# BANGALORE AND ORS v. Mis. VELLIAPPA TEXTILES LTD. AND ORS

- **Citation:** [2003] Supp. 3 S.C.R. 763
- **Court:** Supreme Court of India
- **Decided:** 2003
- **Case number:** Criminal Apeal No. 142 of 1994
- **Bench:** S. Rajendra Babu, B.N. Srikrishna, G.P. Mathur
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/bangalore-and-ors-v-mis-velliappa-textiles-ltd-and-ors-19406
- **Pages:** 42

## Headnote

Income Tax Act, 1961 :
B
Section 279-Prosecution-Launching of-Sanction-Grant of- C
Opportunity of hearing-Affording of-Whether mandatory-Held : (per
curium) : No opportunity of hearing need be given to the accused before
grant of sanction-Hence, sanction given by the Commissioner of Income
Tax not vitiated on account of want of opportunity of hearing-Administrat ive Law.
Sections 276C, 277 and 2788--Prosecution of a company-Launching of -Punishment-Imprisonment and fine-Held : (per majority) :
D
Court not empowered to impose only a fine-Imprisonment coupled with
fine mandatory-Hence, company could not be prosecuted under Ss. 2 7 6C,
277 r/w S. 278B-(per minority) : Company could be awarded a sentence E
of fine only without a sentence of imprisonment-Hence, company could
be prosecuted under Ss. 276C, 277 rlw S. 278B.
Maxims:
"Judicis est jus dicere, non dare".
Respondent No. I was a company registered under the provisions
of the Companies Act, 1956 and respondent No. 2 was its Managing
Director. They were sought to be prosecuted under Sections 276C, 277
and 278 read with Section 278B of the Income Tax Act, 1961. The
respondents challenged the prosecution proceedings by filing a petition
under Section 482 of the Code of Criminal Procedure, 1973 in the High
Court on the following grounds :
F
G
(a) That the sanction granted by the Commissioner of Income Tax
under Section 279 of the Act was invalid as the same was given without H
763
764
SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A affording any opportunity to the respondents.
(b) That the first respondent was a company, a juristic person,
and therefore, incapable of being punished with a sentence of imprisonment, which was mandatory under the provisions of Sections 276C
B and 277 and, therefore, prosecution under these Sections against a
juristic person like a company was not maintainable.
The High Court relying upon an earlier Division Bench decision
of the same Court in P. V. Pai v. R.I. Rinawma, ILR 1993 Kar. 709 held
that as the company was a juristic person, it could not be punished with
C imprisonment and, therefore, its prosecution was unpurposeful. The
High Court further held that since the sanction to prosecute the
respondents had been granted without affording them any opportunity
of hearing, the principles of natural justice were violated and the order
granting sanction was invalid. The petition was allowed and the
D proceedings of the complaint case were quashed. Hence the appeal.
On behalf of the appellants it was contended that in law there was
no requirement of affording an opportunity of hearing before grant
of sanction; that when the statute specifically provided penal liability
E of the company, there could be no legal impediment in launching of
prosecution against it, even ifthe substantive sentence of imprisonment
could not be awrded; and that as Section 276C of the Act provided for
both, a substantive sentence and a fine, the punishment of fine only
could be imposed upon a company.
F
Allowing the appeal against the first respondent and dismissing
the appeal against the second respondent by majority, the Court
HELD : Per curium : l. The sanction given by the Commissioner
of Income Tax is not vitiated on account of want of opportunity of
G hearing. (773-C-D)
Per Rajendra Babu, J. :
1. The constitution of a modern company consists of two documents usually bound up as one-the memorandum and articles of
H association. A company's authority always remains circumscribed by
.(
'
ASSTT. COMMR ASSESSMENT-II BANGALORE v. VELLIAPPA TEXTILES LTD. 765
the object clause of its memorandum and it cannot contain anything A
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 organization, which is assimilated into the pre-existing individualistic framework of the law by pursuit of fiction and analogy with B
a n

## Text

_Characters 0–39,850 of 96,343. This is a partial read: ask again with offset=39850 for what follows._

THE ASSISTANT COMMISSIONER, ASSESSMENT-II,
A
BANGALORE AND ORS.
v.
Mis. VELLIAPPA TEXTILES LTD. AND ORS.
SEPTEMBER, 16, 2003
[S. RAJENDRA BABU, B.N. SRIKRISHNA
AND G.P. MATHUR, JJ.]
