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TMI Blog2005 (5) TMI 327X X X X Extracts X X X X X X X X Extracts X X X X ..... N. SRIKRISHNA, JJ. P.P. Malhotra, K.K. Venugopal, Jaideep Gupta, Ram Jethmalani, Mukul Rohtagi, T.R. Andhyarujina, A.K. Panda, Ashok H. Desai, U.U. Lalit, C.A. Sundram, S. Balakrishnan, P.S. Mishra, Aspi Chenoy, Rakesh Dwivedi, Ms. B. Vijayalakshmi Menon, Ms. Indu Malhotra, Ms. Ekta Kail, Ms. Liz Mathew, Mahesh Jethmalani, V.R. Dhaud, Pranav Badekha, E.C. Agrawala, Mahesh Agarwal, Rishi Agrawal, Manu Krishnan, Gourav Shah, B.R. Malla, U.A. Rana, H.D. Petit, Sadeep Kharel, S. Chatterjee, Santosh Paul, Rajeev Sharma, Sandeep Chhabara, M.J. Paul, Ms. Radha Rangaswamy, Ms. Bharti Tyagi, Tarun Kumar, Anand Jha, R.K. Handoo, K.V. Mohan, R. Ramesh Kumar, N.K. Matta, P. Parmeswaran, B. Krishna Prasad, V.K. Verma, Ms. Ratika Mehrotra, Rajeev, Amit Desai, Jai Munim, Ranjit Shetty, R.B. Phookan, Ms. Priya Rao, Ms. Meenakshi Arora, B. Vikas, Mrs. D. Bharathi Reddy, Anip Sachthey, Ghanshyam Joshi, Sanjiv Kumar Saxena, Partha Sil, Ms. Mamta Tiwari, Kapil Chaudhary, R.K. Adsure, Mrs. Purnima Bhar Kak, Gourav Shah, Shyam Diwan, Ashish Chugh, Sudarsh Menon, Jay Kishor Singh, Subramonium Prasad, D. Srinivas Prasad, Tathagat Harsvardhan, Dhru Jha, S. Chandra Shekhar, Guntur Prabhakar, Amit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Ltd. [2003] 46 SCL 808 was cited in support of that contention. The bench doubted the correctness of the above decision and by reference order dated 16-7-2004 in ANZ Grindlays Bank Ltd. v. Directorate of Enforcement [2004] 6 SCC 531, the matter has thus been placed before this Court by the learned Chief Justice of India for our decision. 4. The question that arises for consideration is whether a company or a corporate body could be prosecuted for offences for which the sentence of imprisonment is a mandatory punishment. In Velliappa Textiles Ltd. s case ( supra ), by a majority decision it was held that the company cannot be prosecuted for offences which require imposition of a mandatory term of imprisonment coupled with fine. It was further held that where punishment provided is imprisonment and fine, the court cannot impose only a fine. In Velliappa Textiles Ltd. s case ( supra ), prosecution was launched against the respondent, a private limited company, for the offences punishable under sections 276C, 277 and 278 read with section 278B of the Income-tax Act. Under sections 276C and 277 of the Income-tax Act, the substantive sentence provided is the sentence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities to the effect that corporations cannot commit a crime, the generally accepted modern rule is that except for such crimes as a corporation is held incapable of committing by reason of the fact that they involve personal malicious intent, a corporation may be subject to indictment or other criminal process, although the criminal act is committed through its agents. 7. As in the case of torts, the general rule prevails that the corporation may be criminally liable for the acts of an officer or agent, assumed to be done by him when exercising authorized powers, and without proof that his act was expressly authorized or approved by the corporation. In the statutes defining crimes, the prohibition is frequently directed against any person who commits the prohibited act, and in many statutes the term person is defined. Even if the person is not specifically defined, it necessarily includes a corporation. It is usually construed to include a corporation so as to bring it within the prohibition of the statute and subject it to punishment. In most of the statutes, the word person is defined to include a corporation. In section 11 of the Indian Penal Code, the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be prosecuted for an offence involving rupees one lakh or less and be punished as the option is given to the court to impose a sentence of imprisonment or fine, whereas in the case of an offence involving an amount or value exceeding rupees one lakh, the court is not given a discretion to impose imprisonment or fine and therefore, the company cannot be prosecuted as the custodial sentence cannot be imposed on it. 11. The legal difficulty arising out of the above situation was noticed by the Law Commission and in its 41st Report, the Law Commission suggested amendment to section 62 of the Indian Penal Code by adding the following lines: In every case in which the offence is only punishable with imprisonment or with imprisonment and fine and the offender is a company or other body corporate or an association of individuals, it shall be competent to the court to sentence such offender to fine only. 12. This recommendation got no response from the Parliament and again in its 47th Report, the Law Commission in paragraph 8(3) made the following recommendation: In many of the Acts relating to economic offences, imprisonment is mandatory. Where the convicted person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of juristic persons and not in respect of natural persons. It was contended that by doing so, the court does not alter the provisions of the law by interpretation, but only carry out the mandate of the legislature. Senior counsel appearing for other appellants, on the other hand, contended that the Parliament enacted laws knowing fully well that the company cannot be subjected to custodial sentence and therefore the Legislative intention is not to prosecute the companies or corporate bodies and when the sentence prescribed cannot be imposed, the very prosecution itself is futile and meaningless and thus the majority decision in Velliappa Textiles Ltd. s case ( supra ) has correctly laid down the law. The counsel on either side drew our attention to various decisions on the point. 