Calcutta High Court (Appellete Side)
Ingram Micro India Pvt. Ltd vs Duckback Information Systems Pvt. Ltd. … on 28 January, 2025
IN THE HIGH COURT AT CALCUTTA
Criminal Revisional Jurisdiction
APPELLATE SIDE
Present:
The Hon'ble Justice Shampa Dutt (Paul)
CRR 348 of 2024
Ingram Micro India Pvt. Ltd.
Vs.
Duckback Information Systems Pvt. Ltd. & Anr.
For the Petitioner : Mr. Milon Mukherjee, ld. Sr. Adv.
Mr. Siddharth Kumar.
For the Respondents : Mr. Ayan Bhattacharya, ld. Sr. Adv.
Ms. Sriparna Das,
Mr. Hare Krishna Halder,
Mr. Koushik Bhattacharya.
Hearing concluded on : 20.01.2025
Judgment on : 28.01.2025
Shampa Dutt (Paul), J.:
1. The present revision has been preferred praying for quashing of the
proceeding arising out of case no. CS 27633 of 2023, pending before
the learned Metropolitan Magistrate, 19th Court, Calcutta, under
Sections 120B/409/418/420/465/467/468/471 of the Indian Penal
Code.
2. The allegations in the written complaint against the petitioner
company herein is as follows:-
2
“………..The accused no. 2 is a company within the meaning of
the companies Act, 1956 having its registered office at the address
as mentioned in the cause title.
The management of the complainant company appointed
the accused no. 1 as Management Accountant 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 prescribed Rules of Income Tax
Department, fulfill other statutory compliances for and on
behalf of the complainant company independently.
In passage of time the complainant company gave huge
business to the accused no. 2 and had been maintaining a
current/running account with the accused no. 2. The complainant
company had been regularly servicing the said current account
until the year 2012 when the business of the complainant company
suffered huge loss and the complainant company started going
through financial constrains.
In such circumstances, the complainant company suddenly
received a purported letter of demand dated October 31, 2012 from
the accused no. 2 whereby a disputed sum of money was claimed
by the accused no. 2 on account of purported supply of materials
and it was also falsely claimed in the said letter that at the
complainant company had deducted TDS amounting to
3Rs.48,65,306/- in favour of the accused no. 2 towards
acknowledgment of such alleged debt.
The complainant company did not deduct an amount of
Rs.48,65,306/- towards TDS in favour of the accused no. 2 far less
issuing TDS certificate of such amount in favour of the accused no.
2.
It is further stated that after a gap of more than 8 years on or
about July 18, 2022 the complainant company came to learn that
the accused no. 2 had obtained an ex parte Arbitral Award
dated March 04, 2014 against the complainant company. The
Arbitral Award dated March 04, 2014 passed by Sri. Sali M. Shah
along with certain accompaniments including three purported TDS
Certificates, the details of which are furnished herein below:-
TDS Dated Amount Signed BY
Certificate
No.
FYKRDY 26.11.2011 6,37,437/- Abhishek Bose
27.12.2011 24,01,716/- Abhishek Bose
25.04.2012 18,26,153/- Abhishek Bose
The complainant’s case is that TDS certificate is false
and fake documents manufactured by the accused no. 1
(employee of the complainant) in collusion and connivance
with the accused no. 1 as the as the accused no. 2 used the
said forged and fake document as genuine.
The complainant has denied the signature of Abhishek Bose
appearing in the signature being one of the Directors of the
complainant company. The seal of the company was also fake and
stated to be counterfeit and, hence, the case….”
3. Parties have 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.
4
(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 also posed for the consideration of
this Court is what is the meaning and scope of the words
“fails to deduct” occurring in Section 271C(1)(a) and whether
an assessee who caused delay in remittance of TDS deducted
by him, can be said a person who “fails to deduct TDS”?
7.3 In order to appreciate the rival contentions and to answer
the aforesaid questions, it is necessary to have analysis of
Statutory provisions.
7.4 The relevant provisions are as under:-
“Section 201(1A) of the Act
Without prejudice to the provisions of subsection (1), if any
such person, principal officer or company as is referred to in
that subsection does not deduct the whole or any part of the
5tax or after deducting fails to pay the tax as required by or
under this Act, he or it shall be liable to pay simple interest, —
(i) at one per cent for every month or part of a month on the
amount of such tax from the date on which such tax was
deductible to the date on which such tax is deducted; and
(ii) at one and one half per cent for every month or part of a
month on the amount of such tax from the date on which such
tax was deducted to the date on which such tax is actually
paid, and such interest shall be paid before furnishing the
statement in accordance with the provisions of sub section (3)
of Section 200:]Section 271C of the Act
271C. Penalty for failure to deduct tax at source.
(1) If any person fails to–
(a) deduct the whole or any part of the tax as required by or
under the provisions of Chapter XVIIB; or
(b) pay the whole or any part of the tax as required by or
under,–
(i) subsection (2) of Section 115O; or
(ii) the second proviso to Section 194B; then, such person shall
be liable to pay, by way of penalty, a sum equal to the amount
of tax which such person failed to deduct or pay as aforesaid.](2) Any penalty imposable under sub section (1) shall be
imposed by the Joint Commissioner.