Income Tax Act, 1961 :
B
Section 279-Prosecution-Launching of-Sanction-Grant of- C
Opportunity of hearing-Affording of-Whether mandatory-Held : (per
curium) : No opportunity of hearing need be given to the accused before
grant of sanction-Hence, sanction given by the Commissioner of Income
Tax not vitiated on account of want of opportunity of hearing-Administrat ive Law.
Sections 276C, 277 and 2788--Prosecution of a company-Launching of -Punishment-Imprisonment and fine-Held : (per majority) :
D
Court not empowered to impose only a fine-Imprisonment coupled with
fine mandatory-Hence, company could not be prosecuted under Ss. 2 7 6C,
277 r/w S. 278B-(per minority) : Company could be awarded a sentence E
of fine only without a sentence of imprisonment-Hence, company could
be prosecuted under Ss. 276C, 277 rlw S. 278B.
Maxims:
"Judicis est jus dicere, non dare".
Respondent No. I was a company registered under the provisions
of the Companies Act, 1956 and respondent No. 2 was its Managing
Director. They were sought to be prosecuted under Sections 276C, 277
and 278 read with Section 278B of the Income Tax Act, 1961. The
respondents challenged the prosecution proceedings by filing a petition
under Section 482 of the Code of Criminal Procedure, 1973 in the High
Court on the following grounds :
F
G
(a) That the sanction granted by the Commissioner of Income Tax
under Section 279 of the Act was invalid as the same was given without H
763
764
SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A affording any opportunity to the respondents.
(b) That the first respondent was a company, a juristic person,
and therefore, incapable of being punished with a sentence of imprisonment, which was mandatory under the provisions of Sections 276C
B and 277 and, therefore, prosecution under these Sections against a
juristic person like a company was not maintainable.
The High Court relying upon an earlier Division Bench decision
of the same Court in P. V. Pai v. R.I. Rinawma, ILR 1993 Kar. 709 held
that as the company was a juristic person, it could not be punished with
C imprisonment and, therefore, its prosecution was unpurposeful. The
High Court further held that since the sanction to prosecute the
respondents had been granted without affording them any opportunity
of hearing, the principles of natural justice were violated and the order
granting sanction was invalid. The petition was allowed and the
D proceedings of the complaint case were quashed. Hence the appeal.
On behalf of the appellants it was contended that in law there was
no requirement of affording an opportunity of hearing before grant
of sanction; that when the statute specifically provided penal liability
E of the company, there could be no legal impediment in launching of
prosecution against it, even ifthe substantive sentence of imprisonment
could not be awrded; and that as Section 276C of the Act provided for
both, a substantive sentence and a fine, the punishment of fine only
could be imposed upon a company.
F
Allowing the appeal against the first respondent and dismissing
the appeal against the second respondent by majority, the Court
HELD : Per curium : l. The sanction given by the Commissioner
of Income Tax is not vitiated on account of want of opportunity of
G hearing. (773-C-D)
Per Rajendra Babu, J. :
1. The constitution of a modern company consists of two documents usually bound up as one-the memorandum and articles of
H association. A company's authority always remains circumscribed by
.(
'
ASSTT. COMMR ASSESSMENT-II BANGALORE v. VELLIAPPA TEXTILES LTD. 765
the object clause of its memorandum and it cannot contain anything A
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 organization, which is assimilated into the pre-existing individualistic framework of the law by pursuit of fiction and analogy with B
a natural person. (773-G-H, 774-A]
2.1. In order to trigger corporate criminal liability for the actions
of the employee (who must generally be liable himself), the actoremployee who physically committed the offence must be the ego, the
centre of the corporate personality, the vital organ of the body C
corporate, the alter ego of the employer-corporation or its directing
mind. Since the company/corporation has no mind of its own, its active
and directing will must consequently be sought in the person of
somebody who for some purposes may be called an agent, but who is
really the directing mind and will of the corporation, the very ego and D
centre of the personality of the corporation. To this extent, there are
no difficulties in our law to fix criminal liability on a company. The
Common Law tradition of alter ego or identification approach is
applicable under our existing laws. [774-B-D]
E
2.2. However, the problem crops up in mens rea offences. Mens
