The Judgment of the Court was delivered by

Ruma Pal, J.:— The subject matter of the challenge in this writ application is a complaint file under sections 276. C and 277 of the Income-tax Act, 19.61 (referred to as “the Act”). The assessment year in question is 1984–85. Cognizance has been taken of the complaint by the Chief Metropolitan Magistrate, Calcutta, and the proceedings have been numbered as Case No. C/1286 of 1992 against the accused. Each of the petitioners including the petitioner-company is an accused in the case.

2. The background of the facts leading to the initiation of the criminal proceedings against the writ petitioners briefly stated is as follows:

On December 5, 1985, the petitioner-company filed a writ application (C.R No. 12099/(W) of 1983), inter alia, challenging the constitutional validity of section 43B of the Act. A rule was issued and an interim order was passed restraining the respondent authorities from applying the provisions of section 43B of the Act with regard to the assessment of the petitioner-company. The petitioner-company was also restrained from submitting any estimate of advance tax or return for the assessment year 1984–85 and onwards on the basis of or in accordance with section 43B of the Act.

3. During the pendency of the writ application and the operation of the interim order, on June 28, 1984, the petitioner-compamy filed its return for the assessment year 1984–85. The audited accounts were enclosed along with the return. On September 22, 1986. a notice was issued under section 142(1) of the Act in respect of the assessment year 1984–85 calling upon the petitioner-company to furnish certain particulars. The particulars were furnished on January 15, 1987. by a letter.

4. On March 17, 1988, the interim order in the first writ application was modified by giving liberty to the respondent authorities to commence and conclude the assessment proceedings after taking into consideration the provisions of section 43B of the Act and to pass a final order. The respondent authorities were, however, restrained from giving effect to or enforcing or communicating the said order to the petitioner-company without the leave of the court.

5. On March 28, 1988, the assessment order was passed in respect of the assessment year 1984–85 and on December 5, 1989, the first writ application was dismissed. The petitioners preferred an appeal from such dismissal. The appeal is pending.

6. By virtue of the dismissal of the first writ application the interim order restraining communication of the assessment order also stood vacated.

7. On January 9, 1990, the assessment order for the assessment year in question was communicated to the petitioner-company. The petitioner-company preferred an appeal from the assessment order before the Commissioner of Income-tax (Appeals). In the course of hearing before the Commissioner of Income-tax (Appeals), the petitioner-company filed certain details of liabilities on January 1, 1993. By an order dated September 9, 1990, the Commissioner of Income-tax (Appeals) enhanced the assessment of the petitioner by Rs. 10.35 crores. This enhanced income included a sum of Rs. 6.25 crores which is the subject-matter of the criminal complaint. The Commissioner of Income-tax (Appeals) also imposed penalty on the company under section 271(1)(c) of the Act. The company preferred an appeal from the imposition of penalty before the Tribunal. This appeal is still pending.

8. The enhancement was made, according to the petitioner, by applying section 43B of the Act. The petitioner preferred a further appeal from the order of the Commissioner of Income-tax (Appeals). The appeal was partially allowed by the Tribunal.

9. On April 3, 1992, the petitioner-company filed an application under section 256(1) of the Act in respect of the assessment year 1984–85 calling upon the Tribunal to refer the matters arising out of the order of the Tribunal to this court. On September 14, 1992, the Tribunal sent a draft statement of case under section 256(1) of the Act. The reference application is still pending.

10. On September 25, 1992, the impugned complaint was filed by respondent No. 1 in respect of the assessment year in question. The petitioner has submitted that:

(1) The prosecution could have been launched only by the Commissioner of Income-tax (Appeals) and not by the Commissioner of Income-tax (Administration) as had been done in this case.

(2) The main accused was the petitioner-company. The punishment provided under section 276C(1)(i) and section 277 was rigorous imprisonment and fine. The company could not be imprisoned and as such no prosecution could lie against petitioner No. 1. Reliance has been placed on the decisions in Kusum Products Ltd. v. S.K Sinha, ITO, [1980] 126 ITR 804 (Cal) and P.V Pax v. R.L Rinawma, Deputy CIT, [1993] 200 ITR 717 (Kar).

