Section 137: Offences by Companies and the Due Diligence Defence

Section 137 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

A company cannot be imprisoned, so the criminal law reaches the people behind it. Section 137 does that in three tiers, and provides one defence that has to exist before the offence, not after.

137(1): where an offence is committed by a 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 business of the company, as well as the company, shall be deemed to be guilty and liable to be proceeded against and punished. 137(2): notwithstanding that, where the offence has been committed with the consent or connivance of, or is attributable to any negligence on the part of, any director, manager, secretary or other officer, that person shall also be deemed to be guilty. 137(3): for a partnership firm, LLP, HUF or trust, the partner or karta or managing trustee shall be deemed guilty, and sub-section (2) applies mutatis mutandis. 137(4): nothing shall render any such person liable if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

The three tiers

Tier one — s.137(1): who was in charge. A deeming provision. Two cumulative descriptions: the person must have been in charge of the conduct of the business and responsible to the company for it, at the time the offence was committed.

Both limbs matter. A director who was neither in charge of nor responsible for the conduct of the business — a nominee, an independent director with no executive role — is outside the sub-section on its terms.

Tier two — s.137(2): consent, connivance or negligence. A wider class — any director, manager, secretary or other officer — but on a narrower basis: the offence must have been committed with the consent or connivance of, or be attributable to any negligence on the part of, that person.

So tier one catches the person by position; tier two catches them by conduct.

Tier three — s.137(3): non-corporate entities. For a partnership firm, a Limited Liability Partnership, a Hindu Undivided Family or a trust, the partner, karta or managing trustee is deemed guilty, and the consent, connivance or negligence limb applies to them too.

The Explanation: "company" means a body corporate and includes a firm or other association of individuals; and "director", in relation to a firm, means a partner in the firm.

Section 137(4): the defence

"Nothing contained in this section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence."

Two alternative limbs, and either suffices:

• the offence was committed without his knowledge; or
• he had exercised all due diligence to prevent it.

The burden is on the person. "If he proves." And s.135 compounds it: in a prosecution requiring a culpable mental state, the court shall presume its existence, with the accused to prove otherwise. So the person is defending against a presumption. Section 132 →

Building the due diligence defence

It cannot be constructed after the summons. What discharges the burden is a contemporaneous record, and the components are ordinary governance:

Board and management records

• board minutes recording periodic review of GST compliance — returns filed, dues paid, notices received, open litigation;
• an item on the audit committee agenda for indirect tax exposure;
• management representations to the board on statutory compliance;
• the compliance certificate placed before the board.

Delegation and authority

• a documented delegation of authority identifying who is responsible for GST compliance;
• job descriptions and reporting lines showing where the responsibility sat;
• for a non-executive or independent director, evidence of the absence of executive responsibility.

Systems

• a compliance calendar with owners and dates;
• reconciliations performed and reviewed — GSTR-1 to 3B to books, 2B to 3B; The eight reconciliations →
• exception reports escalated;
• vendor due diligence on registration status and filing behaviour;
• e-invoice and e-way bill controls at despatch.

Response

• queries raised at the board and the answers given;
• action taken on an identified issue — a voluntary payment, a disclosure, a system change;
• resignation, with its date and circumstances, where the person left over concerns.

The test each record meets: does it show that this person did not know, or that they took the steps a reasonable person in that position would take to prevent the breach?

How section 137 sits alongside the other personal-liability provisions

They operate independently. A person may be outside s.122(1A) because they retained no benefit, and still be within s.137 because they were in charge — and vice versa. Each has to be answered on its own terms. Section 122(1A) → Sections 88 and 89 →

Key takeaways

• Section 137(1) deems guilty whoever was in charge of and responsible to the company at the time.
• Section 137(2) reaches any director, manager, secretary or officer on consent, connivance or negligence.
• Section 137(3) extends it to a partner, karta or managing trustee; a firm is a "company" and a partner is a "director".
• Section 137(4) provides two alternative defences — no knowledge, or all due diligence.
• The burden is on the person, and s.135 presumes the culpable mental state.
• The defence is built from contemporaneous governance records, not from later assertion.

Read next

• Section 132: Offences and the Threshold for Prosecution
• Section 138: Compounding of Offences and the 2023 Changes
• Co-Noticees and the Section 122(1A) Personal Penalty
• Sections 88 and 89: Liquidation and Director Liability

Disclaimer: Positions stated as on 5 September 2026, based on the CGST Act as amended to 31 March 2026 (ICAI Bare Law, 12th edition). This is general information, not advice in any criminal proceeding.