rea and negligence are both fault elements, which provide a basis for
the imposition of liabililty in criminal cases. Mens rea focuses on the
mental state of the accused and requires proof of a positive state of
mind such as intent, recklessness or willful blindness. Negligence, on F
the other hand, measures the conduct of the accused on the basis of
an objective standard, irrespective of the accused's subjective mental
state. Criminal liability of a company arises only where an offence is
committed in the course of the company's business by a person in
control of its affairs to such a degree that it may fairly be said to think
and act through him so that his actions and intent are the actions and G
intent of the company. And it is not possible to attribute element of
mens rea to a juristic person, which requires a positive act of omission
or commission. Since this cannot be attributed to a juristic person, it
is difficult to accept the proposition of 'punishing a company' wherein
mens rea element is necessary. It is all the more difficult in the event H
766
SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A of a mandatory punishment that leads to imprisonment. (774-D-Gf
B
c
3.1. Corporate criminal liability cannot be imposed without
making corresponding legislative changes. For example, the imposition
of fine in lieu of imprisonment. [775-Af
3.2. 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 a 'company'. To bring such a fundamental change
in the criminal jurisprudence is a legislative function. Only the
Parliament can do it. [775-E-F, 776-C]
Per Srikrishna, J :
1. It is a basic principle of criminal jurisprudence that a penal
statute is to be construed strictly. If the act alleged against the accused
D does not fall within the parameters of the offence described in the
statute the accused cannot be held liable. There is no scope for
intendment based on the general purpose or object of law. If the
Legislature has left a lacuna, it is not open to the Court to paper it over
on some presumed intention of the Legislature. (777-C]
E
CST v. Parson Tools and Plants [1975[ 4 SCC 22, relied on.
Prem Nath L. Ganesh v. Prem Nath, L. Ram Nath, AIR (1963) Punj.
62, cited.
F
2.1 The maxim "Judicis est jus dicere, non dare" pithily expounds
the duty of the Court. It is to decide what the law is and apply it; not
to make it. (777-Gf
2.2. The question of criminal liability of a juristic has troubled
Legislatures and Judges for long. Though, initially, it is supposed that
G a Corporation could not be held liable criminally for offences where
mens rea was requisite, the current judicial thinking appears to be that
the mens rea of the person-in-charge of the affairs of the Corporation,
the alter ego, is liable to be extrapolated to the Corporation, enabling
even an artificial person to be prosecuted for such an offence.
H
(777-G, H, 778-A)
l -
ASSTT. COMMR. ASSESSMENT-II BANGALORE v. VELLIAPPA TEXTILES LTD. 767
3. The function of the court of law is )us dicere and not )us dare, A
and, therefore, the court of law cannot justify an interpretation of a
Section in tune with any recommendations, even when the words of the
Section are plain and unambiguous. (781-B]
M V Javali v. Mahajan Borewe/l & Coy, (1997] 8 SCC 72, P. V Pai B
v. R.l. Rinawma, ILR (1963) Kar. 709; Kusum Products ltd v. S.K. Sinha
v. ITO, (1980) ITR 804; Modi Industries ltd. v. B.C.G., (1983) 144 ITR
496; Municipal Corporation of Delhi v. J.B. Bottling Coy., (1975) Crl. W
1148 and Oswal Vanaspati & Allied Industries v. State of UP., (1993) 1
Crl. LJ 172, overruled.
4.1. 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
c
of the sentence prescribed by the Legislature, for that would amount D
to re-writing the provisions of the statute. (781-G-H]
P. V Pai v. R.l. Rinawma, ILR (1963) Kar. 709, Kusum Products
ltd. v. S.K. Sinha v. ITO, (1980) 126 ITR 804, Modi Industries Ltd. v.
B.C.G., (1983) 144 ITR 496, Municipal Corporation of Delhi v. J.B. E
Bottling Coy., (1975) Crl. W 1148 and Oswal Vanaspati & Allied
Industries v. State of UP. (1993) 1 Crl. L.J. 172, overruled.
4.2. The legislative mandate is to prohibit the Courts from
deviating from the minimum mandatory punishment prescribed by the F
statute. (782-F)
5.1. The Court should be slow in interpreting a penal statute in
a manner, which would amount to virtual re-writing of the statute to
prejudice the accused. (782-G)
5.2. A court cannot breach a casus omissus and no canon of
construction permits the court to supply a lacuna in a statute; nor can
courts of law fill up the lacuna in an ill-drafted and hasty legislation.
Whether the omission is intentional or inadvertent is no concern to the
G
court. (783-B)
H
768
SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A
Tarak Chandra v. Ratanlal, AIR (1957) Cal. 257, approved.