Section 273B of the Act
273B. Penalty not to be imposed in certain cases.–
Notwithstanding anything contained in the provisions of
clause (b) of subsection (1) of Section 271, Section 271A
4203[Section 271 AA], Section 271B 4204[Section 271 BA],
4205[Section 271 BB, 4206[Section 271C, Section 271
CA], Section 271D, Section 271 E, 4207[Section 271F,]
4208[Section 271FA 4209[, 4210[Section 271FAB, Section
271FB, Section 271G, Section 271GA, 4211[Section 271 GB,]]]
4212[Section 271 H,] 4213[Section 271I,] 4214[Section 271J,]
clause (c) or clause (d) of sub section (1) or subsection (2)
of Section 272A, subsection (1) of Section 272 AA] or
4215[Section 272B or] 4216[subsection (1) or subsection (1A)
6
of Section 272BB] or subsection (1) of Section 272BBB or]
clause (b) of subsection (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) subsection (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 three months but which may extend to seven years and
with fine.”
7.5 At the outset, it is required to be noted that all these cases
are with respect to the belated remittance of the TDS though
deducted by the assessee and therefore, Section
271C(1)(a) shall be applicable. At the cost of repetition, it is
observed that it is a case of belated remittance of the TDS
though deducted by the assessee and not a case of non-
deduction of TDS at all.
7.6 As per Section 271C(1)(a), if any person fails to deduct the
whole or any part of the tax as required by or under the
provisions of Chapter XVIIB then such a person shall be liable
to pay by way of penalty a sum equal to the amount of tax
which such person failed to deduct or pay as aforesaid. So far
as failure to pay the whole or any part of the tax is concerned,
the same would be with respect to Section 271C(1)(b) which is
not the case here. Therefore, Section 271C(1)(a) shall be
applicable in case of a failure on the part of the concerned
person/assessee to “deduct” the whole of any part of the tax
as required by or under the provisions of Chapter XVIIB. The
words used in Section 271C(1)(a) are very clear and the
relevant words used are “fails to deduct.” It does not speak
about belated remittance of the TDS. As per settled position of
law, the penal provisions are required to be construed strictly
and literally. As per the cardinal principle of interpretation of
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statute and more particularly, the penal provision, the penal
provisions are required to be read as they are. Nothing is to be
added or nothing is to be taken out of the penal provision.
Therefore, on plain reading of Section 271C of the Act, 1961,
there shall not be penalty leviable on belated remittance of the
TDS after the same is deducted by the assessee. Section
271C of the Income Tax Act is quite categoric. Its scope and
extent of application is discernible from the provision itself, in
unambiguous terms. When the non deduction of the whole or
any part of the tax, as required by or under the various
instances/provisions of Chapter XVIIB would invite penalty
under Clause 271C(1)(a); only a limited text, involving sub-
section (2) of Section 115O or covered by the second proviso
to Section 194B alone would constitute an instance where
penalty can be imposed in terms of Section 271C(1)(b) of the
Act, namely, on nonpayment. 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 hereinabove, fails to
pay the whole or any part of the tax would be falling
under Section 271C(1)(b) and the word used between
271C(1)(a) and 271C(1)(b) is “or”. At this stage, it is required to
be noted that Section 276B provides for prosecution in case of
failure to “pay” tax to the credit of Central Government. The
word “pay” is missing in Section 271C(1)(a).
8. Now so far as the reliance placed upon the CBDT’s Circular
No. 551 dated 23.01.1998 by learned ASG is concerned, at
8
the outset, it is required to be noted that the said circular
as such favours the assessee. Circular No. 551 deals with the
circumstances under which Section 271C was introduced in
the Statute, for levy of penalty. Paragraph 16.5 of the above
Circular reads as follows:
“16.5: Insertion of a new section 271C to provide for levy of
penalty for failure to deduct tax at source under the old
provisions of Chapter XXI of the Income Tax Act no penalty
was provided for failure to deduct tax at source. This default,
however, attracted prosecution under the provisions of Section
276B, which prescribed punishment for failure to deduct tax at
source or after deducting failure to pay the same to the
Government. It was decided that the first part of the default,
i.e., failure to deduct tax at source should be made liable to
levy of penalty, while the second part of the default, i.e.,
failure to pay the tax deducted at source to the Government
which is a more serious offence, should continue to attract
prosecution. The Amending Act, 1987 has accordingly inserted
a new Section 271C to provide for imposition of penalty on any
person who fails to deduct tax at source as required under the
provisions of Chapter XVIIB of the Act. The penalty is of a sum
equal to the amount of tax which should have been deducted
at source.
On fair reading of said CBDT’s circular, it talks about the levy
of penalty on failure to deduct tax at source. It also takes note
of the fact that if there is any delay in remitting the tax, it will
attract payment of interest under Section 201(1A) of the Act
and because of the gravity of the mischief involved, it may
involve prosecution proceedings as well, under Section
276B of the Act. If there is any omission to deduct the tax at
source, it may lead to loss of Revenue and hence remedial
measures have been provided by incorporating the provision to
ensure 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.
