Facts of the case:
In this case, the petitioner Mr. Manoj Bansal approached the Punjab & Haryana High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, seeking quashing of Complaint No. COMA-86-2021 dated 05.02.2021 filed by the Deputy Director, Directorate General of GST Intelligence (DGGI), Gurugram, under Section 132 of the CGST Act, 2017.
The prosecution arose from an investigation conducted by DGGI into the affairs of M/s Nikita Industries Pvt. Ltd. (NIPL), a registered taxable person under the GST law. During searches conducted at the premises of the company, DGGI allegedly discovered incriminating documents indicating that NIPL had fraudulently availed Input Tax Credit (ITC) amounting to approximately ₹15.44 crore on the basis of invoices issued by 31 non-existent or dummy entities without actual receipt of goods.
According to the department, the company procured lead metal from the open market in cash without invoices and thereafter obtained bogus tax invoices through brokers solely for the purpose of availing ITC. The investigation concluded that the petitioner, being the Director of NIPL, was the mastermind behind the arrangement and actively managed the affairs of the company, thereby causing wrongful loss to the Government exchequer.
On the basis of the investigation, a criminal complaint was filed against Mr. Manoj Bansal alone under Section 132(1)(b) and 132(1)(c) of the CGST Act, 2017. Notably, NIPL itself was not arrayed as an accused in the criminal complaint.
The petitioner challenged the maintainability of the prosecution, contending that the alleged wrongful ITC was availed by NIPL, which alone was the registered person entitled to avail ITC under the GST law. Since the company had not been made an accused, the prosecution against the Director alone was legally unsustainable. The petitioner further argued that liability under Section 137 of the CGST Act could arise only when proceedings were simultaneously maintained against the company.
The department opposed the petition by asserting that the petitioner was not being prosecuted merely on the basis of vicarious liability but because he was the principal architect and beneficiary of the fraudulent scheme. It was also argued that his active involvement in the company’s affairs justified independent prosecution even if the company had not been impleaded.
Issue:
Whether a Director of a company can be prosecuted individually under Section 132 of the CGST Act, 2017 for fraudulent availment of ITC when the company, which allegedly availed such ITC, has not been arraigned as an accused in the criminal complaint?
Held That:
The Punjab & Haryana High Court allowed the petition and quashed the criminal complaint as well as all consequential proceedings.
The Court observed that Section 137 of the CGST Act, 2017, which governs offences committed by companies, is substantially similar and pari materia to Section 141 of the Negotiable Instruments Act, 1881. Both provisions create a statutory mechanism for fastening vicarious criminal liability upon directors and officers for offences committed by a company.
Relying extensively on the landmark decisions of the Supreme Court in Aneeta Hada v. Godfather Travels & Tours Pvt. Ltd., Anil Gupta v. Star India Pvt. Ltd., Himanshu v. B. Shivamurthy, Sharad Kumar Sanghi v. Sangita Rane, and Dayle De Souza v. Union of India, the Court reiterated the settled legal principle that prosecution of directors or officers under a vicarious liability provision is maintainable only when the company itself is prosecuted as the principal offender.
The Court noted that under Section 16 of the CGST Act, only a registered person can avail ITC. The petitioner was not a registered person under the Act. Rather, it was NIPL that was registered under GST and had allegedly availed the disputed ITC. Significantly, the show cause notice under Section 74 and subsequent adjudication proceedings had also been initiated against NIPL, and the company had even preferred an appeal under Section 107 of the CGST Act.
The High Court held that the alleged offence of wrongful availment of ITC was attributed to NIPL and the role attributed to the petitioner was solely in his capacity as Director of the company. Therefore, the commission of the offence by the company constituted a condition precedent for invoking the vicarious liability provisions of Section 137 against its directors.
Rejecting the department’s argument that the petitioner could be independently prosecuted as the mastermind behind the fraud, the Court held that such a proposition had no legal foundation in light of the settled law laid down by the Supreme Court. Once the company had not been arraigned as an accused, the prosecution against its Director alone could not survive.
Accordingly, the Court concluded that:
“In the absence of the company being made an accused, no vicarious criminal liability can be fastened upon the Director under Section 137 of the CGST Act, 2017.”
The complaint and all consequential proceedings were therefore quashed. However, the Court clarified that the department would be at liberty to initiate fresh proceedings under Section 132 of the CGST Act in accordance with law.
Case Name: Manoj Bansal Versus Deputy Director, Directorate of Goods and Services, Gurugram dated 01.08.2026
Citation No. 2026 Taxo.online 2204