Bristol Guardians v. Bristol Waterworks Coy. (1914) AC 349,
referred to.
6. While interpreting a penal statute, if more than one view is
B possible, the court is obliged to Jean in favour of the construction,
which exempts a citizen from penalty than the one which imposes the
penalty. [783-F]
Tolaram Rehumal v. State of Bombay, AIR (1954) SC 496; Bijaya
C Kumar Agarwala v. State of Orissa, [1966] 5 SCC l; Sanjay Dutt v. State,
[1994] 5 SCC 410 and Niranjan Singh Karam Singh Punjabi v. Jitendra
Bhimraj Bijjaya, [1990] 4 SCC 76, relied on.
State of Maharashtra v. Jugmander Lal, AIR (1966) SC 940, State
of Maharashtra v. Syndicate Transport Coy. Pvt. Ltd., AIR (1964) Born.
D 195, Tuck & Sons v. Priester, [1887] 19 QBD 629 and London & Nosn
Eastern Railway v. Berriman, (1946) 1 ALL ER 255, referred to.
7. This Court cannot, in the garb of construction of the penal
provisions of Sections 276C, 277 and 278 of the Income Tax Act, 1961
E impose a punishment of fine in a situation, which calls for no punishment by a virtual re-writing of the statute. [784-F]
United States v. Union Supply Coy 54 Lawyers Ed. 87 (215 U.S. 50),
referred to.
F
8. The respondent-company cannot be prosecuted for the offences
G
under Sections 276C, 277 and 278 read with Sections 278 since each
one of these Sections requires the imposition of a mandatory term of
imprisonment coupled with a fine leaves no choice to the Court to
impose only a fine. [785-C]
R. v. /.C.R. Haulage Ltd., (1944) 1 All E.R. 691, referred to.
Per Mathur, J. :
1. The sanction to prosecute is undoubtedly an important matter
H and it constitutes a condition precedent to the institution of the
ASSTT. COMMR. ASSESSMENT-II BANGALORE v.VELLIAPPA TEXTILES LTD. 769
prosecution. For a valid sanction, it must be proved that the sanction A
was given in respect of the facts constituting the offence charged. It is
desirable that the facts should be referred to on the face of the sanction,
but this is not essential. If the facts constituting the offence charged
are not shown on the face of the sanction, the prosecution mt.st, in the
course of the trial, prove by extraneous evidence that those facts were B
placed before the sanctioning authority and the authority after applying his mind to the relevant facts had accorded the sanction. 1 he
authority giving the sanction should prima facie consider the evidence
and all other attending circumstances before he comes to a conclusion
that the prosecution in the circumstances be sanctioned or forbidden. C
But he is not required to hold any inquiry to satisfy himself as to the
truth of facts alleged. [788-F-H, 789-A)
2.1. Ifsome 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 D
unilateral act. It can only be done with consent of the authorities
enumerated in the provisions. 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". (789-C-D)
P. V. Pai v. R.L. Rinawma, ILR (1993) Kar. 709, overruled.
E
2.2. By grant of sanction the competent authority under the
Income Tax Act, 1961 only becomes empowered to institute the
complaint before the Court. In many other situations, the order of
sanction has the effect oflifting the embargo on the power of the Court F
to take cognizance of the offence. An order of sanction, by itself, does
not have the effect of a conviction or imposing a penalty causing any
injury of any kind on the accused. The accused will get full opportunity
to defend himself in the trial and the trial will take place in accordance
with the procedure established by law. (789-E-G]
G
R. v. Raymond, (1981) 2 All ER 246, referred to.
Wiseman v. Borneman, (1971) AC 207, Cooper v. Wandsworth
Board of Works, (1963) 14 CBNS 180, Pear/berg v. Varty, (1972) 2 All
ER 6, cited.
H
770
SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A
R. v. Raymond, (1981) 2 All ER 246, referred to.
Adiministrative Law: David Foulkes (Seventh Ed.) p. 285, referred
to.
B
3. The grant of sanction is purely an administrative act and affording
of opportunity of hearing to the accused is not contemplated at that
stage. The legal position is, therefore, clear that no opportunity of hearing
was required to be afforded to the respondents before grant of sanction
by the Commissioner of Income Tax and the view to the contrary taken
by the High Court is clearly erroneous in law. [790-G, 791-D)
c
Superintendent of Police (C.B.l.) v. Deepak Chowdhary, (1995) 6
sec 225, relied on.
