TaxTMI 
TaxTMI 
2005 (5) TMI 327
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.... 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 Desai, Ranjit Shetty, Ms. Priya Rao, Sandeep Narain, Shri Narain, Ms. Anjali Jha, B. Vikas, Pranab Kumar Mullick, Rajesh Srivastava and Ms. Ruby Singh Ahuja for the Appearing Parties. JUDGMENT K.G. Balakrishnan, J.- 1. Leave granted. 2. The appellant in Civil Appeal No. 1748 of 1999 filed a writ petition before the High Court of Bombay challenging various notices issued to them under section 50 read with section 51 of the Foreign Exchange Regulation Act, 1973 (for short, the FERA Act) and contended that the appellant company was not liable to be prosecuted for the offence under section 56 of the FERA Act. I....
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....ffences 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 imprisonment and fine. Speaking for the majority, one of us, (Srikrishna, J.) held that the first respondent company cannot be prosecuted for offences under section 276C, 277 and 278 read with section 278B since each 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 majority was of the view that the legislative mandate is to prohibit the courts from deviating from the minimum mandatory punishment prescribed by the Statute and that while interpreting a penal statute, if more than one view is possible, the court is obliged to lean in favour of the constru....
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....es 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' is defined thus: "'Person'. -The word 'person' includes any company or association or body of persons, whether incorporated or not." Therefore, as regards corporate criminal liability, there is no doubt that a corporation or company could be prosecuted for any offence punishable under law, whether it is coming under the strict liability or under absolute liability. 8. Inasmuch as all criminal and quasi-criminal offences are creatures of statute, the amenability of the corporation to prosecution necessarily depends upon the terminology employed in the statute. In the case of strict liability, the terminology employed by the Legislature is such as to reveal an intent....
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....nishable 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 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 case of economic laws. We, therefore, recommend that the following provision should be inserted in the Penal Code as, say, section 62 : (1) In every case in which the offence is punishable with imprisonment only or with imprisonment and fine, and the offender is a corporation, it shall be competent to the court to sentence such offender to fine only. (2) In every case in which the offence is punishable with imprisonment and any other pu....
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....e 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 trial in which the verdict of guilty is returned and no effective order by way of sentence can be made. 16. In Kusum Products Ltd. v. S.K. Sinha, ITO [1980] 126 ITR 804, the Calcutta High Court took the view that even though the definition of 'person' under section 232(3)(i ) is wide enough to include a company or a juristic person, the word 'person' could not have been used by Parliament in section 277 (Income-tax Act) in the sense given in the definition clause. It was further held that the intention of the Parliament is otherwise because imprisonment has been made compulsory for an offence under section 277 of the Act and a company being a juristic person cannot possibly be sent to prison and it is not o....
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.... 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 Rs. 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 that the command is to award a sentence of imprisonment in every case of conviction. It is difficult to conceive of clearer language for couching such command. 20. The counsel for the appellant relying on the above decision contended that when the section commands the punishment for imprisonment and fine, the court is not left with any discretionary power to alter the sentence and that would amount to re-writing the provisions of the law. 21. Contrary view has been taken in series of other decisions to which our attention was drawn. 22. A Full Bench of the Delhi High Court in Delhi Municipality v. J.B. Bottling Co. 1975 Crl. LJ 1148 considered a similar question. The respondent-company was found guilty under section 7 read with section 16....
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....ntly, 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 sentence which is less than the sentence prescribed may not in all cases be illegal." 24. It is also appropriate to make reference to a decision of the United States Supreme Court. The judgment was rendered in United States v. Union Supply Co. 54 Law. Ed. 87 by Justice Holmes. There was an indictment of a corporation for wilfully violating the sixth section of the Act of Congress of 1902 and any person who wilfully violates any of the provisions of this section shall, for each such offence, be liable to be punished with fine not less than fifty dollars and not exceeding five hundred dollars, and imprisonment for not less than 30 days, nor more than six months. It is interesting to note that for the offence under section 5, the Court had discretionary power ....
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....f 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. This is not the present mode of construing Acts of Parliament. They are construed now with reference to the true meaning and real intention of the Legislature.'" At page-532 of the same book, observations of Sedgwick are quoted as under: "The more correct version of the doctrine appears to be that statutes of this class are to be fairly construed and faithfully applied according to the intent of the Legislature without unwarrantable severity on the one hand or unjustifiable lenity on the other, in cases of doubt the courts inclining to mercy." The question, therefore, is what is the intention of the Legislature. It is an undisputed fact that for all the statutory offences, company also could be prosecuted as the 'person' defined in these Acts includes "company, or corporat....