9
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. The Income Tax Tribunal held:-
It is evidently clear that assessee received the rent income,
and the Tenant (Deductor) has deducted TDS but has not
deposited the TDS so deducted into the Central Government
Account. Considering these facts, we note that issue under
consideration is no longer res integra. The Hon’ble High Court
of Gujarat in the case of Kartik Vijaysinh Sonavane held that
where TDS has been deducted by employer of assessee, it will
always been open for department to recover same from said
employer and credit of same could not have been denied to
assessee.
9. Thus it is the duty of the party making the payment, to deduct
TDS and deposit the same with the income tax authority.
10. Accused no. 1 is an employee of the complainant company.
11. Accused no. 2 is the other company with which the complainant
had a business relationship.
12. None of the persons who were in charge of overall and daily (day to
day) affairs of the accused no. 2/ company have been impleaded as
accuseds along with the said company.
13. The Hon’ble Supreme Court of India in Himanshu -versus- B.
Shivamurthy & Another, (2019) 3 SCC 797, on January 17, 2019,
has held:-
10
“In the absence of the company being arraigned as
an accused, a complaint against the appellant was
therefore not maintainable. The appellant had signed
the cheque as a Director of the company and for and
on its behalf. Moreover, in the absence of a notice of
demand being served on the company and without
compliance with the proviso to Section 138, the High
Court was in error in holding that the company could
now be arraigned as an accused.”
14. The Hon’ble Apex Court similarly in Aneeta Hada -versus- Godfather
Travels And Tours Private Limited, (2012) 5 SCC 661, held that
“in view of our aforesaid analysis, we arrive at the irresistible
conclusion that for maintaining the prosecution under Section
141 of the Act, arraigning of a company as an accused is
imperative. The other categories of offenders can only be brought
in the dragnet on the touchstone of vicarious liability as the
same has been stipulated in the provision itself.”
15. The Supreme Court in Himanshu vs. B. Shivamurthy & Anr.
(Supra) has further held:-
“11. In the present case, the record before the Court
indicates that the cheque was drawn by the appellant
for Lakshmi Cement and Ceramics Industries Ltd., 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.”
11
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,
Managing Director, Chairman, etc. If such a company
commits an offence involving mens rea, it would
normally be the intent and action of that individual
who would act on behalf of the company. At the same
time it is observed that it is the cardinal principle of
criminal jurisprudence that there is no vicarious
liability unless the Statute specifically provides
for. It is further held by this Court, an individual who
has perpetrated the commission of an offence on behalf
of the company can be made an accused, along with
the company, if there is sufficient evidence of his active
role coupled with criminal intent. Further it is also held
that an individual can be implicated in those cases
where statutory regime itself attracts the doctrine of
vicarious liability, by specifically incorporating such a
provision.
29. By applying the ratio laid down by this Court in
the case of Sunil Bharti Mittal it is clear that an
individual either as a Director or a Managing Director
or Chairman of the company can be made an accused,
along with the company, only if there is sufficient
material to prove his active role coupled with the
criminal intent. Further the criminal intent alleged must
have direct nexus with the accused. Further in the case
of Maksud Saiyed vs. State of Gujarat & Ors. this
Court has examined the vicarious liability of Directors
for the charges levelled against the Company. In the
aforesaid judgment this Court has held that, the Penal
Code does not contain any provision for attaching
vicarious liability on the part of the Managing Director
or the Directors of the Company, when the accused is a
Company. It is held that vicarious liability of the
Managing Director and Director would arise
provided any provision exists in that behalf in
the Statute. It is further held that Statutes
12indisputably must provide fixing such vicarious
liability. It is also held that, even for the said purpose,
it is obligatory on the part of the complainant to make
requisite allegations which would attract the provisions
constituting vicarious liability.
30. In the judgment of this Court in the case of
Sharad Kumar Sanghi vs. Sangita Rane while
examining the allegations made against the Managing
Director of a Company, in which, company was not
made a party, this Court has held that when the
allegations made against the Managing Director are
vague in nature, same 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. Sangita Rane,
(2015) 12 SCC 781 this Court observed that:-
“11. In the case at hand as the complainant’s initial
statement would reflect, the allegations are against the
Company, the Company has not been made a party
and, therefore, the allegations are restricted to the
Managing Director. As we have noted earlier,
allegations are vague and in fact, principally the
13allegations are against the Company. There is no
specific allegation against the Managing Director.
When a company has not been arrayed as a party, no
proceeding can be initiated against it even where
vicarious liability is fastened under certain statutes. It
has been so held by a three-Judge Bench in Aneeta
Hada v. Godfather Travels and Tours (P) Ltd. in the
context of the Negotiable Instruments Act, 1881.
xx xx xx
13. When the company has not been arraigned as an
accused, such an order could not have been passed.
We have said so for the sake of completeness. In the
ultimate analysis, we are of the considered opinion
that the High Court should have been well advised to
quash the criminal proceedings initiated against the
appellant and that having not been done, the order is
sensitively vulnerable and accordingly we set aside the
same and quash the criminal proceedings initiated by
the respondent against the appellant.”
