Standard Chartered Bank and Ors. etc.

Vs.
Directorate of Enforcement and Ors. Etc.
AIR 2005 SC 2622
Hon'ble Judges
N. Santosh Hegde, K.G. Balakrishnan,
D.M. Dharmadhikari, Arun Kumar and
B.N. Srikrishna, JJ.
The question for consideration in the appeal is:
"Whether a company or a corporation, being a
juristic person, can be prosecuted for an
offence for which mandatory punishment
prescribed is imprisonment and fine"?
 Cont…

• Foreign Exchange Regulation Act, 1973

Section 56(1)(i)
• Income Tax Act, 1961 - Sections 276-C, 278-B
(as amended by Finance (No. 2) Act, 2004
• Indian Penal Code, 1860 - Section 11
• General Clauses Act, 1897 - Section 3(42)
 Cont…

• 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.
 Cont…

• Section 50-Penalty- 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 18A] and clause (a) of sub-
section (1) of section 19] or of any rule, direction or order made
there under, he shall be liable to such penalty not exceeding
five times the amount or value involved in any such
contravention or five thousand rupees, whichever is more as
may be adjudged by the Director of Enforcement or any other
officer of Enforcement not below the rank of an Assistant
Director of Enforcement specially empowered in this behalf by
order of the Central Government (in either case hereinafter
referred to as the adjudicating officer).
 Cont…

• Section 51 - Power to adjudicate- For the purpose of adjudging

under section 50 whether any person has committed a
contravention of any of the provisions of this Act (other than
those referred to in that section) or of any rule, direction or
order made there under, the adjudicating officer shall hold an
inquiry in the prescribed manner after giving that person a
reasonable opportunity for making a representation in the
matter and if, on such inquiry, he is satisfied that the person has
committed the contravention, he may impose such penalty as
he thinks fit in accordance with the provisions of that section.
 Cont…
• "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 18A, 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 there under, 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.
 Cont…

• Assistant Commissioner, Assessment-II

Bangalore and Ors. v. Velliappa Textiles Ltd
and Anr. 2004CriLJ1221
• B.N. Srikrishna, G.P. Mathur and S.
Rajendrababu JJ.
 Cont…

• 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' case (supra), 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 Textiles, 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 Section 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 Section 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 imposes
the penalty.
 Cont…

• In Section 11 of the Indian Penal Code, the

"person" is defined thus :
"The word "person" includes any Company or
Association or body of persons, whether
incorporated or not."
 Cont…
• The legal difficulty arising out of the above situation
was noticed by the Law Commission and in its 41st
Report the Law Commission suggested amendment to
Section 62 of the Indian Penal Code by adding 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."
 Cont…
• 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:
 Cont…
• (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 punishment not being fine,
and the offender is a corporation, it shall be competent to
the court to sentence such offender to fine. (3) In this
section, "corporation" means an incorporated company or
other body corporate, and includes a firm and other
association of individuals."
 Cont…
• Justice Holmes in United States v. Union Supply - "It seems to
us that a reasonable interpretation of the words used does not
lead to such a result. If we compare Section 5, the application
of one of the penalties rather than of both is made to depend,
not on the character of the defendant, but on the discretion of
the Judge; yet, there, corporations are mentioned in terms. And
if we free our minds from the notion that criminal statutes
must be construed by some artificial and conventional rule, the
natural inference, when a statute prescribes two independent
penalties, is that it means to inflict them so far as it can, and
that, if one of them is impossible, it does not mean, on that
account, to let the defendant escape."
 Cont…
• 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?" A passage in Craies on Statue Law 7th
Edn. reads to the following effect :
• "The distinction between a strict and a liberal construction has almost
disappeared with regard to all classes of 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."
 Cont…
• 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.
 Cont…
• In Maxwell on 'The Interpretation of Statutes'. 12th
Edition, the rule is stated as under:
• "Strict construction of words setting out the elements of
an offence If there is any ambiguity in the words which
set out the elements of an act or omission declared to be
an offence, so that it is doubtful whether the act or
omission in question in the case tails within the statutory
words, the ambiguity will be resolved in favour of the
person charged. This is, in practice, by far the most
important instance of the strict construction of penal
statutes."
 Cont…
• LEGISLATIVE INTENT
• 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. The
inserted sub-section (3) reads as under:
 Cont…
• "278B (3) Where an offence under this Act has been
committed by a person, being a company, and the
punishment for such offence 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."
 Cont…
• Judicial Function- A number of arguments were addressed by
learned counsel as to what is the true function of the Court in
interpreting a statute. We would prefer to tread the conventional
path that the maxim 'judicis est just dicere, non dare' best
expounds the role of the court. It is to interpret the law, not to
make it. The Court cannot act as a sympathetic caddie who nudges
the ball into the hole because the putt missed the hole. Even a
caddie cannot do so without inviting censure and more. If the
legislation falls short of the mark, the Court could do nothing more
than to declare it to be thus, giving its reasons, so that the
legislature may take notice and promptly remedy the situation.
This is precisely what has happened in the present case.
 Cont…
• 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.
 Cont…
• ARGUMENT OF CONSEQUENCE
• A final argument, more in terrorem than based on
reason, put forward was that, if the majority view in
Velliappa is upheld, it would be impossible to prosecute
a number of offenders in several statutes where strict
liability has been imposed by the statute. If that be so,
so be it. As already pointed out, the judicial function is
limited to finding solutions within specified parameters.
Anything more than that would be 'judicial heroics' and
'naked usurpation of legislative function'.
 Cont…
• Jurisprudential Principle- Kenny in "The
Outlines of Criminal Law, The Outlines of
Criminal law by Kenny 15th ed. Pgs. 73 to 75"
observes as under:
"Moreover a corporation is devoid not only of
mind, but also of body; and therefore
incapable of the usual criminal punishments.
"Can you hang its common seal?"