(3) Apart from petitioner No. 1, the complaint had been filed against twelve persons, seven of whom were the directors, one of whom was the treasurer, one of whom was the secretary, one of whom was the assistant manager and the last was the taxation controller who attended income-tax hearings. It is said that the complaint makes no specific allegations in respect of these 12 persons. In the absence of such specific allegation such a wholesale complaint could not be sustained. Reliance has been placed on the decisions in Municipal Corporation of Delhi v. Ram Kishan Rohtagi, (1983) 1 SCC 1 : AIR 1983 SC 67, and Sham Sundar v. State of Haryana, [1990] 67 Comp Cas 1 : (1989) 4 SCC 630 : AIR 1989 SC 1982, in this connection. It is submitted that no useful purpose would be served in keeping the criminal prosecution alive when the basis of the prosecution was defective. As such the prosecution should be quashed. The decisions of the Supreme Court in Madhavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre, (1988) 1 SCC 692 : AIR 1988 SC 709, and Punjab National Bank v. Surendra Prasad Sinha, 1993 Supp (1) SCC 499 : AIR 1992 SC 1815, have been cited in this context. In fact, it is said that several of the petitioners had retired or left the petitioner-company much before the initiation of the proceedings or the submission of the letter dated January 15, 1987, which according to the income-tax authorities was the basis of the complaint. Several other accused had joined the company after that date.

(4) It is said that before the sanction for prosecution was granted and the complaint lodged, the petitioners should have been given an opportunity of being heard. This was because under section 279A offences under sections 276C and 277 are non-cognizable. Furthermore, they can be compounded under section 279(2) either before or after the institution of the proceedings. In the absence of notice of prosecution being given, the petitioners have not been able to avail of the right to compound the offence before the institution of the proceedings. Reference has been made to a Division Bench judgment of the Karnataka High Court in P.V Pal v. R.L Rinawma, Deputy CIT, [1993] 200 ITR 717; Rao Bahadur Ravulu Subba Rao v. CIT, [1956] 30 ITR 163 (SC) and Pannalal Binjraj v. Union of India, [1957] 31 ITR 565 (SC) in this context.

(5) The criminal prosecution, in any event, should be stayed because a reference was pending in respect of the very same question which formed the basis of the complaint before this court. The decision of the High Court would be binding on the lower authorities. The imposition of penalty was also challenged by way of an appeal and the result of the appeal against the penalty order would have a direct impact on the complaint. It is submitted that if the decision of the High Court on the reference application is decided in favour of the petitioners no real relief would be granted. It would not be a mere refund of money but a question of ignominy and inconvenience of imprisonment which would have been suffered in the meantime by the petitioners.

11. The final submission of the petitioners is that even if the facts stated in the complaint were taken to be correct, no offence was disclosed which could be prosecuted under section 276C. The claim of the respondents was on the basis of the applicability of section 43B. The return which was filed was on the basis that section 43B was not applicable. This was because of the interim order passed on the first writ application which was then subsisting. Furthermore, the respondents were proceeding on the basis that the petitioner-company had sought to evade tax by wrongfully claiming a deduction. The petitioner had, in fact, not claimed the deduction and as such the question of evasion of payment of tax did not arise.

12. The respondents have submitted:

1. That the petitioner-company had deliberately not disclosed an amount of Rs. 6.25 crores as its income on account of excise duty liability written back. This non-disclosure had nothing to do with the applicability of section 43B of the Act.

2. Under section 278A of the Income-tax Act it has been specifically provided that an offence can be committed by a company and under section 278E, there is a presumption of mental state which is mens rea.

3. Whether there was any criminal intention in fact is a question which can only be asserted or appreciated upon evidence and not in a writ court. Reliance has been placed on the decision in Dr. (Mrs.) M.S Dhowani v. J. Ranganathan, Second ITO, [1992] 194 ITR 690 (Mad).