25. This position was again clarified and reiterated by
this Court in Himanshu v. B. Shivamurthy and
Another, (2019) 3 SCC 797. The relevant portion of
the judgment reads thus:
“6. The judgment of the High Court has been
questioned on two grounds. The learned counsel
appearing on behalf of the appellant submits that
firstly, the appellant could not be prosecuted without
the company being named as an accused. The cheque
was issued by the company and was signed by the
appellant as its Director. Secondly, it was urged that
the observation of the High Court that the company can
now be proceeded against in the complaint is
misconceived. The learned counsel submitted that the
offence under Section 138 is complete only upon the
issuance of a notice of demand and the failure of
payment within the prescribed period. In absence of
compliance with the requirements of Section 138, it is
asserted, the direction of the High Court that the
company could be impleaded/arraigned at this stage
is erroneous.
7. The first submission on behalf of the appellant 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
14signatory 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 corporate
reputation is affected when a Director is indicted.”
In similar terms, the Court further held: (SCC p. 688,
para 59)
“59. In view of our aforesaid analysis, we arrive at the
irresistible conclusion that for maintaining the
prosecution under Section 141 of the Act, arraigning of
a company as an accused is imperative. The other
categories of offenders can only be brought in the drag-
net on the touchstone of vicarious liability as the same
has been stipulated in the provision itself.”
xx xx xx
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.
13. In the absence of the company being arraigned as
an accused, a complaint against the appellant was
therefore not maintainable. The appellant had signed
the cheque as a Director of the company and for and on
its behalf. Moreover, in the absence of a notice of
15
demand being served on the company and without
compliance with the proviso to Section 138, the High
Court was in error in holding that the company could
now be arraigned as an accused.”
26. Applying the same proposition of law as laid
down in Aneeta Hada (supra), this Court in
Hindustan Unilever Limited v. State of Madhya
Pradesh, (2020) 10 SCC 751 applying pari materia
provision in Prevention of Food Adulteration Act, 1954,
held that:
“23. Clause (a) of sub-section (1) of Section 17 of the
Act makes the person nominated to be in charge of and
responsible to the company for the conduct of business
and the company shall be guilty of the offences under
clause (b) of sub-section (1) of Section 17 of the Act.
Therefore, there is no material distinction between
Section 141 of the NI Act and Section 17 of the Act
which makes the company as well as the nominated
person to be held guilty of the offences and/or liable to
be proceeded and punished accordingly. Clauses (a)
and (b) are not in the alternative but conjoint.
Therefore, in the absence of the company, the
nominated person cannot be convicted or vice versa.
Since the Company was not convicted by the trial
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.”
16
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 of Haryana vs. Brij Lal Mittal and
others, this Court observed thus:
“8. Nonetheless, we find that the impugned judgment of the
High Court has got to be upheld for an altogether different
reason. Admittedly, the three respondents were being prosecuted
as directors of the manufacturers with the aid of Section 34(1) of
the Act which reads as under:
“34. 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 provided in this Act if he proves that the
offence was committed without his knowledge or
that he exercised all due diligence to prevent the
commission of such offence.”
It is thus seen that the vicarious liability of a person for being
prosecuted for an offence committed under the Act by a company
arises if at the material time he was in charge of and was also
responsible to the company for the conduct of its business.
Simply because a person is a director of the company it does not
necessarily mean that he fulfils both the above requirements so
as to make him liable. Conversely, without being a director a
person can be in charge of and responsible to the company for
the conduct of its business. From the complaint in question we,
however, find that except a bald statement that the respondents
were directors of the manufacturers, there is no other allegation
to indicate, even prima facie, that they were in charge of the
company and also responsible to the company for the conduct of
its business.”
15. In the case of Ashoke Mal Bafna (supra), this Court
observed thus:
“9. To fasten vicarious liability under Section 141 of the Act on a
person, the law is well settled by this Court in a catena of cases
that the complainant should specifically show as to how and in
what manner the accused was responsible. Simply because a
17person is a Director of a defaulter Company, does not make him
liable under the Act. Time and again, it has been asserted by
this Court that only the person who was 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 necessary “mens rea” (guilty mind) to commit
an offense, the liability is generally attributed to the individuals who
acted on behalf of the company.
Legal entity:-
A company is considered a separate legal entity, which means it can
be held liable for criminal acts committed in its name.
Vicarious liability:-
When a company is accused of a crime, the individuals responsible for
the actions that led to the offense, usually those in senior
management positions, can be held vicariously liable.
18
20. As such the prosecution of only the company as the sole accused (of
the company) is prima facie bad in law.
21. Admittedly, there is existence of an agreement between the
parties for the business transaction which included an arbitration
clause and by invoking the said clause the reference was made to the
Arbitrator by the petitioner herein who has been made the accused no.
2 in the proceedings before the trial Court.
22. The complainant as respondent before the learned Arbitrator did
not continue to attend the arbitration proceedings. Subsequently,
the learned Arbitrator considering the materials on record adjudicated
the dispute by passing an arbitral award dated 4th March, 2014.
23. The relevant findings of the learned Arbitrator is as follows :-
“…………23. Having considered all the correspondence and
material on record and the Minutes of the Meetings as
passed from time to time since the beginning of the
arbitration proceedings, it is clear that save and except for
the letter dated 23rd September 2013 addressed by the
Respondents to the Sole Arbitrator, there has been no
response whatsoever by the Respondents. They have
constantly remained absent despite notices given to
them that the proceedings would be continued ex-
parte if they did not remain present. In my view,
having addressed the letter dated 23rd September
2013, the Respondents had no objection to the
Arbitral Tribunal proceeding with the matter. All that
they sought was deferment of the date for reasons set out in
the said letter. In fact, they had by that said letter,
requested that all relevant papers pertaining to the
arbitration proceedings be sent to them for their perusal so
that they could go prepared for the hearing. Despite all
papers and proceedings, pleadings being furnished to them
subsequent to 23rd September 2013, the Respondents
have chosen to remain absent. There is, in my view, no
19issue 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 allowed to the
extent of Rs.46,97,020/-. It is clarified that the Claimants
are not entitled to any interest on this amount of
Rs.46,97,020/-.