4.1. It is true that a company cannot be made to undergo a
D substantive sentence of imprisonment. However, there is no reason why
it should not be awarded a sentence of fine only in the event it is found
guilty of having committed the offence. The Court trying a criminal
offence has to perform two functions. The first is to determine whether
the accused is guilty of having committed the crime, as described in
the Statute. This conclusion has to be reached on the basis of the
E evidence, oral and documentary produced before the Court. The
second function is to award a sentence for the offence for which the
accused has been found guilty. (799-C-D)
4.2. The Court has very wide discretion in a mtter of awarding
F sentence. The discretion undoubtedly has to be exercised on sound
judicial principles having regard to various factors. This will include
the nature of the crime, the manner and method of commission thereof,
the position and condition of victim and also matters attributable
personally to the accused like his age, health, social background,
mental condition etc. [799-E-F)
G
5.1. 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
H pronouncement of judgment of conviction and sentence of an accused
ASSTT. COMMR. ASSESSMENT-II BANGALORE v. VELLIAPPA TEXTILES LTD. 771
is in the realm of execution of sentence. Non-compliance or breach in A
the matter of execution of sentence can have no bearing on the trial
or conviction of the accused or the sentence awarded by the Court.
(800-B-C)
5.2. The mere fact that a company cannot be sent to jail or made
to undergo imprisonment cannot lead to an inference that it should not B
be prosecuted at all. In the event of its conviction, an appropriate fine
can be imposed upon it, which is also one of the punishments provided
under Sections 276C and 277 of the Income Tax Act, 1961. [800-D-E)
S.M Badsha v. ITO, 168 IT 332, (Ker); Shri Singhvi Brothers v. C
Union of India, 187 IT 215 (Raja); Kusum Products Ltd v. S.K. Sinha,
126 IT 804 (Cal) and P. V Pai v. R.L. Rinawna, ILR (1993) Kar. 709,
overruled.
New York Central & Hudson River Railroad Coy. v. United States,
53 Lawyers Ed. 613; Director of Public Prosecutions v. Kent and Sussex D
Contractors Ltd, (1944) 1 All ER 119; H.L. Bolton Coy. v. TJ., Graham
& Sons, (1956) 3 All ER 624; Carrying Co. Ltd. v. Asiatic Petro/em Co.
Ltd, 4 (1915) AC 705; Tesco Supermarkets Ltd v. Nattrass, (1971) 2 All
ER 127 and Canadian Dredge & Dock v. R., (1985) 11 RCSC 662, cited.
American Jurisprudence: 2nd paras 1434 and 1435, Anonymous: E
12 Mod 559, 88 Eng Reprint, 1164, 19 Corpus Juris Secundum : paras
1358 and 1363; Halsbury's Laws of England: Vol. 9(2) para 1184 and
Vol. 11(1) para 35 and Corporate Criminal Liability : A Comparative
Perspective by Guy Stessens Vol. 43 (1994) International & Comparative Law Quarterly p. 493, referred to.
F
6. If a company is not to be prosecuted only on the ground that
substantive sentence cannot be awarded to it, the provisions of Section
10-B Essential Commodities Act and Section 35 Drugs and Cosmetics
Act would never come into operation, clearly defeating the legislative G
intent and the purpose for which they have been enacted. [801-B-C)
Municipal Corporation of Delhi v. J.B. Bottling Co., (1975) Crl. L.J.
1148 (Del.); Oswal Vanaspati & Allied Industries v. State of UP., (1993)
1 Company Law Journal (all)(FB) and Manian Transports, v. S.
Krishnamurthy, (1991) 72 Company Cases 746 (Mad.), approved.
H
772
SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A
U.S. Supreme Court in United States v. Union Supply Coy., 54
B
c
Lawyers Ed. 87 (215 U.S. 50, referred to.
7. Proof of mens rea or guilty mind is not absolutely essential in
every case .. Mens rea or knowledge is not essential ingredients. [803-A)
P.K. Tejani v. MR. Dange, AIR (1974) SC 228; Sarjoo Prasad v.
State of U.P., AIR (1961) SC 631; Ashu Jaiwant v. State of Maharashtra,
(1975) SC 2175; State of MP. v. Narayan Singh, AIR (1989) SC 1789
and Radhey Shyam Khemka v. State of Bihar, [1993) 3 SCC 54, relied
on.
