Can’t Continue Prosecution Against Directors Alone Without Impleading Company: Delhi High Court Quashes Proceedings U/s.276 Of Income Tax Act

The Petitions before the High Court were filed under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (Section 482 of Cr.P.C.), seeking quashing of a complaint case as well as the summoning orders of the Trial Court.

Referring to the judgment in Aneeta Hada v. Godfather Travels & Tours (2012), the Single Bench of Justice Ravinder Dudeja stated, “Thus, in absence of the Company being made an accused, the prosecution is contrary to Section 278B and the law declared in Aneeta Hada (supra).”

“Thus, on both settled law and the facts of this case, the continuation of prosecution against the petitioners as Directors alone without impleading the Company as an accused would be contrary to law and amount to an abuse of process”, it added.

Advocate Arjun Dewan represented the Appellant while Senior Standing Counsel Sunil Agarwal represented the Respondent.

Factual Background

It was alleged that the company M/s SNR Buildwell Pvt. Ltd. failed to discharge the tax liabilities for the Assessment Years 2014-15, 2015-16 and 2016-17, leading the Income Tax Department to raise a demand for tax dues amounting to Rs 4,44,82,912. During the pendency of recovery proceedings, it was found that the Company, through its Director, transferred an Audi Car in favour of his daughter-in-law without adequate consideration. The Department treated this transfer as void under Section 281 of the Income Tax Act, 1961 and proceeded to prosecute the Directors under Section 276.

The Principal Commissioner of Income Tax accorded sanction to prosecute the petitioner under section 276 of the Income Tax Act. The complaints were filed against the petitioners before the trial court, but the Company itself was not arrayed as an accused. The petitioners objected that in the absence of the company being a party, prosecution against them was not maintainable. By the impugned orders, the Trial Court held that the complaints were maintainable, thereby listing the matter for framing of notice. Aggrieved thereby, the Petitioners approached the High Court.

Reasoning

The Bench referred to Section 278B of the IT Act, which says that where an offence is committed by a company, “the company as well as every person in charge” shall be deemed guilty. “Section 278B creates a deeming fiction whereby both the Company and every person in charge are deemed guilty of the offence. The legislative intent is clear that the Company must first be arraigned; only then can its officers be fastened with vicarious liability. The structure of the provision is pari materia to Section 141 of NI Act. Thus, jurisprudence under Section 141 of NI Act is directly applicable”, it held.

The Bench found that the complaints were premised on the company’s liability for its outstanding tax dues and the alleged transfer of company assets. The petitioners were arraigned solely as “Directors”, and no independent allegation was made against them in their personal capacity. “Hence, the omission to implead the company is therefore not a mere technical irregularity but goes to the root of jurisdiction”, it added.

The Bench noted that the judgments in Bansal Milk Chilling Centre v. Rana Milk Food Pvt. Ltd. (2025) and S.R. Kumar v. S. Sunaad Raghuram (2015) do not dilute the mandatory requirement of impleading the company.

Thus, holding that the continuation of prosecution against the petitioners as Directors alone without impleading the Company would be an abuse of process, the Bench set aside the impugned orders and quashed the complaint as well as the proceedings emanating therefrom.

Cause Title: Nilesh Agarwal v. Income Tax Office (ITO) (Neutral Citation: 2025:DHC:8961)

Appearance

Petitioner: Advocates Arjun Dewan, Akash Arora, Jasraj Singh Chhabra

Respondent: Senior Standing Counsel Sunil Agarwal, Junior Standing Counsels Viplav Acharya, Priya Sarkar, Advocate Utkarsh Tiwari

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