4. There is no scope for granting an opportunity of being heard as has been held in the decision in Dr. (Mrs.) M.S Dhowani v. J. Ranganathan, Second ITO, [1992] 194 ITR 690 (Mad) for the purpose of granting sanction. No opportunity of being heard could have been given. Besides it is still open to the writ petitioners to approach the authorities to compound the offence under section 279(2). There is, therefore, no question of prejudice being suffered by the petitioners.

5. Since the criminal proceeding has been initiated and the criminal court had taken cognizance, the writ petitioners should not be permitted to challenge the same under article 226. There is a specific remedy under section 482 of the Criminal Procedure Code. The decision in Shiv Shanker Sitaram v. ITAT, [1987] 168 ITR 275 (All) has been relied on to contend that once cognizance has been taken, the same can only be challenged under the Criminal Procedure Code. It has also been urged that the Supreme Court in the case of J.P Sharma v. Vinod Kr. Jain, AIR 1986 SC 833 : (1986) 3 SCC 67, has held that if the criminal court has taken cognizance of an offence after being satisfied about the prima facie nature of the same, the High Court has no jurisdiction to quash the proceedings even under section 482 of the Criminal Procedure Code.

6. Finally, it has been submitted that merely because a reference application was pending before this court and merely because an appeal was pending against imposition of penalty, this would not bar criminal proceedings if the ingredients of the offence charged are prima facie fulfilled. According to the respondent, this has been decided in P. Jayappan v. S.K Perumal, First ITO, [1984] 149 ITR 696 (SC).

13. The fifth submission of the respondent noted above is taken up first for consideration as it relates to the question of maintainability of the application and if decided in favour of the respondent would determine the matter finally as far as this court is concerned.

14. The submission of the respondents appears to be, first, that criminal proceedings cannot be quashed once cognizance has been taken; and, second, that in any event a grievance with regard to criminal proceedings could be decided only under the Code of Criminal Procedure and not under article 226.

15. There is no authority to support either of the propositions.

16. The decision in J.P Sharma v. Vinod Kumar Jain, (1986) 3 SCC 67 : AIR 1986 SC 833, is not an authority for the proposition for which it has been cited by the respondents. I do not read this decision as holding that whenever a Magistrate has taken cognizance, the power under section 482 cannot be exercised. The case only defines the limits of the court's powers under section 482 of the Criminal Procedure Code to quash the proceedings. The court held that if all the allegations contained in the complaint were accepted as correct without adding or subtracting anything and if an offence is made out, the court will not interfere under section 482 of the Criminal Procedure Code. This is a recognition of the fact that when the allegations do not disclose a cognizable offence, the court can interfere under section 482 of the Criminal Procedure Code.

17. The decision cited in support of the second aspect, namely, the Division Bench judgment of the Allahabad High Court in Shiv Shanker Sitaram v. ITAT, [1987] 168 ITR 275 is also not an authority for the proposition that the court under article 226 of the Constitution will not interfere to quash criminal proceedings initiated under the Income-tax Act. In that case, the court dismissed the writ application because the learned judges were unable to find any grounds for quashing the criminal complaint. The question of jurisdiction to do so under article 226 of the. Constitution was neither raised nor determined.

18. On the other hand, there is judicial precedent that under article 226, criminal proceedings can be quashed albeit in restricted circumstances.

19. In the decision of the Delhi Development Authority v. Smt. Lila D. Bhagat, (1975) 1 SCC 410 : AIR 1975 SC 495, prosecution had been launched under the Delhi Development Act, 1957, against several persons. Some persons challenged the prosecution by filing writ petitions and some by filing criminal petitions. The writ petitions were disposed of by a Full Bench of the Delhi High Court which allowed the writ application and issued a writ of mandamus restraining the authority from prosecuting criminal prosecutions and also restraining the Magistrate from proceeding with the cases. Following the Full Bench decision, the criminal revisions were allowed by the High Court and the criminal proceedings were quashed. Appeals were preferred from the decisions of the High Court before the Supreme Court. The Supreme Court set aside the decisions of the High Court on the ground that the prosecutions ought not to have been quashed either in exercise of the writ or criminal revisional jurisdiction by the High Court. This was not because of the lack of power to do so but because of the merits of the case. This has been made clear in the following statement in the judgment which reads (at page 497):

“In an appropriate case it may be, rather, it is permissible to protect a person from illegal and vexatious prosecution by the grant of an appropriate writ or in exercise of the inherent or revisional powers of the High Court. But these are not cases of that type.”

