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TMI Blog2003 (9) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... riod of punishment by imprisonment plus fine whether fine alone can be imposed? On the answer to first of these questions my brethren Srikrishna, J. and Mathur, J. are agreed. However, with great respect to both of them, I wish to take a different view. The constitution of a modem company consists of two documents usually bound up as one--the memorandum and articles of association. A company's authority always remains circumscribed by the object clause of its memorandum and it cannot contain anything unlawful. Anything done outside the object and powers of the company is ultra vires. With regard to criminal activities, the agents are beyond their authority and corporate capacity. Company is thus a potentially complex organisation, which is assimilated into the preexisting individualistic framework of the law by pursuit of fiction and analogy with a natural person. In order to trigger corporate criminal liability for the actions of the employee (who must generally be liable himself), the actor-employee who physically committed the offence, must be the ego, the centre of the corporate personality, the vital organ of the body corporate, the alter ego of the employer corporation or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Criminal Code), and Belgium (in 1934, Cour de Cassation recognised the punishment of a corporate body by making it a subject of Belgian Criminal Statute). Germany practises a sort of administrative sanction to deviant corporations and does not recognise criminal liability of corporations. In the United States the punishment for corporate crime is based on the doctrine of "respondent superior", whereby the agent's conduct is imputed to the corporation. This was envisaged in the Model Penal Code (1962) proposed by the American Law Institute and many States subsequently enacted this Model Code. The Canadian Federal Criminal Code was amended as far back as in 1909 whereby a fine could be substituted for a sentence of imprisonment, made the corporate criminal liability possible. Section 718 of the Canadian Criminal Code imposes fine to corporate offenders and section 720 provides special enforcement procedure for fines on corporations. The European Council in 1988 made a recommendation to the member States to carry out necessary amendments in their respective criminal statutes to ensure corporate liability. Whereas, the United Kingdom follows the alter ego or identification approa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sanction was given. (2) The first respondent is a company, a juristic person, and, therefore, incapable of being punished with a sentence of imprisonment, which is mandatory under the provisions of sections 276C and 277. Hence, the prosecution under these sections against a juristic person like a company is not maintainable, even if by reason of section 278B some other persons connected with it and responsible for running the business of the company can be held liable for the offence. As far as the first contention is concerned, I respectfully agree with the view taken in the judgment of Brother Mathur J. and the reasons given in support. It is only with regard to the second contention, that I am unable to agree with the views expressed in the judgment. It is a basic principle of criminal jurisprudence that a penal statute is to be construed strictly. If the act alleged against the accused does not fall within the parameters of the offence described in the statute the accused cannot be held liable. There is no scope for intendment based on the general purpose or object of law. If the Legislature has left a lacuna, it is not open to the court to paper it over on some presumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise inappropriate to a body corporate, such as a declaration that the offender is a rogue and a vagabond, the court will not stultify itself by embarking on a trial in which, if the verdict of guilty is returned no effective order by way of sentence can be made'," In order to get over this difficulty we recommend that a provision should be made in the Indian Penal Code, e.g., as section 62 in Chapter III relating to punishments, on 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." Again, the Law Commission of India in its 47th report vide paragraph 8.3 recommended as under: "8.3. In many of the Acts relating to economic offences, imprisonment is mandatory. Where the convicted person is a corporation, this provision becomes unworkable, and it is desirable to provide that in such cases, it shall be competent to the court to impose a fine. This difficulty can arise under the Penal Code also, but it is likely to arise more frequently in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, who at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business; and (iii) any director (who in relation to a firm means a partner), manager, secretary or other officer of the company with whose consent or connivance or because of neglect attributable to whom the offence has been committed. The words' as well as the company' appearing in the section also make it unmistakably clear that the company alone can be prosecuted and punished even if the persons mentioned in the categories (ii) and (iii), who are for all intents and purposes vicariously liable, for the offence, are not arraigned, for it is the company which is primarily guilty of the offence..... Keeping in view the recommendations of the Law Commission and the above principles of interpretation of statutes we are of the opinion that the only harmonious construction that can be given to section 276B is that the mandatory sentence of imprisonment and fine is to be imposed where it can be imposed, namely, on persons coming under categories (ii) and (iii) above, but where it cannot be imposed, namely, on a company, fine will be the only punishment. We hasten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ike company, it has the option of imposing fine only. With great respect, I am unable to subscribe to this view. Where the Legislature has granted discretion to the court in the matter of sentencing, it is open to the court to use its discretion. Where, however, the Legislature, for reasons of policy, has done away with this discretion, it is not open to the court to impose only a part of the sentence prescribed by the Legislature, for that would amount to rewriting the provisions of the statute. Prior to the substitution of sections 276C, 277 and 278 by the Taxation Laws (Amendment) Act, 1975, with effect from October 1, 1975, in the present form, there was no minimum sentence of imprisonment provided for. The intention of the Legislature in imposing a minimum term of imprisonment for offences punishable thereunder was to do away with the court's discretion of only imposing of a fine and make the punishment more stringent. The Law Commission in its 47th report recommended (Chapter 18, page 157) that the punishment under sections 276B, 276C, 276E, 277 and 278 should be increased. It further recommended, "there should be a provision for minimum imprisonment and minimum fine". Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y also profit, because it may take care to avoid such deficiencies in future." Whether the omission is intentional or inadvertent is no concern of the court. The observations in Tolaram Relumal v. State of Bombay, AIR 1954 SC 496; Bijaya Kumar Agarwala v. State of Orissa [1996] 5 SCC 1; Sanjay Dutt v. State [1994] 5 SCC 410; Niranjan Singh Karam Singh Punjabi v. Jitendra Bhimraj Bijjaya [1990] 4 SCC 76 make it clear that while interpreting a penal statute, if more than one view is possible, the court is obliged to lean in favour of the construction with exempts a citizen from penalty than the one which imposes the penalty. The observations of Lord Esher, MR in formulating, "the settled rule of construction of penal sections", that "if there is a reasonable interpretation which will avoid the penalty in any particular case, we must adopt that construction. If there are two reasonable constructions, we must give the more lenient one." In State of Maharashtra v. Jugmander Lal, AIR 1966 SC 940, this court held that the expression, "shall be punishable with imprisonment and also with fine" means that the court is bound to award a sentence comprising both imprisonment and fine and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and that, if one of them is impossible, it does not mean, on that account, to let the defendant escape." Apart from this, I see no other reasoning contained therein. With respect, I am unable to agree with the view taken in the judgment in United States v. Union Supply Company, 54 Lawyers Ed. 87; 215 U.S. 50. The situation in India was considered by two Law Commissions whose recommendations I have referred to earlier. I have already discussed that import. For the aforesaid reasons, I am of the view that the first respondent company cannot be prosecuted for offences under sections 276C, 277 and 278 read with section 278 since each one of these sections requires the imposition of a mandatory term of imprisonment coupled with a fine and leaves no choice to the court to impose' only a fine. The following observations of Stable J. in R. v. I.C.R. Haulage Ltd. [1944] 1 All ER 691, 693 (CCA), made in similar situation are of relevance: "...where the only punishment the court can impose is corporal, the basis on which this exception rests being that the court will not stultify itself by embarking on a trial in which, if a verdict of guilt is returned, no effective order by way of sent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee-company, their authorised representative made a statement that the claim made by them regarding depreciation and other allowances be) disallowed. Subsequent thereto, the Commissioner of Income-tax, Bangalore, by his order dated March 26, 1992, accorded sanction for filing of a criminal complaint under sections 276C, 277 read with section 278B of the Act against the company and its managing director (respondents in the appeal). The respondents then filed a petition under section 482 of the Code of Criminal Procedure in the High Court for quashing the proceedings of the complaint case which had been instituted against them in the Special Court for Economic Offences at Bangalore. Two pleas were raised before the High Court. The first was that the assessee (respondent No. 1) being a company which is a juristic person, it is not liable for criminal prosecution. The second plea was that the sanction granted by the Commissioner of Income-tax, under section 279 of the Act was invalid as the same was given without affording any opportunity of hearing to them. The High Court relying upon an earlier Division Bench decision of the same court in P.V. Pai v. R.L. Rinawma [1993] 200 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her mentioned that the explanation offered by the assessee-company was not satisfactory. Learned counsel for the respondents has not disputed the correctness of the aforesaid statement which clearly shows that an opportunity of hearing was given to the respondents before according sanction for their prosecution. The High Court misread the order granting sanction and clearly erred in quashing the proceedings on an erroneous view that the Commissioner of Income-tax did not afford any opportunity of hearing to the respondents before according sanction for their prosecution. At this stage, I consider it appropriate to clarify the legal position regarding grant of sanction for launching prosecution. Section 279 of the Act lays down that a person shall