The Punjab and Haryana High Court ruled that a company must be charged as an accused before its director can be prosecuted vicariously under Section 137 of the CGST Act. The case involved Manoj Bansal, the Director of M/s Nikita Industries Pvt. Ltd. (NIPL), who challenged a GST prosecution against him personally under Section 132 of the CGST Act, 2017. Bansal argued that the charges should be against NIPL, the registered entity, not him personally, as the alleged fraudulent Input Tax Credit (ITC) transactions were conducted by the company.
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The Directorate of Goods and Services Tax Intelligence (DGGI) claimed Bansal facilitated fraudulent ITC worth ₹15.44 crore through fake invoices. Bansal contended that without NIPL being named as an accused, he could not be held vicariously liable. He referenced Supreme Court decisions, particularly the Aneeta Hada case, to support his argument.
The Court noted that Section 137 of the CGST Act, similar to Section 141 of the Negotiable Instruments Act, requires a company to be prosecuted before its directors can be held liable. Since NIPL was the entity that allegedly availed the ITC, Bansal's prosecution alone was insufficient. Consequently, the complaint against Bansal was quashed, though DGGI was permitted to proceed against him under Section 132 if done in accordance with the law.
Order Date - 01 August 2026
Parties: Manoj Bansal Vs Deputy Director, Directorate of Goods and Services Tax Intelligence, Gurugram
Facts -
- Petitioner, Manoj Bansal, Director of M/s Nikita Industries Pvt. Ltd. (NIPL), challenged a GST prosecution filed against him personally under Section 132 of the CGST Act, 2017. He argued that NIPL, and not he personally, was the registered person that had allegedly availed the ITC.
- Manoj Bansal was alleged by DGGI to have facilitated fraudulent ITC of about ₹15.44 crore through invoices issued by 31 bogus/dummy entities, without actual supply of goods. The department alleged that he actively managed and orchestrated the transactions as NIPL’s Director.
- Manoj Bansal contended that NIPL itself had not been made an accused in the criminal complaint. He relied on Supreme Court decisions, particularly Aneeta Hada, to argue that a Director cannot be proceeded against vicariously when the company alleged to have committed the offence is not arraigned.
- Manoj Bansal also pointed out that NIPL was the registered person under GST, had allegedly availed the ITC, and had separately received a demand-cum-show cause notice under Section 74 and pursued an appeal under Section 107 of the CGST Act.
Issue -
- Whether a Director can be prosecuted individually under Section 137 of the CGST Act for fraudulent ITC allegedly availed by a company when the company itself has not been arraigned as an accused?
Order -
- Section 137 creates vicarious liability for persons responsible for a company’s offence. The Court noted that where the offence is committed by a company, the company as well as persons responsible for its business can be proceeded against; the provision also covers consent, connivance or negligence of directors and officers.
- Section 137 of the CGST Act is pari materia with Section 141 of the Negotiable Instruments Act. Therefore, the Supreme Court’s settled interpretation of Section 141, including Aneeta Hada, was held applicable while interpreting the requirement of arraigning the company under the GST law.
- The company’s prosecution is an express condition precedent for fastening vicarious liability on its Director. Since NIPL was admittedly the registered person that allegedly availed the ₹15.44 crore ITC, prosecution of Manoj Bansal alone could not legally sustain the allegation against him in his capacity as Director.
- The complaint against Manoj Bansal was therefore quashed. The Court held that without arraigning NIPL as an accused, the complaint and consequential proceedings could not proceed; however, DGGI was left free to proceed under Section 132 of the CGST Act in accordance with law.