20. In State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335 : AIR 1992 SC 604, it has been explicitly recognised that the High Court may, in exercise of powers under article 226 or under section 482 of the Criminal Procedure Code, interfere in proceedings relating to cognizable offences to prevent abuse of the process of any court or otherwise to secure the ends of justice. After considering a series of decisions relating to the power under article 226, the Supreme Court gave seven illustrative instances in which the court will interfere to quash criminal proceedings. It was made clear that the list was not exhaustive.

21. Therefore, it must be held that the submission of the respondents in so far as it related to the power of the court under article 226 to grant relief with regard to criminal proceedings is untenable. Whether the court will exercise the power is dependent on the facts of the case.

22. On the merits also, I am of the view that the writ application must be allowed and the proceedings quashed on the second, third and fourth of the petitioners' arguments as noted above.

23. The prosecution has been initiated in respect of an offence alleged to have been Committed under section 276C and section 277 of the Act. Section 276C deals with wilful attempt to evade tax and reads as follows:

“276C. Wilful attempt to evade tax, etc.—(1) If a person wilfully attempts in any manner whatsoever to evade any tax, penalty or interest chargeable or imposable under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable,—

(i) in a case where the amount sought to be evaded exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine.

(2) If a person wilfully attempts in any manner whatsoever to evade the payment of any tax, penalty or interest under this Act, he shall, without prejudice to any penalty that may be imposable on him under any other provision of this Act, be punishable with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and shall, in the discretion of the court, also be liable to fine.

Explanation.— For the purposes of this section, a wilful attempt to evade any tax, penalty or interest chargeable or imposable under this Act or the payment thereof shall include a case where any person—

(i) has in his possession or control any books of account or other documents (being books of account or other documents relevant to any proceeding under this Act) containing a false entry or statement; or

(ii) makes or causes to be made any false entry or statement in such books of account or other documents; or

(iii) wilfully omits or causes to be omitted any relevant entry or statement in such books of account or other documents; or

(iv) causes any other circumstance to exist which will have the effect of enabling such person to evade any tax, penalty or interest charge-able or imposable under this Act or the payment thereof.”

24. Section 277 provides for punishment of the person who makes a statement in any verification under the Act or any rule thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true. This section also provides for punishment for the offence with rigorous imprisonment and fine.

25. Offences under sections 276C and 277 have been made non-cognizable within the meaning of the Code of Criminal Procedure, 1973, by virtue of the introduction of section 279A.

26. Prior to 1975, under section 277, the only punishment prescribed was imprisonment. After 1975, the punishment prescribed is imprisonment and fine. The Karnataka High Court in the case of P.V Pal v. R.L Rinawma, Deputy CIT, [1993] 200 ITR 717 held that the words “and fine” cannot be construed to be equivalent to the words “or fine”. It was said that the punishment was in fact made more rigorous by making imposition of fine also compulsory.

27. The Division Bench of this court in Kusum Products Ltd.'s case, [1980] 126 ITR 804, cited by the petitioners, held that proceedings under section 277 of the Act could not be initiated against a company because imprisonment was a compulsory punishment for an offence under that section and a company cannot be sent to prison nor was it open to a court to impose a sentence of fine or not to award any imprisonment if the court finds the company guilty under that section.

28. This view has also been adopted by the Karnataka High Court in P.V Pai's case, [1993] 200 ITR 717. The Karnataka High Court also held that the principle as enunciated in Kusum Products Ltd.'s case, [1980] 126 ITR 804 (Cal) was still applicable and that proceedings against the company under section 277 of the Act are liable to be quashed.

