Prosecution of Director for Non-payment of TDS

With the ever-increasing cases of prosecution for non-payment of TDS deducted, Bombay High Court has reinstated the importance of section 2(35)(b) for treating a particular director as a principal officer and thereby initiating the prosecution proceedings in relation to such director.

In the present case, the Company had nominated a person as principal officer in respect of the offence of delay in payment of TDS. However, such nomination was rejected by the Department and an opportunity was provided to the Company to nominate a principal officer. However, in the absence of any reply, the Department treated all the directors of the Company as the principal officer. Accordingly, the Magistrate sanctioned the prosecution in respect of Anish Modi who was a non-executive, independent and nominee director. In this regard, Honorable Bombay High Court categorically held that the statutory requirement of service of notice under section 2(35)(b) is required to be complied with for initiating prosecution proceedings against a director. In view of the fact, that no such notice was issued in the present case therefore the Bombay High Court held that said non-compliance goes to the root cause of the matter and dents the prosecution against the director and as such the prosecution order passed was quashed.