15. Different High Courts have taken different views on this question. In State of Maharashtra v. Syndicate Transport 1963 Bom. LR 197, it was held that the company cannot be prosecuted for offences which necessarily entail consequences of a corporal punishment or imprisonment and prosecuting a company for such offences would only result in the court stultifying itself by embarking on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year and not more than three years and also with fine which may extend to two thousand rupees. The High Court took the view that the word punishable used in the section postulated a discretion on the court to impose a sentence of imprisonment or a sentence of fine or both. But this Court held that in the context in which the word punishable has been used in section 3(1), it is impossible to construe it as giving any discretion to the court in the matter of determining the nature of sentences to be passed in respect of a contravention of the provision. By using the expression shall be punishable the Legislature has made it clear that the offender shall not escape the penal consequences. What the consequences are to be are then specified in the provision and they are rigorous imprisonment for a period not less than one year and not more than three years and also a fine which may extend to ₹ 2,000. These are the punishments with respect to a first offence and higher punishments are prescribed in respect of a subsequent offence. By saying that a person convicted of the offence shall be sentenced to imprisonment of not less than one year, the Legislature has made it clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t No. 34 of 1976 which is mandatory cannot be awarded to it. In paragraph 7, the Full Bench of the Allahabad High Court held as follows: A company being a juristic person cannot obviously be sentenced to imprisonment as it cannot suffer imprisonment. The question that requires determination is whether a sentence of fine alone can be imposed on it under section 16 of the Act or whether such a sentence would be illegal and hence cannot be awarded to it. It is settled law that sentence or punishment must follow conviction; and if only corporal punishment is prescribed, a company which is a juristic person cannot be prosecuted as it cannot be punished. If, however, both sentence of imprisonment and fine is prescribed for natural persons and juristic persons jointly, then, though the sentence of imprisonment cannot be awarded to a company, the sentence of fine can be imposed on it. Thus it cannot be held that in such a case the entire sentence prescribed cannot be awarded to a company as a part of the sentence, namely, that of fine can be awarded to it. Legal sentence is the sentence prescribed by law. A sentence which is in excess of the sentence prescribed is always illegal; but a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as expressed in the enactment. Here, the legislative intent to prosecute corporate bodies for the offence committed by them is clear and explicit and the statute never intended to exonerate them from being prosecuted. It is sheer violence to commonsense that the Legislature intended to punish the corporate bodies for minor and silly offences and extended immunity of prosecution to major and grave economic crimes. 26. The distinction between a strict construction and a more free one has disappeared in modern times and now mostly the question is what is true construction of the statute? A passage in Craies on Statute Law 7th Edn. reads to the following effect: The distinction between a strict and a liberal construction has almost disappeared with regard to all classes of statutes, so that all statutes, whether penal or not, are now construed by substantially the same rules. All modern Acts are framed with regard to equitable as well as legal principles. A hundred years ago , said the court in Lyons case, statutes were required to be perfectly precise and resort was not had to a reasonable construction of the Act, and thereby criminals were often allowed to escape. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 420, which is an aggravated form of cheating by which the victim is dishonestly induced to deliver property, the company cannot be prosecuted as there is a mandatory sentence of imprisonment. 