Important point
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.

Headnote:Foreign Exchange Regulation Act, 1973—Section 50 rw/s 51, 56(1)(i)—Criminal prosecution against a company for offence under Section 56(1)—Offence punishable with mandatory sentence of imprisonment—Whether a company or a corporate body could be prosecuted for offences for which sentence of imprisonment is a mandatory punishment—(Yes)—There is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which punishment prescribed is mandatory imprisonment—As regards company, Court can always impose a sentence of fine—There is not any blanket immunity for any company from any prosecution for serious offences—Judgment of the Supreme Court in Assistant Commissioner, Bangalore v. Velliappa Textiles Ltd., (2003) 11 SCC 405 Overruled. [Majority Judgment].
       Held : MAJORITY JUDGMENT
       As per K.G. Balakrishnan, J.
       There is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier 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. 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” is defined (Paras 33 and 34)
       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. (Para 35)
       In series of offences punishable under various statutes, sentence of imprisonment and fine are prescribed as the punishment. In some of these enactments, for certain offences a minimum period of imprisonment is prescribed as punishment. Under Section 56(1)(i) of the FERA Act, in respect of certain offences, if the amount or value involved therein exceeds one lakh of rupees, the punishment prescribed is imprisonment for a term which shall not be less than six months, but which may extend to seven years and with fine. In any other case, the punishment prescribed is imprisonment for a term which may extend to three years or with fine or with both. (Para 37)
       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?” (Para 55)
       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 corporation or other incorporated body.” Even for offences under Section 56(1)(ii) FERA Act, the company could be prosecuted as the amount involved is less than rupees one lakh and there is no mandatory sentence of imprisonment and the prescribed punishment is imprisonment for a term which may extend to three years or with fine or with both. It is also pertinent to note that the object of the amendment was to have more stringent provisions where the amount involved in the offence is more than rupees one lakh. It is not reasonably possible to assume that amendment to the Section was carried out to give immunity to corporate bodies from prosecution for serious offences. The scheme of the Indian Penal Code also would show that for serious and graver offences, mandatory sentence of imprisonment is prescribed and for less serious offences the court is given a discretionary power of imprisonment or fine. (Paras 56 and 57)
       As the company cannot be sentenced to imprisonment, the court has to resort to punishment of imposition of fine which is also a prescribed punishment. As per the scheme of various enactments and also the Indian Penal Code, mandatory custodial sentence is prescribed for graver offences. If the appellants’ plea is accepted, no company or corporate bodies could be prosecuted for the graver offences whereas they could be prosecuted for minor offences as the sentence prescribed therein is custodial sentence or fine. We do not think that the intention of the Legislature is to give complete immunity from prosecution to the corporate bodies for these grave offences. The offences mentioned under Section 56(1) of the FERA Act, 1973, namely those under Section 13, clause (a) of sub-section (1) of Section 18; Section 18A; clause (a) of sub-section (1) of Section 19; sub-section (2) of Section 44, for which the minimum sentence of six months’ imprisonment is prescribed, are serious offences and if committed would have serious financial consequences affecting the economy of the country. All those offences could be committed by company or corporate bodies. We do not think that the legislative intent is not to prosecute the companies for these serious offences, if these offences involve the amount or value of more than one lakh, and that they could be prosecuted only when the offences involve an amount or value less than one lakh. As the 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 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. 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. (Paras 61 to 63)
       As per Dharmadhikari, J. [Concurring Opinion]
       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 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 imprisonment. Therefore, a further presumption has to be raised that the legislature 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. (Para 65)
       The argument advanced on behalf of the company and corporate bodies that as the minimum prescribed punishment of imprisonment cannot be imposed on juristic person like company or corporation, section 56 of the Act cannot be invoked against the company or corporation cannot be accepted. It is to be noted that there are other provisions in the Act, where on conviction of companies or corporations, adverse consequences flow against the offending companies and corporations such as under Section 69 of blacklisting them and under Section 50 penalising them. The prosecution of the companies and corporations under section 56 of the Act and imposing on them the punishment of fine which is possible to be imposed, therefore, is not ruled out. Section 56 of the Act provides for imposition of minimum prescribed sentence of imprisonment wherever possible and also fine. Such a construction of the provisions of section 56 of the Act 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. (Para 67)
       As per Arun Kumar, J. [Concurring Opinion]
       The key words are: “if any person”. The meaning of the word `person’ is to be gathered. This word has not been defined in the FERA. The definition of the word `person’ is available in Section 11 of the Indian Penal Code as well as in Section 3(42) in the General Clauses Act. Both the definitions are similar and show that the word `person’ includes any company or association or body of persons whether incorporated or not. It follows that the word `person’ here will includes corporation, company or association or body of persons whether incorporated or not. This makes it clear that a company or a corporation can be subjected to penal liability under Section 56 of the FERA. In fact, during the course 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. 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 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. (Paras 75 and 76)
       In my view allowing corporations to escape prosecution for offences under Section 56 FERA for the only reason that corporations cannot be punished with imprisonment 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. (Para 77)
       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. (Para 80)
       MINORITY JUDGMENT
       As per Srikrishna, J. [On behalf of N. Santosh Hegde, J. and for Himself]
       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. (Para 2)
       The majority judgment in Velliappa 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 Commission of India of 1941 and 1947 pointing out the impossibility of implementing such a provision without transgressing the well established bounds of judicial functions and taking on the role of legislature. It was also pointed out that the situation is neither novel, nor unique. Such situation has been faced in several other jurisdictions wherein it was recognised that the only solution to such a problem is by legislative action. Instances from the jurisdictions in Australia, France, Canada, Netherland and Belgium were referred to. There was also reference made to the fact that the Indian Parliament was cognizant of the problem and had proposed the IPC (Amendment) Bill, 1972, Clause 72(a), which specifically was intended to take care of a situation where the offender is a company and the offence is mandatorily punishable with imprisonment in which case the option was given to the Court to sentence such a corporate offender to fine only. Reference was also made in Velliappa to the fact, that the said Amendment Bill had lapsed. (Para 5)
       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 as correct. Velliappa 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). (Para 7)
       There appears to be a difference of opinion amongst the learned counsel assailing the correctness of majority view in Valliappa 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 the interpretation, it must be uniformly applied to all situations. If the conjunction `and’ is read disjunctively as “or”, then the intention of Parliament would definitely be defeated as the mandatory term of imprisonment would not be available even in the case of a natural person. We have not been shown any authority for the proposition that it is open to the Court to put an interpretation on a statute which could vary with the factual matrix. Secondly, when a statute says the Court shall impose a term of ‘imprisonment and a fine’, there is no option left in the Court to say that under certain circumstances it would not impose the mandatory term of imprisonment. It is trite principle that punishment must follow the conviction. (Paras 13 and 14)
       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. (Para 16)
       For all these reasons, we are of the opinion that the majority view of this Court in Velliappa is correct and does not require any reconsideration by this Bench. (Para 28)