(iii) The Claimants are entitled to the costs of the arbitral
proceedings quantified at Rs. 1,50,000/-.
26. The Claimants are directed to make payment of the
Arbitrator’s fees quantified at Rs.25,000/-. The said
payment shall be made on or before 18th March 2014.
27. The claimants shall also make payment, separately by
cheque, towards stenographer’s charges, cost of printing of
the Award, venue charges for all meetings held, quantified
at Rs.12,000/-. The aforesaid payment shall also be made
on or before 18th March 2014………….”
20
24. An arbitral award, once finalized, is considered legally binding and
has the effect of a court judgment, meaning the parties involved are
obligated to comply with its terms, essentially acting as a final and
conclusive resolution to the dispute submitted to arbitration, however,
limited grounds exist to challenge an award in court if deemed to be
against public policy or if procedural errors occurred during the
arbitration process.
Finality:-
An arbitral award is generally considered final and binding on the
parties involved, unless successfully challenged in court under specific
circumstances.
Enforceability:-
Similar to a court judgment, an arbitral award can be enforced
through legal means if a party fails to comply with its terms.
Res Judicata:-
The principle of “res judicata” applies to arbitral awards, meaning that
once a dispute is settled through arbitration, the same parties cannot
raise the same issues in a subsequent legal proceeding.
25. Limited Review:-
While courts can review an arbitral award, they typically have a
restricted scope to intervene and will only overturn an award on very
limited grounds like manifest errors of law or procedural irregularities.
26. In A. Ayyasamy Vs A. Paramasivam & Ors., AIR 2016 SC 4675,
decided on 4th October, 2016, the Supreme Court held:-
21
“The two courts below have preferred to adopt the
dicta laid down in N. Radhakrishnan while
dismissing the application of the appellant
under Section 8 of the Act holding that as there are
serious allegations as to fraud and malpractices
committed by the appellant in respect of the finances
of the partnership firm and the case does not warrant
to be 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
dispute is not capable of settlement by arbitration
under the law for the time being in force.’ Even when
such a provision is interpreted, what is to be shown is
that there is a law which makes subject matter of a
dispute incapable of settlement by arbitration. The
aforesaid position in law has been culled out from the
combined readings of Sections 5, 16 and 34 of the
Act. When arbitration proceedings are triggered by
one of the parties because of the existence of an
arbitration agreement between them, Section 5 of the
Act, by a non-obstante clause, provides a clear
message that there should not be any judicial
intervention at that stage scuttling the arbitration
proceedings. Even if the other party has objection to
initiation of such arbitration proceedings on the
ground that there is no arbitration agreement or
validity of the arbitration clause or the competence of
22the Arbitral Tribunal is challenged, Section 16, in
clear terms, stipulates that such objections are to be
raised before the Arbitral Tribunal itself which is to
decide, in the first instance, whether there is any
substance in questioning the validity of the arbitration
proceedings on any of the aforesaid grounds. It
follows that the party is not allowed to rush to the
Court for an adjudication. Even after the Arbitral
Tribunal rules on its jurisdiction and decides that
arbitration clause is valid or the Arbitral Tribunal is
legally constituted, the aggrieved party has to wait till
the final award is pronounced and only at that stage
the aggrieved party is allowed to raise such objection
before the Court in proceedings under Section 34 of
the Act while challenging the arbitral award. The
aforesaid scheme of the Act is succinctly brought out
in the following discussion by this Court in Kvaerner
Cementation India Ltd. v. Bajranglal Agarwal &
Anr.[3]:
“3. There cannot be any dispute that in the absence of
any arbitration clause in the agreement, no dispute
could be referred for arbitration to an Arbitral
Tribunal. But, bearing in mind the very object with
which the Arbitration and Conciliation Act, 1996 has
been enacted and the provisions thereof contained
in Section 16 conferring the power on the Arbitral
Tribunal to rule on its own jurisdiction, including
ruling on any objection with respect to existence or
validity of the arbitration agreement, we have no
doubt in our mind that the civil 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
23being 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 that
such proceedings are not valid in law.
What would be the position in case a suit is filed by
the plaintiff and in the said suit the defendant files an
application under Section 8 of the Act questioning the
maintainability of the suit on the ground that parties
had agreed to settle the disputes through the means
of arbitration having regard to the existence of an
arbitration agreement between them?
Obviously, in such a case, the Court is to pronounce
upon arbitrability or non-arbitrability of the disputes.
In the instant case, there is no dispute about the
arbitration agreement inasmuch as there is a specific
arbitration clause in the partnership deed. However,
the question is as to whether the dispute raised by
the respondent in the suit is incapable of settlement
through arbitration. As pointed out above, the Act
does not make any provision excluding any category
of disputes treating them as non-arbitrable.