29. So also there are several other offences in the Indian Penal Code which describe offences of serious nature whereunder a corporate body also may be found guilty, and the punishment prescribed is mandatory custodial sentence. There are series of other offences under various statutes where accused are also liable to be punished with custodial sentence and fine. 30. The contention of the appellants is that when an offence is punishable with imprisonment and fine, the court is not left with any discretion to impose any one of them and consequently the company being a juristic person cannot be prosecuted for the offence for which custodial sentence is the mandatory punishment. If the custodial sentence is the only punishment prescribed for the offence, this plea is acceptable, but when the custodial sentence and fine are the prescribed mode of punishment, the court can impose the sentence of fine on a company which is found guilty as the sentence of imprisonment is impos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company cannot be sentenced to imprisonment, the court cannot impose that punishment, but when imprisonment and fine is the prescribed punishment the court can impose the punishment of fine which could be enforced against the company. Such a discretion is to be read into the section so far as the juristic person is concerned. Of course, the court cannot exercise the same discretion as regards a natural person. Then the court would not be passing the sentence in accordance with law. As regards company, the court can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. This appears to be the intention of the Legislature and we find no difficulty in construing the statute in such a way. We do not think that there is a blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake series of activities that affect the life, liberty and property of the citizens. Large scale financial irregularities are done by various corporations. The c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onment for a term which shall not be less than six months, but which may extend to seven years and with fine: Provided that the court may, for any adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment for a term of less than six months; ( ii )in any other case, with imprisonment for a term which may extend to three years or with fine or with both. 37. The main argument advanced on behalf of the appellant in this behalf is that the statutes creating criminal liability have to be strictly construed. When a statute prescribes punishment of imprisonment and fine, it is not permissible for the court to award punishment of fine alone. A corporation being a juristic person cannot be awarded the punishment of imprisonment. The appellants contend that when a statutory provision cannot be complied with as per its strict language, the consequence should be that there can be no prosecution. There is no sense in prosecuting somebody when the punishment cannot be awarded as per the mandate of the statute. The present reference to a larger Bench for consideration of this question was made in view of a three-Judge Bench decision of this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a court, be punishable, . . . Thus the section itself refers to two stages, i.e. the stage up to conviction and thereafter the stage of punishment. From this it follows that conviction is not dependant on sentencing. Rather it is the other way round i.e. sentencing follows conviction. 40. The learned counsel appearing for the respondents have demonstrated the anomalous situation to which the proposition suggested on behalf of the appellants would give rise to. It was pointed out with reference to section 56 of the FERA that for offences where the amount or value involved does not exceed Rs. one lakh, the punishment can be imprisonment or fine while when the amount or value involved exceeds Rs. one lakh, punishment by way of imprisonment and fine is mandatory. For offences under section 56 where amount or value does not exceed Rs. one lakh, the argument based on impossibility of levy of punishment by way of imprisonment on a corporation does not survive because imprisonment in such a case is not mandatory. If we accept this argument of appellants result will be that for lesser offences Corporations can be prosecuted while for graver offences exceeding amount of Rs. o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of hearing none of the counsel appearing for appellants argued or suggested that section 56 does not apply to corporations. Their entire argument to save the corporations from liability under section 56 is based on the difficulty of levying mandatory punishment of imprisonment on corporations when the amount involved exceeds Rs. one lakh. As a matter of fact, it is not disputed that when the amount involved does not exceed Rs. one lakh, a corporation or a company can be prosecuted under section 56. 