8. For framing of charges in respect of acts and omissions, mens
rea is not an essential ingredient; the concerned statute imposes a duty
on those who are in-charge of the management to follow the statutory
provisions and once there is a breach or contravention, such persons
D become liable for punishment. [803-8-C]
9. Courts would be shirking their responsibilities of imparting
justice by holding that the 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
E 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 impairment in
Bhopal on account of gross criminal act of a multinational corporation.
F It will be wholly wrong to allow a company to go away 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 a part of the
mandatory punishment. [804-C-E)
M V. Jevali v. Mahajan Borewel/ & Co. & Ors., (1997) 8 SCC 72,
G relied on.
CRIMINAL APPELLATE JURISDICTION : Criminal Apeal No.
142 of 1994.
H
From the Judgment and Order dated 29.3.93 of the Karnataka High
ASSTT. COMMR. ASSESSMENT-II BANGALORE v.YELLIAPPA TEXTILES LTD. 773
Court in Crl. P. No. 1502 of 1992.
T.L.V. Iyer, G. Venkatesh Rao and B. Krishna Prasad for the
Appellants.
S.C. Birla for the Respondents.
The following Orders of the Court were delivered
I have very carefully gone through the judgments of my learned
A
B
Brethren Srikrishna, J. and Mathur, J.
C
On the first aspect that sanction given by the Commissioner oflncome
Tax is not vitiated on account of want of opportunity of hearing, I
respectfully agree with my Brethren SrikriShna J. and Mathur, J. On the
remaining aspect of the case, two questions arise for consideration :
D
( 1) 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 E
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. F
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 G
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 organization. Which is H
774
SUPREME COURT REPORTS [2003) SUPP. 3 S.C.R.
A assimilated into the pre-existing individualistic framework of the law by
pursuit of fiction and analogy with a natural person.
In order to trigger corporate criminal liability for the actions of the
employee (who must generally be liable himself), the actor-employee who
B physically committed the offence must be the ego, the centre of the
corporate personality, the vital organ of the body corporate, the alter ego
of the employer corporation or its directing mind. Since the company/
corporation has no mind of its own, its active and directing will must
consequently be sought in the person of somebody who for some purposes
C may be called an agent, but who is really the directing mind and will of
the corporation, the very ego and centre of the personality of the
corporation. To this extent there are no difficulties in our Jaw to fix criminal
liability on a company. The Common Law tradition of alter ego or
identification approach is applicable under our existing laws. But the
problem crops up in mens rea offences. Mens rea and negligence are both
D fault elements, which provide a basis for the imposition of liability in
criminal cases. Mens rea focuses on the mental state of the accused and
requires proof of a positive state of mind such as intent, recklessness or
willful blindness. Negligence, on the other hand, measures the conduct of
the accused on the basis of an objective standard, irrespective of the
E accused's subjective mental state. Criminal liability of a company arises
only where an offence is committed in the course of the company's
business by a person in control of its affairs to such a degree that it may
fairly be said to think and act through him so that his actions and intent
are the actions and intent of the company. And it is not possible to attribute
F element of mens rea to a juristic person, which requires positive act of
omission or commission. Since this cannot be attributed to a juristic person,
it is difficult to accept the proposition of 'punishing a company' wherein
mens rea element is necessary. It is all the more difficult in the event of
mandatory punishment that leads to imprisonment. However, I need not
dilate on this aspect of the case and reserve that answer for consideration
G in a more appropriate case.
On the second question, there is divergence of opinion between my
learned Brethren. While I respectfully and reluctantly disagree with the
view of my learned Brother Mathur, J., I respectfully agree with the view
H of my learned Brother Srikrishna, J. and add as follows :
ASSTT. COMMR. ASSESSMENT-II BANGALORE v.VELLIAPPA TEXTILES LTD. 775
Corporate criminal liability cannot be imposed without making A
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 B
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 C
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 D
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.
E
In my considered view, 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'. Brother Srikrishna, J. in his
opinion has discussed two Reports of Law Commission of India in this F
regard. It is also worthwhile to mention that our Parliament has also
understood this problem. The proposed India Penal Code (Amendment)
Bill, 1972, clause 72(a) reads as hereunder :
"cl. 72(a)(I)- In every case in which the offences is punishable
with imprisonment and fine, and the offender is a company, it G
shall be competent for the Court to sentence such offender to fine
only.