Notwithstanding the above, the Courts have held that
certain kinds of disputes may not be capable of
adjudication through the means of arbitration. The
Courts have held that certain disputes like criminal
offences of a public nature, disputes arising out of
illegal agreements and disputes relating to status,
such as divorce, cannot be referred to arbitration.
Following categories of disputes are generally treated
as non-arbitrable[4]:
(i) patent, trademarks and copyright;
(ii) anti-trust/competition laws;
(iii) insolvency/winding up;
(iv) bribery/corruption;
(v) fraud;
(vi) criminal matters.
24
Fraud is one such category spelled out by the
decisions of this Court where disputes would be
considered as non-arbitrable.
‘Fraud’ is a knowing misrepresentation of the truth or
concealment of a material fact to induce another to act
to his detriment. Fraud can be of diffeent forms and
hues. Its ingredients are an intention to deceive, use
of unfair means, deliberate concealment of material
facts, or abuse of position of confidence. The Black’s
Law Dictionary defines ‘fraud’ as a concealment or
false representation through a statement or conduct
that injures another who relies on it[5]. However, the
moot question here which has to be addressed would
be as to whether mere allegation of fraud by one
party against the other would be sufficient to exclude
the subject matter of dispute from arbitration and
decision thereof necessary by the civil court.
In Abdul Kadir Shamsuddin Bubere v. Madhav
Prabhakar Oak[6], 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
instituted a suit against the appellant, upon which the
appellant filed an application under Section 8 of the
Act. The applicant made serious allegations against
the respondents of having committed malpractices in
the account books, and manipulation of the finances
of the partnership firm. This Court held that such a
case cannot be properly dealt with by the arbitrator,
25
and ought to be settled by the Court, through detailed
evidence led by both parties.
When the case involves serious allegations of fraud,
the dicta contained in the aforesaid judgments would
be understandable. However, at the same time, mere
allegation of fraud in the pleadings by one party
against the other cannot be a ground to hold that the
matter is incapable of settlement by arbitration and
should be decided by the civil court. The allegations of
fraud should be such that not only these allegations
are serious that in normal course these may even
constitute criminal offence, they are also complex in
nature and the decision on these issues demand
extensive evidence for which civil court should appear
to be more appropriate forum than the Arbitral
Tribunal. Otherwise, it may become a convenient
mode of avoiding the process of arbitration by simply
using the device of making allegations of fraud and
pleading that issue of fraud needs to be decided by
the civil court. The judgment in N. Radhakrishnan
does not touch upon this aspect and said decision is
rendered after finding that allegations of fraud were
of serious nature.
As noted above, in Swiss Timing Ltd. case, single
Judge of this Court while dealing with the same issue
in an application under Section 11 of the Act treated
the judgment in N. Radhakrishnan as per incuriam by
referring to the other judgments in the case of P.
Anand Gajapathi Raju v. P.V.G. Raju[8]
and Hindustan Petroleum Corpn. Ltd. v. Pinkcity
Midway Petroleums[9]. Two reasons were given in
support which can be found in para 21 of the
judgment which makes the following reading:
“21. This judgment was not even brought to the note
of the Court in N. Radhakrishnan’s case. In my
opinion, judgment in N. Radhakrishnan’s case is per
incuriam on two grounds; Firstly, the judgment in
Hindustan Petroleum Corpn. Ltd., though referred has
not been distinguished but at the same time is not
followed also. The judgment in P. Anand Gajapathi
Raju & Ors. Was 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
26not 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[10]. 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 have referred the disputes to
arbitration?
As we are concerned with the first facet of the
arbitrability of dispute, on this aspect the Court
pointed out that in those cases where the subject
matter falls exclusively within the domain of public
fora, viz. the Courts, such disputes would be non-
arbitrable and cannot be decided by the Arbitral
Tribunal but by the Courts alone. The justification and
rationale given for adjudicating such disputes through
the process of Courts, i.e. public fora, and not by
Arbitral Tribunals, which is a private forum, is given
by the court in the following manner:
“35. The Arbitral Tribunals are private fora chosen
voluntarily by the parties to the dispute, to adjudicate
their disputes in place of courts and tribunals which
are public fora constituted under the laws of the
country. Every civil or commercial dispute, either
contractual or non-contractual, which can be decided
by a court, is in principle capable of being adjudicated
and resolved by arbitration unless the jurisdiction of
the Arbitral Tribunals is excluded either expressly or
by necessary implication. Adjudication of certain
categories of proceedings are reserved by the
legislature exclusively for public fora as a matter of
public policy. Certain other categories of cases,
though not expressly reserved for adjudication by
public fora (courts and tribunals), may by necessary
27implication stand excluded from the purview of
private fora. Consequently, where the cause/dispute
is inarbitrable, the court where a suit is pending, will
refuse to refer the parties to arbitration, under Section
8 of the Act, even if the parties might have agreed
upon arbitration as the forum for settlement of such
disputes.