29. As against these decisions the respondents have relied upon section 278B and section 278E of the Act. Section 278B relates to offences by companies. The section provides that where an offence is committed by the company, every person who, at the time the offence was committed, was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. Section 278E deals with the presumption as to culpable mental state. The onus is on the accused to prove that he had no such mental state. These provisions were introduced in 1975 under the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, and the Taxation Laws (Amendment and Miscellaneous Provisions) Act, 1986, with effect from September 10, 1986, respectively. Both these provisions were expressly considered by the Karnataka High Court but not by the Calcutta High Court in Kusum Products' case, [1980] 126 ITR 804, although the decision in Kusum Products' case, [1980] 126 ITR 804 (Cal) was delivered several years after the amendments in 1975.

30. In my view it is arguable that under section 278B, the phrase “punishment accordingly” has introduced the element of discretion in the imposition of punishment which the Division Bench of this court thought was lacking in relation to offences under section 277.

31. However, this court sitting singly is bound by the decision of the Division Bench. Accordingly, I hold, following the decision in Kusum Products' case, [1980] 126 ITR 804 (Cal), that the prosecution in so far as it has been initiated against the company cannot stand and must be quashed.

32. The question whether the complaint should be quashed because it is vague involves a decision on the point whether vagueness of charges is one of those categories of cases referred to in the case of Bhajanlal, 1992 Supp (1) SCC 335 : AIR 1992 SC 604, which would entail the quashing of the criminal proceedings. The second aspect would need answering if the first question is answered in the affirmative. The court would then have to consider whether the charges in this case were indeed vague.

33. On the first aspect is the decision in Municipal Corporation of Delhi v. Ram Kishan Rohtagi, (1983) 1 SCC 1 : AIR 1985 SC 67, where the Supreme Court was called upon to consider a complaint initiated against directors and other officers of a company. The complaint attributed criminal responsibility to the directors on the ground that they were in charge of and responsible for the conduct of the business of the company. There was no clear averment of the fact that the directors were really in charge, but the complainant presumed that the directors of the company must be guilty because they were holding a particular office. The High Court quashed the proceedings against the directors as also against the manager of the company. The Supreme Court said that the nature of the duties performed by the manager would lead, to the inference that the manager was vicariously liable. But as far as the directors are concerned, the Supreme Court said (at page 70):

“There is not even a whisper nor a shred of evidence nor anything to show, apart from the presumption drawn by the complainant, that there is any act committed by the directors from which a reasonable inference can be drawn that they could also be vicariously liable: In these circumstances, therefore, we find ourselves in complete agreement with the argument of the High Court that no case against the directors (accused Nos. 4 to 7) has been made out ex facie on the allegations made in the complaint and the proceedings against them were rightly quashed.”

34. It is true that this is a decision in which the jurisdiction under section 482 of the Criminal Procedure Code was being considered. However, jurisdiction under section 482 of the Code has been described in that very judgment as a separate and independent power of the High Court alone to pass orders ex debito justitiae in cases where grave and substantial injustice had been done or where the process of the court had been seriously abused. This power is also available under article 226 of the Constitution (see Dwarka Nath v. ITO, [1965] 57 ITR 349 (SC).

35. Section 278B has introduced the question of vicarious liability. This section makes those persons liable to prosecution who were in charge of and were responsible to the company for the conduct of the business of the company at the time when the offence was committed. There is a necessity of these three prerequisites being present before prosecution can be initiated. Otherwise, initiation of the prosecution on the basis of a complaint in the absence of any of these three elements would not only be without jurisdiction but also indicate a total non-application of mind justifying the quashing of the proceedings (see Parmeet Singh Sawney v. Dinesh Venna, [1988] 169 ITR 5 (Delhi)).

36. It is to be noted that with regard to a prosecution against a partner of the firm, the Supreme Court in the case of Sham Sundar v. State of Haryana, [1990] 67 Comp Cas 1 has said (in construing section 10 of the Essential Commodities Act which is substantially similar to section 248B) that (at page 4):

“It does not make all the partners liable for the offence whether they do business or not.