(2) -
In every case in which the offence is punishable with
imprisonment and any other punishment not being fine, and the H
A
B
c
776
SUPREME COURT REPORTS (2003] SUPP. 3 S.C.R.
offender is a company, it shall be competent for the Court to
sentence such offender to fine only.
Explanation : For the purpose of this section, 'company' means
any body corporate and includes a finn or other association of
individuals."
The Bill, in fact, was not passed but lapsed.
To bring such a fundamental change in the criminal jurisprudence is
a legislative function. Only the Parliament can do it.
Hence, agreeing with Brother Srikrishna, J. I would dismiss the
appeal as regards I st respondent and allow the appeal as regards 2nd
respondent.
D
SRIKRISHNA, J. : I have had the benefit of perusing the erudite
judgment of learned brother Mathur, J. I, however, find myself unable to
agree with one aspect of the judgment and the resultant outcome.
The facts have been succinctly stated in the judgment of brother
Mathur, J. Hence it is not necessary to elaborate them, except to recapituE late them very briefly. The first respondent is a limited company which,
along with its Managing Director, was sought to be prosecuted under
Sections 276C, 277 and 278 read with Section 278B of the Income Tax
Act (hereinafter referred to as 'the Act'). The respondents challenged the
prosecution by a petition under Section 482 of the Criminal Procedure
F Code and urged the following grounds in support:
(!) 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
G respondents before the sanction was given.
(2) The first respondent is a company, ajuristic 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
H is not maintainable, even if by reason of Sect,ion 278B some other persons
ASSlT COMMR. ASSESSMENT-ll BANGALORE v.VELLIAPPA TEXTILES LTD. [SRIKRISHNA, ).)
777
connected with it and responsible for running the business of the company A
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 B
to agree with the views expressed in the judgment.
It is a basic principle of criminal jurisprudence that a penal statute
is to be construed strictly. If the act alleged against the accused does not
fall within the parameters of the offence described in the statute the accused
cannot be held liable. There is no scope for intendment based on the C
general purpose or object of law. If the Legislature has left a lacuna, it
is not open to the Court to paper it over on some presumed intention of
the Legislature. The doctrine of casus omissus, expressed in felicitous
language in CST v. Parson Tools and Plants, [1975] 4 SCC 22, is:
"If the legislature wilfully omits to incorporate something of an
analogous law in a subsequent statute, or even if there is a casus
omissus in a statute, the language of which is otherwise plain and
unambiguous, the court is not competent to supply the omission
D
by engraving on it or introducing in it, under the guise of
interpretation, by analogy or implication, something what it thinks E
to be a general principle of justice and equity. To do so "would
be entrenching upon the preserves of legislature", (At p 65 in
Prem NathL Ganeshv. Prem Nath,L. Ram Nath, AIR(l963) Punj
62, Per Tek Chand, J.). The primary function of a court of law
being jus dicere and not jus dare."
(Emphasis supplied)
The maxim "Judicis est jus dicere, non dare" pithily expounds
the duty of the Court. It is to decide what the law is and apply it;
not
to make it.
The question of criminal liability of a juristic person has troubled
Legislatures and Judges for long. Though, initially, it was supposed that
F
G
a Corporation could not be held liable criminally for offences where mens
rea was requisite, the current judicial thinking appears to be that the
mens rea of the person in-charge of the affairs of the Corporation, the H
778
SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.
A alter ego, is liable to be extrapolated to the Corporation, enabling even an
artificial person to be prosecuted for such an offence. I am fully in
agreement with the view expressed on this aspect of the matter in the
judgment of brother Mathur, J. What troubles me is the question whether
a Corporation can be prosecuted for an offence even when the punishment
B is a mandatory sentence of imprisonment.
That in India the situation has not been free from doubt is evident
from two reports of the Law Commission of India which recommended
specific amendments in order to get over this difficulty.
The Law
Commission oflndia in its 41st report at paragraph 24.7 recommended as
C under:
D
E
F
G
"24.7 - As it is impossible 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 guilt 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 its 4 7th report vide paragraph
H 8.3 recommended as under :
ASSTI. COMMR ASSESSMENT-II BANGALORE v.VELLIAPPA TEXTILES LTD. [SRIKRISHNA, I.]
