2004 (7) TMI 368 - SC - Companies Law

Offences and prosecution - Held that - Matters are referred to a Constitution Bench for an authoritative pronouncement on the subject. Having recourse to the principle of purposive construction as has been held in Balram Kumawat v. Union of India 2003 (8) TMI 221 - SUPREME COURT OF INDIA an attempt should be made to make section 56 of the Act workable. It is possible to read down the provisions of section 56 to the effect that when a company is tried for commission of an offence under the Act a judgment of conviction may be passed against it but having regard to the fact that it is a juristic person no punishment of mandatory imprisonment can be imposed. Furthermore even if the company cannot be punished the same may not mean that the other persons referred to under sub-sections (1) and (2) of section 68 cannot also be punished.

Summary

Issues:
1. Interpretation of section 56 of the Foreign Exchange Regulation Act, 1973 regarding criminal proceedings against a company.
2. Applicability of mandatory imprisonment for offences committed by a company.
3. Liability of the company as an authorized dealer under the Act.
4. Principle of purposive construction for making section 56 workable.
5. Possibility of convicting a company without imposing mandatory imprisonment.
6. Punishment of other individuals under section 68 despite the company being unpunishable.
7. Reconsideration of the decision in Velliappa Textiles Ltd.'s case by a Constitution Bench.

Analysis:

1. The main contention raised was whether criminal proceedings can be initiated against a company for offences committed under the Foreign Exchange Regulation Act, 1973, especially considering the mandatory imprisonment clause in section 56. The argument was that since the company cannot be sentenced to imprisonment, it and the individuals involved cannot be proceeded against. However, the Court disagreed, emphasizing the legislative intent to identify the offender and hold them accountable.

2. The Court highlighted that the company, even as an authorized dealer under the Act, is liable for contraventions of statutory requirements. While section 56 provides for different punishments, including mandatory imprisonment, the Court suggested that a purposive construction should be applied to make the statute workable without leading to reverse discrimination.

3. Referring to the principle of ut res magis valeat quam pereat, the Court emphasized the need to interpret the statute effectively. It cited a previous judgment to support the idea that while a company can be convicted, it may not be subjected to mandatory imprisonment due to its juristic person status.

4. The judgment also addressed the possibility of punishing other individuals under section 68, even if the company itself cannot be sentenced to imprisonment. The Court noted that a judgment of conviction against the company does not preclude punishment for other responsible persons.

5. Considering the differing interpretations and the need for clarity, the Court decided to refer the matter to a Constitution Bench for a comprehensive and authoritative pronouncement on the subject. This decision was made to ensure a thorough reconsideration of the issues involved, particularly in light of the complexities surrounding the interpretation of section 56 and related provisions.

This detailed analysis of the judgment addresses the various legal issues and arguments presented, providing a comprehensive overview of the Court's reasoning and decision to refer the matter to a Constitution Bench for further clarification and authoritative guidance.