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"Criminal prosecution of Company  - Changing judicial views":


The Full Bench of the Delhi High Court in Municipal Corporation of Delhi v. J. B. Bottling Company, (1975) Cri LJ 1148 and the Full Bench of the Allahabad High Court in Oswal Vanaspati and Allied Industries v. State of U.P., (1993) 1 CLJ 172 took 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.


But , this view was overruled by the supreme court by 2:1 majority in    Asst. Commissioner v. M/s Velliappa Textiles AIR 2004 SC 86 where the supreme court held that:

“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 Criminal Code) and Belgium (in 1934. Cour de Cassation recognized the punishment of a corporate body by making it a subject of Belgian Criminal Statute). Germany practices a sort of administrative sanction to deviant corporations and doesn't recognize criminal liability of Corporations. In United States the punishment of corporate crime is based on the doctrine of 'Respondent Superior', whereby 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 approach to fix corporate liability in criminal cases.”


Thus the supreme court held that under the present Indian Law it is difficult to impose fine in lieu of imprisonment though the definition of 'person' in the Indian Penal Code includes 'company'. The basis of decision was- “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 re-writing the provisions of the statute.”

 Above decision of the supreme court was overruled by  5 JJ bench of supreme court by 3:2 majority in Standard Chartered Bank v. Directorate of Enforcement AIR 2005 SC 2622. This case was related to FERA. The majority held 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. 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 viz., S. 56 of Foreign Exchange Regulation Act (1973) (FERA) and Ss. 276-C and 278-B of Income-tax Act (1961) so far as the juristic person is concerned. Of course, the Court cannot exercise the same discretion as regards a natural person. 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. It cannot be said 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.


Thus, in majority view, because 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 contrary view 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. The intention of the Legislature is not to give complete immunity from prosecution to the corporate bodies for these grave offences. Consequently, even for offences under S. 56(1)(i), FERA Act, the company could be prosecuted. It is sheer violence to commonsense that the Legislature intended to punish the corporate bodies for minor and silly offences and extended immunity of prosecution to major and grave economic crimes.


However, the minority view is that It is not open to the Court to read the words "imprisonment and fine" as "imprisonment or fine", such a construction is impermissible. Firstly, it virtually amounts to rewriting of S. 56 of FERA. 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. 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. 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. The Court cannot aid the legislature's defective phrasing of an Act, and cannot add and mend, and, by construction make up deficiencies which are left there". In other words, the language of Acts of Parliament and more especially of the modern Acts, must neither be extended beyond its natural and proper limits, in order to supply omissions or defects, not strained to meet the justice of an individual case. Thus, the definition of any word in a statute must necessarily depend on the context in which the word is used in the statute. If the statute says that the "person" committing the offence shall be mandatorily sent to prison, this principle would suggest that such a section would not apply to a juristic person. Corporate criminal liability cannot be imposed without making corresponding legislative changes such as the imposition of fine in lieu of imprisonment. Where a statute imposes mandatory imprisonment plus fine, such a provision would not enable the punishment of a corporate offender.


In this judgment also there is difference of only one vote between the honourable judges. Let us wait for another occasion for any probable change in judicial view of apex court on this subject !

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Category Corporate Law, Other Articles by - Swami Sadashiva Brahmendra Sar