779
"8.3 -
In many of the Acts relating to economic offences, A
imprisonment is mandatory. Where the convicted person is a
corporation, this provision becomes unworkable, and it is desir-
. able 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 B
of economic laws. We, therefore, recommend that the
following provision should be inserted in the Penal Code as, say,
Section 62 :
"(I) In every case in which the offence is punishable with
imprisonment only or with imprisonment and fine, and the C
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 punishment not being fine, and D
the offender is a corporation, it shall be competent to the
court to sentence such offender to fine.
(3) Jn this section, 'corporation' means an incorporated
company or other body corporate, and includes a firm and
other association of individuals."
The Law Commission's recommendations focussed on the fact that
E
the law as it exists renders it impossible for a court of law to convict a
Corporation where the statute mandates a minimum term of imprisonment
plus fine. It would not be open to the court oflaw to hold that a Corporation F
would be found guilty and sentenced only to a fine for that would be rewriting the statute and exercising a discretion not vested in the court by
the statute. It is precisely for this reason that the Law Commission
recommended that where the offence is punishable with imprisonment,
or with imprisonment and fine, and the offender is a corporation, the Court
should be empowered to sentence such an offender to fine only. These G
recommendations have not been acted upon, though several other recommendations made by the 47th Report of the Law Commission have been
accepted and implemented by Parliament vide the Taxation Laws (Amendment) Act, 1975. Hence, the state of law as noticed by the Law Commission
continues.
H
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SUPREME COURT REPORTS [2003) SUPP. 3 S.C.R.
A
A number of judgments of High Courts as well as one judgment of
this Court were cited at the bar which render the situation more complex
and perhaps necessitated reference of the matter to a larger Bench. This
Court speaking through a Bench of two learned Judges in M V. Java/i
v. Mahajan Borewell & Company & Ors., [1997) 8 SCC 72 made the
B following observations vide paragraphs 6 and 8:
c
D
E
F
G
H
"6 - 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 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.
xxx
xxx
xxx
xxx
8. Keeping in view the recommendations of the Law Commission
and the above principles of interpretation of statutes we are of the
opinion that the only harmonious construction that can be given
to Section 276-B is that the mandatory sentence of imprisonment
and fine is to be imposed where it can be imposed, namely on
persons coming under categories (ii) and (iii) above, but where
it cannot be imposed, namely on a company, fine will be the only
punishment.
We hasten to add, two other alternative interpretations could also be given : (i) that a company cannot be
prosecuted (as held in the impugned judgment); or (ii) that a
company may be prosecuted and convicted but not punished, but
these interpretations will be dehors Section 278-B or wholly
inconsistent with its plain language."
ASSTI. COMMR. ASSESSMENT-II BANGALORE v.VELLIAPPA TEXTILES LTD. [SRIKRISHNA, J]
781
Though, Java/i (supra) refers to the recommendations of 47th report A
of the Law Commission of India dated 28.2.1972 in support of its view,
I find it difficult to agree with its reasoning. The report of the Law
Commission indicates a lacuna in the Jaw and suggests a possible remedy
by amending the Jaw. Since the function of the court of law is }us dicere
and not }us dare, the court of Jaw cannot read the recommendations of the B
Law Commission as justifying an interpretation of the Section in tune with
them, even when the words of the Section are plain and unambiguous.
Though Java/i (supra) also refers to the general principles of interpretation
of statutes, the rule of interpretation of criminal statutes is altogether a
different cup of tea. It is not open to the court to add something to or read C
something in the statute on the basis of some supposed intendment of the
statute. It is not the function of this Court to supply the casus omissus, if
there be one. As long as the presumption of innocence of the accused
prevails in this country, the benefit of any lacuna or casus omissus must
be given to the accused. The job of plugging the loopholes must strictly D
be left to the legislature and not assumed by the court.
The judgment of the Karnataka High Court under appeal relies on
its earlier judgment in P.VPai v. R.L. Rinawma, !LR (1993) KAR 709.
To similar effect are the views of the Calcutta High Court in Kusum
Products Ltd. v. S.K. Sinha, !TO, Central Circ/e-X, Calcutta (1980) 126 E
!TR 804, Medi Industries Ltd. v. B.C. Goel, (1983) 144 !TR 496.
The judgment of the Full, Bench of the Delhi High Court in Municipal
Corporation of Delhi v. J.B. Bottling Company, (1975) Crl.L.J. 1148
followed by the judgment of the Full Bench of the Allahabad High Court F
.in Oswal Vanaspati & Allied Industries v.