Standard Chartered Bank And ors v Directorate Of Enforcement And ors. By Sakshi Yadav

Standard Chartered Bank And ors v Directorate Of Enforcement And ors

Citation – AIR 2005 SC 2622

Cases Overruled /Reversed: 
The Assistant Commissioner, Assessment-II, Bangalore and Ors. vs. Velliappa Textiles Ltd. and Ors.[1]

The below judgment has been delivered by a five judge constitution bench by a split verdict of 3:2.

Facts:

The appellant in the present case filed a writ petition of Civil Appeal No. 1748 of 1999 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. The appellant company in the High Court contended that it was not liable to be prosecuted for the offence under Section 56 of the FERA Act.

The appellant filed an appeal against the judgment of the Division Bench of the Bombay High Court, dated 7thNovember, 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)(i) is imprisonment for a term which shall not be less than six months and with fine.

Issues of Consideration:

The main issues for consideration are as follows –

  1. Whether a company or a corporate body could be prosecuted for offences for which the sentence of imprisonment is a mandatory punishment?
  2. Where an accused is found guilty and the punishment to be imposed is imprisonment and fine, whether the court has got the discretion to impose the sentence of fine alone?

Contention on Behalf of Appellant:

The main argument advanced on behalf of the appellant is that the statutes creating criminal liability have to be strictly construed. When a statute prescribes punishment of imprisonment and fine, it is not permissible for the court to award punishment of fine alone. A corporation being a juristic person cannot be awarded the punishment of imprisonment. The appellants contend that when a statutory provision cannot be complied 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 appellants to support their argument gave the reference of the case of a three-Judge Bench decision of the Supreme Court in Assistant Commissioner, Assessment-II, Bangalore and Ors v. Velliappa Textiles Ltd[2]  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.

The appellants also contended that the Parliament enacted laws knowing well that the company cannot be subjected to custodial sentence and therefore the legislative intention is not to prosecute the companies or corporate bodies and when the sentence prescribed cannot be imposed, the very prosecution itself is futile and meaningless and thus the majority decision in Velliappa Textiles has correctly laid down the law.

Contention on Behalf of Respondents:

The respondents relied on the case of Delhi High Court in Delhi Municipality v J.B. Bottling Company [3] where the court held that the main task of the court and the judges is to remove mischief. This case was discussed by the counsel of the respondents to establish the point that strict construction can sometimes defeat the legislation intent.

They also contended that the court keeping in mind its interpretative and judicial function should reconsider the decision given in Assistant Commissioner, Assessment-II, Bangalore and Ors v. Velliappa Textiles Ltd[4].

Judgement:

The majority view was given by K.G. Balakrishnan, Arun Kumar, J. and D.M. Dharmadhikari, J.

Reference was made to Section 11 of the Indian Penal Code in which the “person” is defined as: “The word “person” includes any Company or Association or body of persons, whether incorporated or no

Reference was also made to the 41st and 47th law commission report in which the law commission stated that – “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.”

The judges further went on saying that it is true that all penal statutes are to be strictly construed in the sense that the Court must see that the thing charged as an offence is within the plain meaning of the words used and must not strain the words on any notion that there has been a slip that the thing is so clearly within the mischief that it must have been intended to be included and would have included if thought of. Further, all penal provisions like all other statutes are to be fairly construed according to the legislative intent as expressed in the enactment. In the present matter the legislative intent to prosecute corporate bodies for the offence committed by them is clear and explicit and the statute never intended to exonerate them from being prosecuted. According to them it would be 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.

The judgement was also supported by referring to a passage in Craies on Statue Law which said that now the statutes are interpreted with respect to legislative intent and not just on the basis of strict construction because it led to the criminals being scot – free.

Maxim lex non cogit ad impossibilia was also referred in the judgement which says that the law compels no impossibility.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. 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.

In addition to it Arunk Kumar J. Gave an additional reason in his separate conquering judgement wherein he stated the various illustration given in Maxwell’s book of interpretation and Bennion and concluded that strict construction is to be applied only in cases where ambiguity or doubt manifests in terms of the provisions of the statute and nowhere is it shown that penal statutes also have to follow the rule of strict construction. Infact in case of penal statutes some amount of discretion is given to the court.

D.M. Dharmadhikari, J. gave an additional reason by referring to the rule of interpretation of statutes “A penal statute has to also be so construed as to avoid a lacuna and to suppress mischief and to advance a remedy in the light of the rule in Heydon’s case. A commonsense approach for solving a question of applicability of a penal statute is not ruled out by the rule of strict construction.”

In view of the majority opinion of the Court, the judgment of the Supreme Court in Assistant Commissioner, Assessment-II, Bangalore and Ors v. Velliappa Textiles Ltd. and Anr. stands overruled.

Analysis:

First in the analysis I shall talk about the minority opinion given by B.N. Srikrishna, J. his minority opinion is worth mentioning because the arguments given by him are strong, logical and make you think about the correctness of majority decision as well.

