Director Cannot Be Prosecuted Under GST Act Without Impleading Company As Accused: Punjab & Haryana High Court

"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." Punjab and Haryana High Court, in a significant ruling, held that criminal prosecution against a director under Section 132 of the Central Goods and Services Tax Act, 2017 is not maintainable unless the company itself is arraigned as an accused.

A bench of Justice Shalini Singh Nagpal observed that Section 137 of the CGST Act is pari materia with Section 141 of the Negotiable Instruments Act, making the active prosecution of the corporate entity an absolute prerequisite for fastening vicarious liability on its officers.

Company Accused of Fraudulent ITC Claim

The Directorate of Goods and Services Tax Intelligence instituted a criminal complaint against Manoj Bansal, the director of M/s Nikita Industries Pvt. Ltd., alleging that the company fraudulently availed and utilized input tax credit worth over fifteen crore rupees through fake invoices without actual receipt of goods. The petitioner approached the high court seeking quashing of the complaint on the ground that the company itself had not been made a party to the criminal proceedings.

Question of Corporate Vicarious Liability

The primary question before the court was whether a director of a company can be prosecuted individually under Section 132 of the CGST Act without impleading the company as an accused. The court was also called upon to determine whether penal provisions under tax statutes demand strict construction akin to negotiable instruments law.

Statutory Framework and Strict Construction "Penal Statutes Require Strict Construction"

The court analyzed Section 137 of the CGST Act, 2017, which governs offences by companies, alongside Section 141 of the Negotiable Instruments Act, 1881. The bench noted that both statutory provisions utilize identical phrasing, establishing that where an offence is committed by a company, the company as well as every person in charge of its conduct shall be deemed guilty.

"Commission of Offence By Company Is A Condition Precedent"

Relying heavily on the landmark three-judge bench decision of the Supreme Court in Aneeta Handa v. Godfather Travels and Tours Private Limited, the high court emphasized that the corporate entity is a juristic person and its prosecution is a mandatory prerequisite. The bench observed that the words "as well as the company" in the statutory text make it unmistakably clear that other categories of offenders can only be brought into the dragnet of vicarious liability when the primary corporate offender is prosecuted.

Direct Application of Binding Precedents "Principles Established Under NI Act Apply To CGST Act"

The court cited a catena of apex court judgments, including Himanshu v. B. Shivamurthy and Sharad Kumar Sanghi v. Sangita Rane, reaffirming that criminal proceedings cannot proceed against a managing director or director in the absence of the company being arrayed as a party. The bench pointed out that M/s Nikita Industries Pvt. Ltd. was the "registered person" under Section 2(94) of the CGST Act who allegedly claimed the input tax credit, while the petitioner merely acted in a directorial capacity.

"No Vicarious Liability Without Company As Party"

The revenue authorities argued that the petitioner was the mastermind and direct beneficiary of the fraudulent scheme, and thus liable regardless of the company's absence. Rejecting this contention, the high court held that even if individual active participation is alleged, statutory vicarious liability mechanisms under tax legislation cannot bypass the foundational requirement of prosecuting the principal corporate offender first.

Final Directions and Relief Granted

Concluding that the trial proceedings against the petitioner amounted to an abuse of the process of law, the high court allowed the petition and quashed the complaint pending before the Chief Judicial Magistrate, Rohtak. However, the bench clarified that the revenue authorities remain at liberty to initiate fresh proceedings under Section 132 of the CGST Act strictly in accordance with law, by properly arraying the corporate entity.

Date of Decision: 01 August 2026