36. The well-recognised examples of non-arbitrable
disputes are: (i) disputes relating to rights and
liabilities which give rise to or arise out of criminal
offences; (ii) matrimonial disputes relating to divorce,
judicial separation, restitution of conjugal rights, child
custody; (iii) guardianship matters; (iv) insolvency and
winding-up matters; (v) testamentary matters (grant
of probate, letters of administration and succession
certificate); and (vi) eviction or tenancy matters
governed by special statutes where the tenant enjoys
statutory protection against eviction and only the
specified courts 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 adjudicated by courts and public
tribunals, being unsuited for private arbitration. This
is not however a rigid or inflexible rule. Disputes
relating to subordinate rights in personam arising
from rights in rem have always been considered to be
arbitrable.” The Law Commission has taken note of
28the fact that there is divergence of views between the
different High Courts where two views have been
expressed, one is in favor of the civil court having
jurisdiction in cases of serious fraud and the other
view encompasses that even in cases of serious
fraud, the Arbitral Tribunal will rule on its own
jurisdiction. It may be pertinent here to reproduce the
observations of the Law Commission as contained in
paragraphs 50 & 51 of the 246th Law Commission
Report, which are as under:
“”50. The issue of arbitrability of fraud has arisen on
numerous occasions and there exist conflicting
decisions of the Apex Court on this issue. While it has
been held in Bharat Rasiklalv. Gautam Rasiklal,
(2012) 2 SCC 144 that when fraud is of such a nature
that it vitiates the arbitration agreement, it is for the
Court to decide on the validity of the arbitration
agreement by determining the issue of fraud, there
exists two parallel lines of judgments on the issue of
whether an issue of fraud is arbitrable.
In this context, a 2 judge bench of the Supreme Court,
while adjudicating on an application under section
8 of the Act, in Radhakrishnan v. Maestro Engineers,
2010 1 SCC 72 held that an issue of 28 fraud is not
arbitrable. This decision was ostensibly based on the
decision of the three judge bench of the Supreme
Court in Abdul Qadir v. Madhav Prabhakar, AIR 1962
SC 406. However, the said 3 judge bench decision
(which was based on the finding in Russel v.
Russel [1880 14 Ch.D 471]) is only an authority for
the proposition that a party against whom an
allegation of fraud is made in a public forum, has a
right to defend himself in that public forum. Yet,
following Radhakrishnan, it appears that issues of
fraud are not arbitrable.
51. A distinction has also been made by certain
High Courts between a serious issue of fraud
and a mere allegation of fraud and the former
has been held to be not arbitrable (SeeIvory
Properties and Hotels Private Ltd v. Nusli Neville
Wadia, 2011 (2) Arb LR 479 (Bom); CS
Ravishankar v. CK Ravishankar, 2011 (6) Kar LJ
417). The Supreme 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
29
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 can be determined by
the Arbitral Tribunal.
Before we apply the aforesaid test to the facts of the
present case, a word on the observations in Swiss
Timing Ltd.‘s case to the effect that judgment of N.
Radhakrishnan was per incuriam, is warranted. In
fact, we do not have to labour on this aspect as this
task is already undertaken by this Court in State of
West Bengal & Ors. v. Associated Contractors[11]. It
has been clarified in the aforesaid case that Swiss
Timings Ltd. was a judgment rendered while dealing
with Section 11(6) of the Act and Section
11 essentially confers power on the Chief Judge of
India or the Chief Justice of the High Court as a
designate to appoint an arbitrator, which power has
been exercised by another Hon’ble Judge as a
delegate of the Chief Justice. This power of
appointment of an arbitrator under Section 11 by the
Court, notwithstanding the fact that it has been held
in SBP & Co. v. Patel Engineering Ltd. & Anr.[12] as a
judicial power, cannot be deemed to have
precedential value and, therefore, it cannot be
deemed to have overruled the proposition of law laid
down in N.Radhakrishnan.
In view of our aforesaid discussions, we are of
the opinion that mere allegation of fraud
30
simplicitor may not be a ground to nullify the
effect of arbitration agreement between the
parties. It is only in those cases where the
Court, while dealing with Section 8 of the Act,
finds that there are very serious allegations of
fraud which make a virtual case of criminal
offence or where allegations of fraud are so
complicated that it becomes absolutely essential
that such complex issues can be decided only by
civil court on the appreciation of the voluminous
evidence that needs to be produced, the Court
can sidetrack the agreement by dismissing
application under Section 8 and proceed with
the suit on merits. It can be so done also in
those cases where there are serious allegations
of forgery/fabrication of documents in support
of the plea of fraud or where fraud is alleged
against the arbitration provision itself or is of
such a nature that permeates the entire
contract, including the agreement to arbitrate,
meaning thereby in those cases where fraud
goes to the validity of the contract itself of the
entire contract which contains the arbitration
clause or the validity of the arbitration clause
itself. Reverse position thereof would be that
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
31
8 of the Act, should be on the aforesaid aspect,
viz. whether the nature of dispute is such that it
cannot be referred to arbitration, even if there is
an arbitration agreement between the parties.
When the case of fraud is set up by one of the
parties and on that basis that party wants to
wriggle out of that arbitration agreement, a
strict and meticulous inquiry into the
allegations of fraud is needed and only when
the Court is satisfied that the allegations are of
serious and complicated nature that it would be
more appropriate for the Court to deal with the
subject matter rather than relegating the
parties to arbitration, then alone such an
application under Section 8 should be rejected.
