The trend came into sharp focus recently with the arrest of Rishi Gupta, managing director and chief executive officer (CEO) of Fino Payments Bank, in a GST evasion case involving its programme managers — a reminder that even the top of the corporate pyramid is not beyond scrutiny.
CEOs, chief financial officers (CFOs), directors, and even mid-level executives are facing penalties, recovery proceedings, arrests and prosecution with far greater frequency, say experts. Technology is accelerating the shift. Regulators now have access to transaction-level data, GST returns, bank records, email trails, audit logs, WhatsApp communications and other digital evidence that was often unavailable or difficult to access in the past, enabling authorities to reconstruct decision-making chains and pinpoint individuals allegedly responsible for violations with far greater precision.
Abhishek A Rastogi, founder of Rastogi Chambers, argues that KMPs occupy a distinct position within corporate structures precisely because they carry statutory responsibilities, strategic decision-making powers, and oversight functions. Modern corporate governance, he says, demands active oversight rather than passive supervision and that makes the defence of ignorance increasingly difficult to sustain. Personal liability, in his view, pushes directors and senior executives to strengthen compliance systems, monitor risks more closely and respond promptly to red flags.
Courts Draw a Clear Line
Heightened enforcement, however, has not translated into automatic liability. Courts have consistently held that personal culpability cannot be imposed merely because someone occupies a senior position.
Under the Foreign Exchange Management Act (Fema) and the earlier Foreign Exchange Regulation Act (Fera), tribunals have repeatedly distinguished between active management and mere designation. In Jaipur IPL Cricket Pvt. Ltd. v. Enforcement Directorate (2019), the tribunal held that mere directorship is not sufficient and that the ED must prove the director was in charge of, and responsible for, the day-to-day affairs of the company at the time of the alleged violation.
In GST matters, too, courts have been equally firm. The Madras High Court in Khalid Buhari v. Assistant Commissioner of CGST (2026) held that recovery from directors cannot be initiated unless tax is first unrecoverable from the company and a proper hearing is given. The Bombay High Court went further in the Shemaroo Entertainment case (2026), quashing personal penalties of over Rs 400 crore on the CEO, CFO and joint MD — ruling that personal liability under Section 122(1A) requires clear evidence of active involvement or personal benefit. Mere designation or association with the company is not sufficient.
But courts have also shown they will act where active involvement is established. In Gurudas Mallik Thakur v. Commissioner of CGST (2025), the Delhi High Court recognised that penalties under Section 122(1A) of the CGST Act could extend to “any person”, including directors, where authorities allege involvement in fraudulent transactions or tax evasion.
Under the Companies Act, the Delhi High Court in Arun Kumar v. Union of India (2025) ruled that arrests by the Serios Fraud Investigation Office (SFIO) cannot become routine and must be supported by recorded reasons demonstrating necessity. The Supreme Court, in SFIO v. Rahul Modi, upheld SFIO’s statutory power to arrest directors in cases involving alleged large-scale corporate fraud.
The broader principle against mechanical arrests, as emphasised by the Supreme Court in Arnesh Kumar v. State of Bihar, continues to influence enforcement across economic offences.
A similar balance is visible under PMLA and insolvency laws. In Debabrata Mallick v. Deputy Director, Directorate of Enforcement (2026), the Appellate Tribunal upheld freezing of a director’s bank accounts based on an alleged connection with proceeds of crime and observed that the law provides for presumption of guilt on the person responsible for the conduct of business.
Yet the Madras High Court in S. Jayalakshmi v. Directorate of Enforcement (2024) underlined that prosecution must be linked to the individual’s actual role in alleged money-laundering activities.
Under the Insolvency and Bankruptcy Code (IBC), the Supreme Court in Ajay Kumar Radheyshyam Goenka v. Tourism Finance Corporation of India Ltd. (2023) clarified that personal criminal liability of directors is not extinguished merely because the company undergoes insolvency resolution. While Section 32A may provide protection to the corporate debtor, it does not automatically shield individuals involved in the alleged misconduct.
Similarly, the National Company Law Appellate Tribunal (NCLAT) in Rakshit Dhirajlal Doshi v. Chirag Shah (2026) held that liability under Section 66 relating to wrongful trading requires clear evidence and cannot be sustained on mere suspicion.
On the income tax side, the Supreme Court in Madhumilan Syntex Ltd. v. Union of India (2007) upheld prosecution of directors for failure to deposit tax deducted at source (TDS), holding that persons in charge may be deemed guilty once a company commits the offence — subject to statutory defences.