43. The question which now arises is can the criminal liability created by the statute be made dependent on the sentencing part contained in the same statute. In my view the mandate of the provision is quite clear, that is, the corporations are liable to be prosecuted for offences under FERA as per section 56 and allowing corporations to escape liability for prosecution on this specious plea based on difficulty in sentencing as per the section, will be doing violence to the statute. As already noticed principles of strict interpretation of criminal statutes require that the substantive offences created by the statute which does not exclude corporations, should be enforced strictly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent even though the punishment by way of fine which is also prescribed under the section can be levied on them, will be defeating the statutory mandate regarding bringing to book offenders under the FERA. For the view I am taking I find support from the view expressed by the three-Judge Bench in the referring order in this case which is reported as ANZ Grindlays Bank Ltd. v. Directorate of Enforcement [2004] 6 SCC 531 wherein it is observed: 3. . .Section 56 of the Act provides for different punishments for commission of different offences. It is true that in an offence of thisnature a mandatory punishment has been provided for but offences falling under other part of the said section do not call for mandatory imprison-ment. Section 56 of the Act covers both cases where an offender can be punished with imprisonment or fine and a mandatory provision of imprisonment and fine. In the event it is held that a case involving graver offence allegedly committed by a company and consequently, the persons who are in charge of the affairs of the company as also the other persons, cannot be proceeded against, only because the company cannot be sentenced to imprisonment, in our opinion, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 47. For the above reasons I reject the argument on behalf of the appellants that Corporations cannot be prosecuted under section 56 of the FERA for the reason that mandatory punishment of imprisonment cannot be imposed on Corporations. I would like to answer the reference accordingly resulting in the appeal being dismissed. The remaining matters be listed before an appropriate Bench for disposal. D.M. Dharmadhikari.- Leave granted. 49. I am in respectful agreement with the opinions of my learned Brothers Balakrishnan and Arun Kumar, JJ. would, however, like to support their conclusion with additional reasons. 50. Section 56 of the Act read with the aid of the definition of person . In General Clauses Act is applicable for initiating prosecution and conviction, for breach of the provisions of the Act, rules, directions or orders made under the Act, against natural persons as also juristic persons like a Company or a Corporation. If that is the clear legislative intention, it cannot be inferred that for an offence involving higher amount, under clause ( i ) of sub-section (1) of section 56 of the Act, the company or Corporation will escape from its liability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to make it workable cannot be said to be a construction impermissible only because the statute under construction is a penal statute. Section 56 cannot be so construed as to make it ineffective against companies and corporations. Merely because there is no specific mention in the section that in the event of breach committed by the companies and corporations, the punishment can only be in the nature of fine is no ground to read into the provision a fatal lacuna. The provision which is clearly applicable equally to natural and juristic persons, if construed reasonably in the manner indicated above, would be found workable and capable of fulfilling the object of the Act. Srikrishna, J. - Leave granted. 54. We have had the benefit of reading the opinions expressed by our esteemed and learned brothers Balakrishnan, Dharmadhikari and Arun Kumar, JJ. With great respect, we are unable to persuade myself to the views expressed therein. 55. Brother Balakrishnan, J., has indicated in his judgment the circum-stances under which the reference has been made to this larger Bench to reconsider the correctness of the view expressed by the majority in Asstt. Commissioner v. Vell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. s case ( supra ) was wrongly decided. Legislative intent 59. One of the functions of the Court is to ascertain the true intention of the Parliament in enacting the statute and, as far as permissible on the language of the statute, to interpret the statute to advance such legislative intent. If this be the test, there is no doubt that Parliament has accepted the view taken in the majority in Velliappa Textiles Ltd. s case ( supra ) as correct. Velliappa Textiles Ltd. s case ( supra ) interpreted the situation arising out of a prosecution under sections 276C, 277, 278 read with section 278B of the Income-tax Act, 1961 and the judgment was delivered on 16th September, 2003. Section 278B was promptly amended by Parliament by insertion of sub-section (3) by the Finance (No. 2) Act, 2004 w.e.f. 1-10-2004. The inserted sub-section (3) reads as under: (3) Where an offence under this Act has been committed by a person, being a company, and the punishment for such offence is imprisonment and