When we apply the aforesaid principles to the
facts of this case, we find that the only
allegation of fraud that is levelled is that the
appellant had signed and issued a cheque of Rs.
10,00,050/- dated 17.06.2010 of ‘Hotel
Arunagiri’ in favour of his son without the
knowledge and consent of the other partners i.e.
the respondents. It is a mere matter of accounts
which can be looked into and found out even by
the arbitrator. It does not involve any complex
issue. If such a cheque is issued from the hotel
account by the appellant in favour of his son, it
is easy to prove the same and then the onus is
upon the appellant to show as to what was the
reason for giving that amount from the
partnership firm to his son and he will have to
account for the same. Likewise, the allegation of
the respondents that daily collections are not
deposited in the bank accounts is to be proved
by the respondents which is again a matter of
accounts.”
27. In Indu Engineering & Textiles Ltd. vs Delhi Development
Authority, AIR 2001 SC 2668, decided on 11 July, 2001, the
Supreme Court held:-
“……………..The scope for interference by the
court with an award passed by the arbitrator is
limited. Section 30 of the Arbitration Act, 1940 (for
short ‘the Act’) provides in somewhat mandatory
32terms that an award shall not be set aside except on
one or more of the grounds enumerated in the
provision. The three grounds set out in the Section are
:
(a) that an arbitrator or umpire has misconducted
himself or the proceedings;
(b) that an award has been made after the issue of an
order by the Court superseding the arbitration or after
arbitration proceedings have become invalid
under Section 35;
(c) that an award has been improperly 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 payable under
clause 9 included discounts. On the aforesaid basis it
was contended that there was an error of law and
such error was manifest on the face of the award.
Even assuming, however, that there was an error of
law in arriving at a conclusion, such an error is not an
error which is amenable to correction even in a
33reasoned award under the law. Reference may be
made to the observations of this Court in Coimbatore
District P.T.Samgam v. Bala Subramania
Foundry (1987) 3 SCC 723, where it was reiterated
that an award can only be set aside if there is an
error on its face. Further, it is an error of law and not
mistake of fact committed by the arbitrator which is
justiciable in the application before the court. Where
the alleged mistakes or errors, if any, of which
grievances were made were mistakes of facts if at all,
and did not amount to error of law apparent on the
face of the record, the objections were not sustainable
and the award could not be set aside. See also the
observations of this Court in Delhi Municipal Corpn.
Vs. M/s.Jagan Nath Ashok Kumar, (1987) 4 SCC 497,
where this Court reiterated that reasonableness of the
reasons given by an arbitrator in making his award
cannot be challenged. In that case before this Court,
there was no evidence of violation of any principle of
natural justice, and in this case also there is no
violation of the principles of natural justice. It may be
possible that on the same evidence some court might
have arrived at some different conclusion than the
one arrived at by the arbitrator but that by itself is no
ground for setting aside the award of an arbitrator.
Also see the observations in Halsbury’s Laws of
England, 4th edn., Vol.2, at pages 334 and 335, para
624, where it was reiterated that an arbitrator’s
award may be set aside for error of law appearing on
the face of it, though that jurisdiction is not lightly to
be exercised. If a specific question of law is submitted
to the arbitrator for his decision and he decides it, the
fact that the decision is erroneous does not make the
award bad on its face so as to permit it being set
aside; and where the question referred for arbitration
is a question of construction, which is, generally
speaking, a question of law, the arbitrator’s decision
cannot be set aside only because the court would
itself have come to a different conclusion; but if it
appears 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
34Umpire 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 that the
arbitrator had acted contrary to the provisions
of Section 70 of the Contract Act, it was held that the
same could not be set aside.”………”
28. In the present case the arbitral award has been passed on 4th
March, 2014.
29. The complainant having initially participated in the arbitral proceeding
has initiated the present criminal proceeding on 29th March, 2023.
30. The arbitral award was granted in favour of the petitioner company
herein on the basis of documents and evidence before the learned
arbitrator.
31. There is no whisper of the said arbitral proceedings nor its award
in the petition of complaint.
32. The complainant having suffered an arbitral award, initiated the
criminal proceedings after 9 long years, which prima facie appears
to be malafide and motivated.
33. Having admitted, making payment by way of cheque to the petitioner
herein (later dishonoured), the income tax rules requires mandatory
deduction of TDS by the complainant.
35
34. Thus considering the said facts and circumstances the materials on
record prima facie do not contain the ingredients required to constitute
the offences alleged and as such, continuation of the said proceeding
in the present case shall be an abuse of the process of law/court.
35. CRR 348 of 2024 is allowed.
36. The proceeding arising out of case no. CS 27633 of 2023, pending
before the learned Metropolitan Magistrate, 19th Court, Calcutta,
under Sections 120B/409/418/420/465/467/468/471 of the Indian
Penal Code, is hereby quashed in respect of the petitioner Ingram
Micro India Pvt. Ltd.
37. All connected applications, if any, stand disposed of.
38. There will be no order as to costs.
39. Interim order, if any, stands vacated.
40. Copy of this judgment be sent to the learned Trial Court for necessary
compliance.
41. Urgent certified website copy of this judgment, if applied for, be
supplied expeditiously after complying with all, necessary legal
formalities.
(Shampa Dutt (Paul), J.)
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