not be proceeded against for the offences enumerated in the section except with the previous sanction of the Commissioner or Commissioner (Appeals) or the appropriate authority. There are similar provisions in many other statutes which put an embargo on the power of the court to take cognizance of the offence except with the previous sanction of the competent authority provided in the statute like section 197 of the Code of Criminal Proce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sanction, he may offer for composition in order to save himself from the "disgrace and ignominy of the prosecution". It is difficult to agree with the reasoning of the High Court. If some one has committed an offence, he must be prosecuted and if found guilty, must be punished in accordance with law. Compounding of an offence is not a right of the accused nor is it his unilateral act. It can only be done with the consent of the authorities enumerated in the provision. No additional right can be created in favour of an accused to enable him to save himself from the" disgrace and ignominy of the prosecution". The High Court has also held that the principles of natural justice would apply at the stage of according sanction under section 279 of the Act and as the sanction was granted without affording an opportunity of hearing, the same was invalid. It may be pointed out that by grant of sanction the competent authority under the Act only becomes empowered to institute the complaint before the court. In many other statutes the order of sanction has the effect of lifting the embargo on the power of the court to take cognizance of the offence. An order of sanction, by itself, does no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendant would have an opportunity of being heard at his trial". The grant of sanction is purely an administrative act and affording of opportunity of hearing to the accused is not contemplated at that stage. An identical question has been considered by this court with reference to section 6 of the Prevention of Corruption Act, 1947, in Superintendent of Police v. Deepak Chowdhary [1995] 6 SCC 225 and it was held as under in paragraph 5 of the reports: "The grant of sanction is only an administrative function, though it is true that the accused may be saddled with the liability to be prosecuted in a court of law. What is material at that time is that the necessary facts collected during investigation constituting the offence have to be placed before the sanctioning authority and it has to consider the material. Prima facie, the authority is required to reach the satisfaction that the relevant facts would constitute the offence and then either grant or refuse to grant sanction. The grant of sanction, therefore, being an administrative act the need to provide an opportunity of hearing to the accused before according sanction does not arise. The High Court, therefore, was clearly i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation.--........" It may be mentioned here that many other statutes which make a provision for offences by companies contain exactly similar provisions. Reference may be made to section 35H of the Wealth-tax Act, section 14A of the Employees Provident Funds and Miscellaneous Provisions Act, section 141 of the Negotiable Instruments Act, section 34 of the Drugs and Cosmetics Act, section 10 of the Essential Commodities Act, section 6 of the Indian Merchandise Act, section 38 of the Narcotic Drugs and Psychotropic Substances Act and section 17 of the Prevention of Food Adulteration Act. Section 276C of the Act uses the word "wilfully" and section 277 uses the expression "which he either knows or believes to be false, or does not believe to be true". Following S.M. Badsha v. ITO [1987] 168 ITR 332 (Ker); Shree Singhvi Brothers v. Union of India [1991] 187 ITR 219 (Raj) and Kusum Products Ltd. v. S.K. Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y offences might go unpunished and acts be committed in violation of law where, as in the present case, the statute required all persons, corporate or private, to refrain from certain practices, forbidden in the interest of public policy... We see no valid objection in law, and every reason in public policy, why the corporation, which profits by the transaction, and can only act through its agents and officers, shall be held punishable by fine because of the knowledge and intent of its agents to whom it has entrusted authority to act in the subject-matter of making and fixing rates of transportation, and whose knowledge and purposes may well be attributed to the corporation for which the agents act. While the law should have regard to the rights of all, and to those of corporations not less than to those individuals, it cannot shut its eyes to the fact that the great majority of business transactions in modem times are conducted through these bodies, and particularly that interstate commerce is almost entirely in their hands, and to give them immunity from all punishment because of the old and exploded doctrine that a corporation cannot commit a crime would virtually take away the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, that a corporation is considered incapable of committing them, nevertheless under the proper circumstances the criminal intent of its agent may be imputed to it so as to render it liable, the requisites of such imputation being essentially the same as those required to impute malice to corporations in civil actions." The law on the subject in England also has come round to the position that a company can be prosecuted for the act done by its responsible officers. This question was considered in considerable detail in Director of Public Prosecutions v. Kent and Sussex Contractors Ltd. [1944] 1 All ER 119 (KB). The respondents here were a limited company and an officer thereof. Both were