Judgement:

K.G. BALAKRISHNAN, J.- 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. In this appeal filed against the judgment of the Division Bench of the Bombay High Court dated 7-11-1998, the appellant contends that no criminal proceedings can be initiated against the appellant Company for the offence under Section 56(1) of the FERA Act as the minimum punishment prescribed under Section 56(1)(/) is imprisonment for a term which shall not be less than six months and with fine. Section 56 of the FERA Act, 1973 reads as follows:

"56. Offences and prosecutions.-(1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes any of the provisions of this Act other than Section 13, clause (a) of sub-section (1) of Section 18, Section 18-A, clause (a) of sub-section (1) of Section 19, sub-section (2) of Section 44 and Sections 57 and 58, or of any rule, direction or order made thereunder, he shall, upon conviction by a court, be punishable,-

(i) in the case of an offence the amount or value involved in which exceeds one lakh of rupees, with imprisonment 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

(2)-(6)

3. The contention of the appellants in other connected matters also is to the same effect that in a case where the offence is punishable with a mandatory sentence of imprisonment, the company cannot be prosecuted as the sentence of imprisonment cannot be enforced against the company. When the matter came up before the Bench of three learned Judges of this Court, the decision in Asstt. Commr. v. Velliappa Textiles Ltd.l 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 Enforcement2 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 case1 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 Textiles1 prosecution was launched against the respondent, a private limited company, for the offences punishable under Sections 276-C, 277 and 278 read with Section 278-B of the Income Tax Act. Under Sections 276-C 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 Sections 276-C, 277 and 278 read with Section 278-B 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 construction which exempts a citizen from penalty than the one which im

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2005 Supreme(SC) 780

Important pointThere 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.

Cases Referred (16)

Important point
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.