fine, then, without prejudice to the provisions contained in sub-section (1) or sub-section (2), such company shall be punished with fine and every person, referred to in sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e warranted to cope with the difficulties arising in statutory interpretation, was severely criticized by the House of Lords in Magor St. Mellons R.D.C. v. Newport Corpn. [1951] 2 All ER 839. Lord Simonds said, the duty of the Court is to interpret the word that the Legislature has used. Those words may be ambiguous, but, even if they are, the power and duty of the court to travel outside them on a voyage of discovery are strictly limited. It appears to me , said Lord Simonds, to be a naked usurpation of legislative function under the thin disguise of interpretation . Lord Morton observed: these heroics are out of place . Lord Tucker said, Your Lordships would be acting in a legislative rather than a judicial capacity if the view put forward by Denning, L.J., were to prevail. This disapproval of Denning L.J. s approach was cited with approval by this Court in Punjab Land Development Reclamation Corpn. Ltd. v. Presiding Officer, Labour Court [1990] 3 SCC 682. 60.2 The argument of purposive interpretation, therefore, does not appeal when the statute in plain terms says something. Interpretative exercise 61. There appears to be a difference of opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thirdly, if on the words used by the Legislature it is impossible to effectuate the intention of the legislation, namely, to punish a company to imprisonment, it is not possible to read the section in any other manner to impose any other punishment on the offender. We cannot aid the legislature s defective phrasing of an Act, we cannot add and mend, and, by construction, make up deficiencies which are left there , said the Judicial Committee in Crawford v. Spooner [1948] 2 All ER 825, 830. In other words, the language of Acts of Parliament and more especially of the modern Acts, must neither be extended beyond its natural and proper limits, in order to supply omissions or defects, nor strained to meet the justice of an individual case, Craies on Statute Law 7th Ed. pp. 70-71. 61.4 If , said Lord Brougham in Gwynne v. Burnell [1840] 7 CI Fin 572, 696 we depart from the plain and obvious meaning on account of such views (as those pressed in arguments on 43 Geo, 3, C. 99), we do not in truth construe the Act, but alter it. We add words to it, or vary the words in which its provisions are couched. We supply a defect which the Legislature could easily have supplied, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tentia excusat legem apply here for the same reason. Au contraire, the application of these two maxims could equally persuade the Court to ignore the language of the statutory provision in the case of a juristic person, there being no warrant for the dissecting of the section and treating only one part as capable of implementation when the mandate of the section is to impose the whole of the prescribed punishment. 61.8 In the written submissions on behalf of Iridium India Telecom Ltd.- (the petitioner in Special Leave Petition (Criminal) No. 4995 of 2003), a fallacious mathematical syllogism is put forward in support. The argument is that the statute mandates ( A + B ); if A is impossible, then A=0. Then, the statutory mandate would be only (Zero + B), which is really equal to B (presumably A = imprisonment and B = fine). There is no warrant for the assumption that the value of A reduces to zero merely because it is impossible in case of a corporate offender. It could very well be that A is indeterminate. In that case, the mathematical logic would break down (Indeterminate + B) = Indeterminate, which is exactly what has been held by Velliappa Textiles Ltd. s ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judicial heroics and naked usurpation of legislative function . Jurisprudential principle 63. Kenny in The Outlines of Criminal Law 15th ed. Pgs. 73 to 75 observes as under: Moreover a corporation is devoid not only of mind, but also of body; and therefore incapable of the usual criminal punishments. Can you hang its common seal? asked an advocate in James KK s days (8St. Tr. 1138). Thus the fact that a corporation cannot be hanged or imprisoned sets a limit to the range of its criminal liability. A corporation can only be prosecuted, as such, for offences which can be punished by a fine. 63.1 Para 57 of the judgment in Velliappa Textiles Ltd. s case ( supra ) specifically notices that corporate criminal liability cannot be imposed without making corresponding legislative changes such as the imposition of fine in lieu of imprisonment. That such requisite legislative changes were introduced in Australia, France (Penal Code of 1992), Netherlands (the Economic Offences Act, 1950 and Article 51 of the Criminal Code) and Belgium (in 1934 Cour de Cassation) is already referred to in Velliappa Textiles Ltd. s case ( supra ). 63.2 We see nothing s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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