charged with offences under the Defence (General) Regulations in that with intent to deceive, they produced documents and furnished information for the purposes of the Motor Fuel Rationing Order which were false in material particulars. The returns were signed by the transport manager of the company. The respondents contended that the offences charged required for their commission an act of will or state of mind which a body corporate could not have. It was held by Macnaghten, J.: "A body corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder: "I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these; it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent. In that case any liability of the company can only be a statutory or vicarious liability." In Volume 9(2) Hasbury ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectors would be seen as the directing mind of a company but also the managing director or any other person to whom authority has been delegated by the board and it suffices that the act has been committed by a person on behalf of and within the capacity of the corporation. Under the Regime of 1992 French Code Penal the general part of the Code lists in detail all the possible sanctions that can be applied to corporations. Corporations can be fined to five times the maximum for individual offenders. For repeated offences the maximum is ten times. Besides fines, numerous other types of sanctions are possible: dissolution of the corporation, disqualification from carrying on specific economic activities, closing down plants that have been used to commit the offence charged, publication of the judgment. Corporations can even be temporarily placed under judicial supervision. It is generally accepted that the amount of the fine should be such as to encompass the proceeds from crime and needs to have a deterrent effect as to hold otherwise would create a de facto incentive for crime. Under the German law heavy fines are provided for corporate crimes and there is a specific provision that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory enactments for premature release of prisoners. The appropriate Government has also the power to commute the sentence and release a prisoner. These provisions show that even after a person has been convicted and sentenced, it is not absolutely mandatory that he must undergo the whole sentence awarded to him by actually spending that period in jail. Taking into custody and ensuring incarceration in jail for the specified period after pronouncement of judgment of conviction and sentence of an accused is in the realm of execution of sentence. Non-compliance or breach in the matter of execution of sentence can have no bearing on the trial or conviction of the accused or the sentence awarded by the court. There is no way in which a court may compel the parties to actually comply with a decree of restitution of conjugal rights. The remedy provided, viz., attachment and sale of the property of the judgment debtor or payment of periodical sum provided in Order XXI, rules 32 and 33 of the Code Civil Procedure, is hardly a substitute for husband and wife living together and performing their marital obligations. That does not mean that a decree for restitution of conjugal rights should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishment. A company may be black listed or may be denied licences with the result that its manufacturing activity may come to a standstill which may have great financial repercussion on it. Within few months of the decision in New York Central and Hudson River Railroad Co. (53 L Ed 613), a similar controversy came up for consideration before the U.S. Supreme Court in United States v. Union Supply Co. (54 Lawyers Ed. 87; 215 U.S. 50). Section 6 of the relevant statute required wholesale dealers in particular commodities to keep certain books and to keep certain returns and further provided "any person who wilfully violates any of the provisions of this section shall, for each offence, be fined not less than fifty dollars and not exceeding five hundred dollars and imprisoned not less than thirty days nor more than six months." The district court quashed the indictment on the ground that the section was not applicable to corporations. In a writ of error, Justice Holmes, who spoke for the court, pointed out that "if the defendant escapes, it does so on the single ground that, as it cannot suffer both parts of the imprisonment, it need not suffer one." The judgment under challenge was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f of offence under section 7 of the Prevention of Food Adulteration Act and it is enough if the articles sold or distributed contravene any provision of the Act or the rules. The same principle applies for offences under section 7 of the Essential Commodities Act, namely, mens rea or knowledge are not essential ingredients. In Radhey Shyam Khemka v. State of Bihar [1993] 77 Comp Cas 356; [1993] 3 SCC 54, it has been held that there is a basic difference between offences under the Penal Code and acts and omissions which have been made punishable under different Acts and statutes. It has been further held that for framing charges in respect of those acts and omissions, in many cases, mens rea is not an essential ingredient; the concerned statute imposes a duty on those who are in charge of the management, to follow the statutory provisions and once there is a breach or contravention, such persons become liable for punishment. In M.V. Javali v. Mahajan Borewell and Co. [1998] 230 ITR 1; [1997] 8 SCC 72, this court, after examining the question of maintainability of prosecution against a company and the nature of sentence to be imposed on it and the individuals liable for the offence, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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