Statutory Framework Already Exists
The legal architecture for holding corporate decision-makers personally liable is well established across multiple statutes such as the Negotiable Instruments Act, PMLA, Companies Act, Income Tax Act, customs laws, FEMA, the Employees’ State Insurance Act, the Environment Protection Act, the Competition Act, the IT Act, the Benami Transactions Act, the SEBI Act and the Insolvency and Bankruptcy Code (IBC).
Mukesh Chand, senior counsel at Economic Laws Practice, said the underlying principle is straightforward.
“The idea is that a company being an artificial person does not act on its own and there are people who take such decisions who are responsible,” he said. According to Chand, these provisions are not new, although their use may be becoming more visible because enforcement agencies are increasingly invoking them.
Ground Reality: Executives Feel the Pressure
While judicial safeguards remain in place, professionals say the practical reality on the ground is becoming more challenging.
Sudipta Bhattacharjee, partner at Khaitan & Co, pointed to instances under GST where authorities allegedly invoke personal liability provisions to pressure senior executives and directors into making large tax payments even before issuance of formal show-cause notices.
“We are seeing an alarming increase in cases where tax officers threaten invocation of personal liability,” he said. “If ease of doing business is to be achieved and more foreign investment is to be attracted in these uncertain times, strict accountability needs to be enforced against such cavalier attempts to create personal liability and harass senior business executives.”
A parallel problem is emerging further down the hierarchy. Nemin Shah, director at EQX Business Consultancy, highlights the growing exposure of employees who serve merely as authorised signatories; often designated for operational convenience, with little appreciation of the personal risk involved.
He recalled a case where prosecution was initiated in TDS proceedings against an employee who had signed returns on behalf of a company, years after the individual had left the organisation, forcing the person to independently arrange legal representation. “Many companies designate mid-level employees as signatories purely for operational convenience. But when disputes arise later, such employees often find themselves exposed personally,” Shah said.
Shah said concerns around personal liability are increasingly making professionals reluctant to sign statutory filings.
Former CBDT member Akhilesh Ranjan agrees the line must be drawn carefully. Criminal liability, he says, should not automatically attach to authorised signatories or those designated responsible for payments. “Criminal liability should not be fastened on such persons unless it can be shown that the default occurred due to gross negligence or malfeasance,” he said.
The Governance Response
As liability risk grows, so does the premium on internal governance. Manish Gupta, Lead – Corporate Legal and Secretarial at AKM Global, notes that regulators are increasingly examining board processes, delegation structures, dissent records and internal compliance mechanisms when determining individual accountability.
“In practice, this has made board documentation, dissent recording, delegation matrices and internal compliance monitoring far more critical than before,” he said.
M S Mani, partner at Deloitte, urges restraint from the regulatory side holding that personal liability provisions and prosecution powers should be invoked sparingly and only after rigorous investigation establishes deliberate involvement or a conscious attempt to circumvent legal requirements. “Such provisions should not be used routinely or as a tool to intimidate or harass businesses,” he said.
A Global Norm, Unevenly Applied
A former Chairman of the Central Board of Indirect Taxes and Customs (CBIC), speaking under condition of anonymity, notes that the underlying principles governing executive liability are broadly similar across major jurisdictions including the US, UK and several Asian economies. Personal liability is generally treated as an exception, not the norm, triggered by fraud, misconduct, negligence or a failure of oversight despite clear warning signs.
“Indian law broadly conforms to these underlying principles,” he said. However, enforcement practice and institutional maturity remain work in progress. “Better capacity building and an appropriate change in mindset should be accelerated to bring it on par with global norms,” he added.
The Balancing Act Ahead
The emerging regulatory approach reflects a broader shift in enforcement philosophy. Procedural and technical defaults are increasingly being decriminalised, but regulators are simultaneously pursuing a more targeted strategy against serious violations and governance failures.
The Finance Ministry did not respond to queries sent by Business Standard till the time of publication.
Courts continue to draw a distinction between genuine misconduct and commercial judgment exercised in good faith. Yet as enforcement becomes more data-driven and technology-enabled, documented oversight, robust governance structures and strong internal controls are likely to become the first line of defence against personal liability, Rastogi argues.
Chand puts the standard plainly. “Action in case of violation should be based on specific instances and clear involvement or knowledge of officials or directors,” he said, adding that vicarious liability under economic and criminal statutes cannot be presumed unless statutory requirements are clearly satisfied. Chand also stressed the importance of having boards with expertise across different domains to minimise compliance failures and reduce personal exposure.
That distinction matters beyond courtrooms. If enforcement culture does not keep pace with judicial doctrine, if personal liability continues to be wielded as leverage rather than last resort, then the cost will eventually show up not in penalty orders but in boardrooms: in the professionals who decline to sign, the directors who disengage, and the talent that quietly decides the corner office is no longer worth the risk.
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