It is, therefore, necessary to add an emphatic note of caution in this regard. More often it is common that some of the partners of a firm may not even be knowing of what is going on day-to-day in the firm. There may be partners, better known as sleeping partners, who are not required to take part in the business of the firm. There may be ladies and minors who were admitted to the benefits of the partnership. They may not know anything about the business of the firm. It would be a travesty of justice to prosecute all the partners and ask them to prove under the proviso to sub-section (1) that the offence was committed without their knowledge.”

37. Apart from the assessee-company which is petitioner No. 1 herein, there are 12 other accused. The nature of the allegations against them is contained in paragraph 3 of the complaint. Paragraph 3 of the complaint reads—

“That the accused persons Nos. 2 to 7 were the directors of the company at the relevant time and accused Nos. 8 and 9 were treasurer and secretary, respectively, and serial No. 10 is the director who has verified the return of income and serial No. 11 is a responsible assistant manager, taxation, who had submitted replies in response to notice under section 142(1) of the Income-tax Act, 1961, and accused at serial No. 12 was a taxation controller being the head of the taxation department of the accused company, who attended the income-tax hearings for this year before the Assessing Officer and also submitted various details of documents and explanations and it is important to note that letter No. TKR/949.INB dated January 15, 1987, filed by Shri I.N Basu, accused No. 11 and also bears his reference initials as ‘TKR’ (marked as annexure ‘D’) and accused at Serial No. 13 is also a taxation controller of the company who submitted the note before the Commissioner of Income-tax (Appeals), C-II, Calcutta, on August 20, 1990, which is marked as annexure ‘E’ and they were responsible not only for the purpose of policy-making but also for discharging day-to-day duties and responsibilities which include finance, accounts, income-tax, etc., and subsequently they all are conjointly responsible for the conduct of the business of the company and thus they all are liable for prosecution under sections 276C and 277 of the Income-tax Act, 1961, read with section 278B of the Income-tax Act, 1961, since they are all principal officers of the accused company.”

38. Even if it can be said that there is some allegation against serial Nos. 10 to 13, on the basis of the decision of the Supreme Court in Ram-hishan Rohtagi's case, (1983) 1 SCC 1 : AIR 1983 SC 67, the complaint against the accused Nos. 2 to 9 cannot be sustained. Their only “crime” according to the complaint is that they held offices as directors, treasurer and secretary. This by itself is not sufficient to initiate prosecution against them under section 277 or 276C of the Act.

39. In fact the crux of the complaint is the charge that the petitioner-company had made a deliberate false statement in reply to the notice issued under section 142(1). That answer was given on January 15, 1987. It was essential, therefore, for the complaint to specify as to which of the officers of the petitioner-company was in charge of and responsible for the conduct of the business of the company on January 15, 1987. On this basis, it appears that the number of accused must be whittled down to accused Nos. 11 and 12 being petitioners Nos. 7 and 8. The complaint, however, does not show that petitioners Nos. 7 and 8 were in charge of and responsible to the company for the conduct of the business of the company under section 278B(1) or whether they were acting at the behest of superior officers. In view of the lacuna in the framing of the complaint, no valid prosecution could have been initiated or taken cognizance of.

40. In such a situation, it would be a futile exercise to subject the accused to a prosecution which must, in any event, ultimately fail. Accordingly, the proceedings are liable to be quashed on these grounds against the petitioners.

41. This brings us to the question of natural justice. There are disparate views in the matter. As far as the Karnataka High Court is concerned in P.V Pai's case, [1993] 200 ITR 717 (which has been referred to earlier in connection with another proposition), the Division Bench has said that the intention of the Legislature upon construction of the provisions of sections 278, 289 and 276C was that an opportunity must be given to the assessee or the person charged before the institution of proceedings.