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....rson 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 impossible to be carried out. It is an acceptable legal maxim that law does not compel a man to do that which cannot possibly be performed [impotentia excusat legem]. This principle can be found in Bennion's Statutory Interpretation 4th Edn. At page 969. "All civilized systems of law import the principle that lex non cogit ad impossibilia. . . . ." As Patternson, J. said "the law compels no impossibility". Bennion discussing about legal impossibility at page 970 states that, "If an enactment requires what is legally impossible it will be presumed that Parliament intended it to be modified so as to remove the impossibility element." This Court applied the doctrine of impossibility of performance [Lex non cogit ad impossibilia] in numerous cases [State of Rajasthan v. Shamsher Singh 1985 (Suppl.) ....
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....t 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 corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to a criminal law is essential to have a peaceful society with stable economy. 33. We hold that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment. We overrule the views expressed by the majority in Velliappa Textiles Ltd.'s case (supra) on this point and answer the reference accordingly. Various other contentions have been urged in all appeals, including this appeal, they be posted for hearing before appropriate bench. Arun Kumar, J.- Leave granted. 35. I have had the benefit of going through the judgment prepared by my learned brother K.G. B....
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....plied 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 in Asstt. Commissioner v. Velliappa Textiles Ltd. [2003] 11 SCC 405. In the said judgment two learned Judges who formed the majority, took the view favouring the proposition advanced by the appellants, that is, in such a situation a corporation cannot be prosecuted. 38. So far the principle regarding strict construction of penal statutes is concerned there can be no quarrel. However, we need not misapply the principle. This principle has developed only in the context of the provisions in statutes which lay down the elements of an offence and the persons who can be charged with it. If there is any ambiguity or doubt as to whether in a given case an offence is made out or not or about who can be an offender with respect to the given offence, the ambiguity is to be resolved in favour of the person charged. In Maxwell on 'The Interpretat....
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....rgument 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. one lakh the Corporations will escape liability. This could never be the object of the statute. Not only with reference to section 56 of FERA, this anomaly can be demonstrated with reference to other statutes. For instance under the Employees Provident Fund Act, if the offence is committed second time imprisonment is mandatory. Corporations are often the offenders under the said Act. Second offence is taken more seriously and that is why punishment of imprisonment has been made mandatory. Could it be said that for first offence a Corporation can be prosecuted and punished while in case of second offence it goes scot free because imprisonment is a mandatory sentence in that case? 41. What follows from this is that for difficulty in sentencing we need not let the offenders escape prosecution. While laying down criminal liability the statute does not make any di....
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.... 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 and anyone rendering itself liable for action under the said section, be it a corporation or a natural person, should face prosecution, conviction and sentence. The charging provision contained in section 56 lays down the ingredients of the offence in very clear and unambiguous terms. There is no scope for any doubt that corporations are subject to provision of section 56 of FERA. The statutory mandate is loud and clear. Any interpretation which leads to results contrary to the statutory mandate will be in violation of the statute. 44. No difficulty arises when we come to the stage of sentencing after a finding of guilt if the amount involved does not exceed Rs. one lakh. This difficulty arises only in cases where amount involved exceeds Rs. one lakh. Here it may be worthwhile to mention that the original FERA of 1947 did not prescribe a mandatory punishment of imprison....
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....ne. 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, the same would not only lead to reverse discrimination but also go against the legislative intent. The intention of Parliament is to identify the offender and bring him to book. ****** 5. . . upon taking recourse to the principle of purposive construction as has been held by a three-Judge Bench of this Court in Balram Kumawat v. Union of India [2003] 7 SCC 628 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." (p. 532) 45. Another three-Judge Bench of this Court in a judgment in Balram Kumawat v. Union of India [2003] 7 SCC 628, to which I was a pa....
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....ristic 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 only because the punishment provided is "not less than six months imprisonment and also fine." It has to be presumed that the Legislature has the knowledge that a juristic person like company or corporation cannot be punished with imprison-ment. Therefore, a further presumption has to be raised that the Legisla-ture has the knowledge that in case of offences involving amounts higher than one lakh of rupees, companies and corporations can be prosecuted and punished with a sentence which is possible of being imposed on them. The Legislature does not intend an impossible act of imposing minimum sentence of imprisonment on companies and corporations which are not natural persons. 51. The rule of interpretation requiring strict construction of penal statutes does not warrant a narrow and pedantic construction of a provision so as to leave loopholes for the offender to escape [See : Murlidhar Meghraj Loya v. St....
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....d 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. Velliappa Textiles Ltd. [2003] 11 SCC 405. 56. Velliappa Textiles Ltd.'s case (supra ) was concerned with prosecution for an offence under sections 276C, 277 and 278 read with section 278B of the Income-tax Act, 1961. Each of the punishing sections provides that a person found guilty shall be punishable with a mandatory term of imprisonment and fine. The majority in Velliappa Textiles Ltd.'s case (supra) took the view that since an artificial person like a company could not be physically punished to a term of imprisonment, such a section, which makes it mandatory to impose a minimum term of imprisonment, cannot apply to the case of an artificial person. 57. The majority judgment in Velliappa Textiles Ltd.'s case (supra ) indicates that the situation is not one of an interpretational exercise, but one that calls for rectification of an irretrievable error in drafting of the concerned statute. It has noticed the two Reports of the Law....