Legislative Intention 

He argued that 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. He justified this by saying that the court in 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.

Judicial Action

With regards to the judicial action of a court he referred to the maxim ‘judicis est just dicere, non dare’ which according to him best expounds the role of the court. It is to interpret the law, not to make it. He further said that 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. He also said that purposive construction cannot be adopted by court in matters where meaning of the statute is plain and simple as in the present matter.

Interpretative Exercise 

He argued that the counsel for the respondent is laying emphasis on the interpretative function of the court but reading a provision “imprisonment and fine” as “imprisonment or fine” will amount to rewriting of the section which definitely cannot be done by court because then it shall lead to the interpretation of a statute which could vary with the factual matrix.  This is because it cannot happen that in the case of a company, the court can read the provision as “imprisonment or fine” while in case of a natural person it shall be read as “imprisonment and fine” ; the court cannot follow double standards.

Secondly, he said that it is not dependant on the court to manipulate the punishment which is mandatory in a provision.

Thirdly, he talks about the maxim 76. The maxim ‘lex non cogit ad impossibilia’, which according to him only tells the court that law does not contemplate something which cannot be done. The maxim by itself does not empower the Court to break up the section into convenient parts and apply them selectively. Nor does the maxim ‘Impotentia excusat legem’ apply here for the same reason. According to him, the application of these two maxims could equally persuade the Court to ignore the language of the statutory provision in the case of a juristic person, there being no warrant for the dissecting of the section and treating only one part as capable of implementation when the mandate of the section is to impose the whole of the prescribed punishment.

He talked about a fallacious mathematical syllogism is put forward. The argument is that the statute mandates (‘A + B’); if A is impossible, then A=0. Then, the statutory mandate would be only (Zero + B), which is really equal to ‘B’ (presumably ‘A’ = imprisonment and ‘B’ = fine). There is no warrant for the assumption that the value of ‘A’ reduces to zero merely because it is impossible in case of a corporate offender. It could very well be that ‘A’ is indeterminate. In that case, the mathematical logic would break down (Indeterminate + B) = Indeterminate, which is exactly what, has been held by Velliappa, namely, that the statute would become unworkable in the case of a juristic person. It cannot apply to a juristic person for all the reasons adumbrated by the majority in Velliappa.

Argument of Consequences : The contention of the respondents that if the 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. According to him 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’.

Jurisprudence  Principals : He referred to Kenny in “The Outlines of Criminal Law which says “Thus the fact that a corporation cannot be hanged or imprisoned sets a limit to the range of its criminal liability. A corporation can only be prosecuted, as such, for offences which can be punished by a fine.” He seconded this thought and gave reasons to support this.

He mentions that para 57 of the judgment in Velliappa specifically notices that corporate criminal liability cannot be imposed without making corresponding legislative changes such as the imposition of fine in lieu of imprisonment. That such requisite legislative changes were introduced in Australia, France (Penal Code of 1992), Netherlands (the Economic Offences Act, 1950 and Article 51 of the Criminal Code) and Belgium (in 1934 Cour de Cassation) is already referred to in Velliappa.

Due to the above reasons, the minority was of the opinion that view in Velliappa is correct and does not require any reconsideration.

I agree with the majority opinion because even when I totally agree with the logical arguments given in the minority opinion but the truth is that due to the absence of the possibility of criminal liability, corporations would escape moral conviction for wrongdoing.

Corporate will continue to go scot free in such cases and shall always have the defence of being a juristic person. The question here is that Can we as a developing nation afford such kind of arguments and excuses? How long can we wait for the legislature to correct the faults in the provisions so that corporate can be held liable? The answer is clear that our courts need to step forward and just like judicial activism in environmental matters and for that matter public cause, our courts have to interpret laws so that companies also realise that they cannot be allowed to take advantage of loopholes in any law and our judiciary is there playing its role to give justice to everyone.

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. 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.

Thus, after this case the current position is that that corporations can no longer claim immunity from criminal prosecution on the grounds that they are incapable of possessing the necessary mens rea for the commission of criminal offences. The notion that a corporation cannot be held liable for the commission of a crime had been rejected.

By : Sakshi Yadav, 2nd Year, B.A LL.B (Hons.), National Law University, Jodhpur

[1] The Assistant Commissioner, Assessment-II, Bangalore and Ors. vs. Velliappa Textiles Ltd. and Ors AIR 2004 SC 86

[2] The Assistant Commissioner, Assessment-II, Bangalore and Ors. vs. Velliappa Textiles Ltd. and Ors AIR 2004 SC 86

[3] Delhi Municipality v J.B. Bottling Company  ILR 1978 Delhi 428

[4] The Assistant Commissioner, Assessment-II, Bangalore and Ors. vs. Velliappa Textiles Ltd. and Ors AIR 2004 SC 86

 

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