42. This view has also been held by a learned single judge of the Rajasthan High Court in Shree Singhvi Bros. v. Union of India, [1991] 187 ITR 219. In holding that the principles of natural justice were applicable the learned single judge noted that when an offence under sections 276C and 277 was committed an authority had several options open including the option to initiate prosecution. The learned judge said that (at page 245):

“…. four alternative remedies were available to the Department and specially, this remedy of launching of the prosecution is at the option of the Department and, in such a situation, it is all the more essential that the petitioners should be afforded an opportunity of hearing before the launching of the prosecution.”

43. Against the views of the Rajasthan and Karnataka High Courts, a learned single judge of the Madras High Court in the case of Dr. (Mrs.) M.S Dhowani v. J. Ranganathan, Second ITO, [1992] 194 ITR 690 held that sections 276C and 277 do not contemplate any show cause notice being issued before the initiation of the prosecution.

44. I am unable to agree with the views expressed in the case of Dr. (Mrs.) M.S Dhowani, [1992] 194 ITR 690 (Mad). It appears that the decisions of the Rajasthan High Court and the Karnataka High Court were not cited and, therefore, not distinguished. In any event, the language of the section is no longer conclusive as to whether the provisions of natural justice will be applied or not. In the recent decision of the Supreme Court in C.B Gautam v. Union of India, [1993] 199 ITR 530, the Supreme Court read the requirement of natural justice into the provisions of section 269UD of the Income-tax Act, 1961. Their Lordships held that (at page 554):

“Although Chapter XX-C does not contain any express provision for the affected parties being given an opportunity to be heard before an order for purchase is made under section 269UD, not to read the requirement of such an opportunity would be to give too literal and strict an interpretation to the provisions of Chapter XX-C and, in the words of judge Learned Hand of the United States of America ‘to make a fortress out of the dictionary.’ Again, there is no express provision in Chapter XX-C barring the giving of a show-cause notice or reasonable opportunity to show cause nor is there anything in the language of Chapter XX-C which could lead to such an implication. The observance of the principles of natural justice is the pragmatic requirement of fair play in action. In our view, therefore, the requirement of an opportunity to show cause being given before an order for purchase by the Central Government is made by an appropriate authority under section 269UD must be read into the provisions of Chapter XX-C. There is nothing in the language of section 269UD or any other provision in the said Chapter which would negate such an opportunity being given.”

45. In other words, unless expressly excluded, the requirement of natural justice will be implied in all situations where the order made would have adverse civil consequences for the parties affected.

46. The basis for the decision of the learned single judge of the Madras High Court was the absence of provision of natural justice. With due respect the approach should rather be whether the provisions for natural justice has been expressly excluded. If not, it should be implied.

47. Apart from the decision in C.B Gautam's case, [1993] 199 ITR 530 (SC), in my view, the requirement of natural justice is inherent in the provisions of section 279(2) which reads as follows:

“(2) Any offence under this Chapter may, either before or after the institution of proceedings, be compounded by—

(a) the Board or a Chief Commissioner or a Director-General authorised by the Board in this behalf, in a case where the prosecution would lie at the instance of the Commissioner (Appeals) or the appropriate authority;

(b) the Chief Commissioner or Director-General or Commissioner, in any other case.”

48. The person accused would be deprived of the benefit or right of compounding the offence before the initiation of proceedings, if the prosecution were launched without any prior notice. In addition, I respectfully adopt the reasoning of the Karnataka High Court in P.V Pai's case, [1993] 200 ITR 717, as well as that of the Rajasthan High Court in Shree Singhvi Bros.' case, [1991] 187 ITR 219 to hold that the person accused is entitled to notice before the initiation of proceedings in respect of which a right of compounding has been given under section 279(2) of the Act.

49. Admittedly, in this case no such notice has been given. The prosecution; therefore, cannot be proceeded with. Proceedings on the basis of the impugned complaint are accordingly liable to be quashed on this ground also

50. It is being made clear that by accepting the arguments of the petitioners on these three grounds the court must not be taken as having expressed any opinion as to the other grounds raised by the petitioners which are accordingly left open. In the facts of this case, the writ application is accordingly allowed. The impugned complaint dated September 25, 1993, as well as Case No. C/1286 of 1992 and comments on the basis thereof are quashed.

51. There will be no order as to costs.