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....ffence 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-section (1), or the director, manager, secretary or other officer of the company referred to in sub-section (2), shall be liable to be proceeded against and punished in accordance with the provisions of this Act." 59.1 Similar amendment was made in Wealth-tax Act, 1957 also by insertion of sub-section (3) in section 35HA by the same Finance (No. 2) Act, 2004. In the face of these Parliamentary amendments, it would be futile to look for some presumed intention of Parliament on a theoretical basis. When Parliament has taken note of a situation and resolved the difficulty by a suitable amendment in legislation, the Court must hold that its decision has correctly interpreted the law and accords with the Parliamentary intent in enacting the law as it stood prior to the enactment. (See, Bhimaji Shanker Kulkarni v. Dundappa Vithappa Udapudi [1966] 1 SCR 145). 59.2 Thus, if the interpretative function of the Court be to find out the true intention of Parliament, then such intention has....
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.... interpretation, therefore, does not appeal when the statute in plain terms says something. Interpretative exercise 61. There appears to be a difference of opinion amongst the learned counsel assailing the correctness of majority view in Velliappa Textiles Ltd.'s case (supra) as to whether the task of the Court in the case on hand is one of statutory interpretation. Some counsel have argued that it is open to the Court to read the words 'imprisonment and fine' as 'imprisonment or fine'. In our view, such a construction is impermissible. First, it virtually amounts to rewriting of the section. The Court would be reading the section as applicable to different situations with different meanings. If the offender is a corporate entity, then only fine is imposable; if the offender is a natural person, he shall be visited with both the mandatory term of imprisonment and fine. The exercise would then become one of putting a fluctuating or varying interpretation on the statute depending upon the circumstances. That is not permissible for the Court, either on principle, or on precedent. While it may be permissible for the court to read the word 'and' as 'or', or vice versa, whatever th....
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.... vary the words in which its provisions are couched. We supply a defect which the Legislature could easily have supplied, and are making the law, not interpreting it. This becomes peculiarly improper in dealing with a modern statute, because the extreme conciseness of the ancient statutes was the only ground for the sort of legislative interpretation frequently put upon their words by the judges. The prolixity of modern statutes, so very remarkable of late, affords no grounds to justify such a sort of interpretation", - (1939) L.R. 66 Ind. App. 1, 10 Lord Wright." 61.5 The interpretation suggested by the learned counsel arguing against the majority view taken in Velliappa Textiles Ltd.'s case (supra), which has appealed to our learned brothers Balakrishnan, Dharmadhikari and Arun Kumar, JJ., would result in the Court carrying out a legislative exercise thinly disguised as a judicial act. 61.6 The argument of Mr. Jethmalani that section 11 of IPC defines the word 'person' to include a company, and because of section 7 it is an inexorable definition which must permeate and lend colour to construction of all sections, is an argument of petitio principii and really begs the quest....
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....terminate, which is exactly what has been held by Velliappa Textiles Ltd.'s case (supra) namely, that the statute would become unworkable in the case of a juristic person. Ergo, it cannot apply to a juristic person for all the reasons adumbrated by the majority in Velliappa Textiles Ltd.'s case (supra). 61.9 The maxim 'ut res magis valeat quam pereat' is pressed into service to contend that the duty of the Court is to construe the enactment in such a way is to implement rather than defeat the legislative purpose. In our view, this maxim can be pressed into service only if it is permissible to extract another reasonable meaning from the plain words used in the statute. There is a further difficulty in accepting this principle as applicable to the case on hand. This principle might enable the Court to resolve the difficulty in construing a statute so that an interpretation is put on the statute which will carry forward the intention of the statute. However, it is to be remembered that the interpretation put on the statute must be of determinative import in all cases. This maxim cannot enable the Court to put a variant construction on the statute, which would vary with the circumst....
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....s case (supra). 63.2 We see nothing special in the Indian context which requires us to take a different view. In all these jurisdictions, the view that prevailed was that, where a statute imposes mandatory imprisonment plus fine, such a provision would not enable the punishment of a corporate offender. If the Legislatures of these countries stepped in to resolve the problem by appropriate legislative enactments giving option to the Courts to impose fine in lieu of imprisonment in the case of a corporate offender, we see nothing special in the Indian context as to why such a course cannot be adopted. Merely because the situation confronts the Courts in a number of statutes, the Court need not feel deterred in construing the statute in accordance with reason. 63.3 The argument that the Criminal Procedure Code, 1973 recognises different stages of cognizance, prosecution, conviction and punishment and that it is open to the Court to stop short of actual imposition of punishment, is opposed to the law laid down by this Court in a series of cases. In Syndicate Transport's case (supra); Edmund N. Schuster's case (supra) and Kartick Chandra Mallik's case (supra) it has been held that....