifically it is described in the complaint how he is involved in day-today conduct of the business of the company,” the sessions court said. The director, Eckhard Garbers, a foreign national based in the Isle of Man, had submitted through three separate criminal revision applications before the sessions court order last year through his advocate Sujay Kantawala.
The court said that the complaint must have details showing how a particular director was participating in day-to-day conduct of business. “If such averments are missing, the court cannot issue process against such director,” the court said.
On July 24, 2018, the Ballard Pier magistrate court had issued process against Garbers and six others in the company.
In the revision application, Kantawala contended that Garbers was just an independent director. It was also submitted that he had not participated in the company’s day-to-day business and before filing the complaint, he had already submitted his resignation with effect from September 23, 2015.
The prosecution contended that in the sanction letter, the commissioner of Income Tax, has discussed how the directors of the company are liable for prosecution.
However, the court said that in the sanction letter, there is no mention of participation by the director in the company’s day-to-day business. “Therefore, on this ground itself, the order of issue of process passed against the applicant (Garbers) is liable to be set aside,” the court said.