TMI Blog2003 (9) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... remaining aspect of the case, two questions arise for consideration: (i) Whether a company can be attributed with mens rea on the basis that those who work or are working for it have committed a crime and can be convicted in a criminal case? (ii) Whether a company is liable for punishment of fine if the provision of law contemplates punishment by way of imprisonment only or a minimum period 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 fram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J. I respectfully agree with the view of my learned Brother Srikrishna J. and add as follows: Corporate criminal liability cannot be imposed without making corresponding legislative changes. For example, the imposition of fine in lieu of imprisonment. Such legislative changes took place 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 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 71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferred to as "the Act"). The respondents challenged the prosecution by a petition under section 482 of the Criminal Procedure Code and urged the following grounds in support: (1) That the sanction of the Commissioner of Income-tax granted under section 279 of the Act is vitiated for failure to observe the principles of natural justice inasmuch as no opportunity of hearing was given to the respondents before the 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 basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to imprison a corporation practically the only punishment which can be imposed on it for committing an offence is fine. If the penal law under which a corporation is to be prosecuted does not provide for a sentence of fine, there will be a difficulty. As aptly put by a learned writer,-- 'Where the only punishment which the court can impose is death, penal servitude, imprisonment or whipping, or a punishment which is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Bench of two learned judges in M.V. Javali v. Mahajan Borewell and Co. [1998] 230 ITR 1; [1998] 91 Comp Cas 708; [1997] 8 SCC 72 made the following observations vide paragraphs 6 and 8: "From a plain reading of the above section, it is manifest that if an offence under the Act is committed by a company the persons who are liable to be proceeded against and punished are: (i) the company, (which includes a firm); (ii) every person, 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 recommendatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment of the Full Bench of the Delhi High Court in Municipal Corporation of Delhi v. J.B. Bottling Co. [1975] Crl. L.J. 1148 followed by the judgment of the Full Bench of the Allahabad High Court in Oswal Vanaspati and Allied Industries v. State of U.P. [1992] 75 Comp Cas 770; [1993] 1 Comp LJ 172 take the view that where a statute imposes a minimum sentence of imprisonment plus fine, since the court cannot imprison a juristic person like 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 imposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d where the minimum required to make a particular meaning which is obviously intended is found, effect must be given to such meaning. But courts cannot dispense with even the minimum. Where even such minimum is absent, courts must declare the deficiency and let it have its effect rather than strain themselves to make it good. Thereby, not only will the courts prevent themselves from taking up the functions of the Legislature but the Legislature may 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reasons which I have indicated, the context does indicate to the contrary, while reading of the word "person" in the concerned sections. The judgment of the U.S. Supreme Court in United States v. Union Supply Company 54 Lawyers Ed. 87 (215 U.S. 50) referred to in the judgment of Brother Mathur, J. seems to support the view that "the natural inference, when a statute prescribes two independent penalties, is that it means to inflict them so far as it can, 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 fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks Ltd., Coimbatore, from whom the machines had allegedly been purchased and from Voltas Ltd. who had allegedly installed the same. The inquiries revealed that the machines had actually been despatched to the assessee-company on July 2, 1984, and July 12, 1984. The documents produced by Voltas Ltd., showed that the machines had been installed after the close of the accounting period ending June 30, 1984. When the aforesaid facts were brought to the notice of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the same. A copy of the order passed by the Commissioner of Income-tax on March 26, 1992, granting sanction under section 279(1) of the Act has been filed as annexure A to the petition. In paragraph 7 of the order it is clearly mentioned that in response to the show cause notice as to why the provisions of sections 276C, 277 read with section 278 should not be initiated, the assessee filed its explanation dated January 9, 1991, and March 9, 1992. It is further 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 la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pai v. R.L. Rinawma [1993] 200 ITR 717; ILR 1993 Kar 709, for holding that an opportunity of hearing should be given to an accused before grant of sanction is that under section 279(2) of the Act any offence under Chapter XXII may, either before or after the institution of proceedings be compounded by the Board, or a Chief Commissioner or a Director General authorised by the Board in this behalf and, therefore, if an opportunity is given to an assessee before grant 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 san ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings ought first to decide whether there is a prima facie case, but no one supposes that justice requires that he should first seek the comments of the accused or the defendant on the material before him. So there is nothing inherently unjust in reaching such a decision in the absence of the other party.' In R. v. Raymond [1981] 2 All ER 246 (CA) it was held that the rule requiring a hearing was inapplicable to the process of preferring a bill of indictment: the 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 constituti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provided that nothing contained in this sub-section shall render any such person liable to any punishment 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. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable 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, sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at there are some crimes which, in their nature, cannot be committed by corporations. But there is a large class of offences, of which rebating under the Federal statutes is one, wherein the crime consists in purposely doing the things prohibited by statute. In that class of crimes we see no good reason why corporations may not be held responsible for and charged with the knowledge and purposes of their agents, acting within the authority conferred upon them. If it were not so, many 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. Whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c intent is essential. Similar statement is made in 19 Corpus Juris Secundum paragraph 1358 that corporations are liable to criminal prosecution for crimes punishable by fine. Regarding the crimes where the guilty mind or mens rea is essential, the law has been stated as under in paragraph 1363: "A corporation may be criminally liable for crimes which involve a specific element of intent as well for those which do not, and, although some crimes require such a personal, malicious intent, 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 charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... speech in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd. [1915] AC 705 at pages 713-714. So also in the criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the directors or the managers will render the company themselves guilty." In a decision by the House of Lords in Tesco Supermarkets Ltd. v. Nattrass [1971] 2 All ER 127, Lord Reid, while considering the question of commission of an offence by a company, ruled as under: "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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecution even where the offence requires a criminal intent. The decisions of Canadian courts regarding the criminal liability of corporations have developed in a way very analogous to the English case law and indeed in some instances based on it. The courts have used alter ego doctrine to attribute mens rea offences to corporations and this doctrine was finally established by a decision of the Canadian Supreme Court in Canadian Dredge and Dock Co. v. R [1985] 11 RCSC 662 that not only the board of directors 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 eco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he must be sent to jail to undergo the sentence. Section 360 of the Code of Criminal Procedure empowers the court to release a person on probation if he is over 21 years of age and has been convicted of an offence which is punishable for a term of seven years and in a case where the person convicted is under 21 years of age or is a woman, the benefit of release on probation can be given if he or she is convicted of an offence not punishable with death or imprisonment for life. There are also statutory 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be awarded to it, the provisions of section 10B of the Essential Commodities Act and section 35 of the Drugs and Cosmetics Act would never come into operation, clearly defeating the legislative intent and the purpose for which they have been enacted. The publication in newspapers about prosecution and conviction of a company is bound to bring a bad name to the company and lower its image before the public at large. Section 278A of the Act makes a second conviction punishable with more severe punishment. 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 offen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the opinion that the view taken in these cases is the legally correct view. Proof of mens rea or guilty mind is not absolutely essential in every case. In Pyarali K. Tejani v. Mahadeo Ramchandra Dange, AIR 1974 SC 228, a Constitution Bench held that in food offences strict liability is the rule. In Sarjoo Prasad v. State of U.P., AIR 1961 SC 631 and Shah Ashu Jaiwant v. State of Maharashtra, AIR 1975 SC 2178 it was clearly held that mens rea in the ordinary or usual sense of term is not required for proof 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 ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibility of imparting justice by holding that prosecution of a company is unsustainable merely on the ground that being a juristic person it cannot be sent to jail to undergo the sentence. Companies are growing in size and have huge resources and finances at their command. In the course of their business activity they may sometimes commit breach of the law of the land or endanger others' lives. More than four thousand people lost their lives and thousands others suffered permanent impariment in Bhopal on account of gross criminal act of a multinational corporation. It will be wholly wrong to allow a company to go scot free without even being prosecuted in the event of commission of a crime only on the ground that it cannot be made to suffer part of the mandatory punishment. In view of the discussion made above, I am of the opinion that the view taken by the High Court is wholly erroneous in law. The appeal accordingly deserves to be allowed and the judgment and order of the High Court is liable to be set aside. ORDER OF THE COURT In accordance with the majority view, the appeal is dismissed as regards the first respondent and it is allowed as regards prosecution against the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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