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In A company has none
of
features that characterize a living person, a mind that can have
knowledge or
intention or be negligent.[1] But company, being a body corporate
can
sue and be sued in its own name.[2] In the statutes defining
crimes, the
prohibition is frequently directed against any person who commits
the
prohibited act, in many statutes the term -
person
is defined.[3] Section 3(42) of General Clauses Act, 1897 defines
person
as:
Person
shall include any company or association or body of
individuals,
whether incorporated or not.[4] Even
person
is not specifically defined, it is necessarily
includes
a corporation. It is usually construed to include a corporation so
as
to bring it within the prohibition of the statutes and subject it
to
punishment.[5] Various kinds of punishments are mentioned under
various
statutes. As section 53 of I.P.C, 1860 tells that the punishments
to
which offenders are liable under the provisions of I.P.C are
death,
imprisonment of life, imprisonment, forfeiture of property and
fine.
There is
no controversy when fine is only punishment given under any
statute.
There is also no lis when statute entrusts the court with
discretion to
inflict fine or imprisonment, as in this case court shall inflict
only
fine on company. Because a company being a Juristic person cannot
obviously be sentenced to imprisonment as cannot suffer
imprisonment.
Judicial controversy lies in that situation when statute
prescribes
mandatory
imprisonment with fine as a punishment for an offence. In 2003
Supreme
Court in Assistant Commissioner, Assessment-ll,
Banglore & Ors. v.
Velliappa Textiles Ltd & Anr.[6]
took the view that since an artificial person like a company could
not be physically punished to a term of imprisonment, such a
section, which makes it mandatory to impose minimum term of
imprisonment, cannot apply to the case of artificial person.
However, Supreme Court in 2005 in
Standard
Charted Bank v. Directorate Of Enforcement[7]
in majority decision of 3:2 expressly overruled the Velliapa
Textiles case[8] on this issue. K.J Balkrishanan J. in majority
opinion held:
We hold that 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. We
overrule the views expressed by the majority in Velliappa Textiles
on
this point.[9]
In
Standard Charted Bank v. Directorate Of Enforcement
[10]
appellant
filed a writ petition before High Court Of Bombay challenging
various
notices issued under section 50 read with section 51 of Foreign
Exchange
Regulation Act, 1973 & contended that the appellant company was
not
liable to be prosecuted for an offence under section 56 of FERA
Act,
1973
against the decision of High Court appellant filed a special leave
before Supreme Court, contended that no criminal proceeding can be
initiated against appellant company under section 56(1) of FERA
Act,
1973 as
the minimum punishment prescribed under section 6(1) (i) is
imprisonment for a term which shall not be less than six months
and with
fine.
Section 56 of FERA Act, 1973 read as follow:
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 subsection (1) of section 18, section 18A, clause
(a) of
subsection (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 lac of rupees, with imprisonment for a tern not 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.
The question for consideration before court was:
Whether a company or a corporation being a juristic person, can
be
prosecuted for an offence for which mandatory punishment
prescribed is
imprisonment & fine
Prosecution is pre-requisite for inflicting any punishment. But it
is
natural when no punishment can be inflicted, no prosecution can be
launched. So it is clear from Standard Charted case[11] that
prosecution
can be initiated and fine can be imposed even when imprisonment is
given
as mandatory punishment with fine.
Lex non cogit ad impossibilia
The maxim lex non cogit ad impossibilia only tells us that law
does
not contemplate something, which cannot be done. This maxim is
used by
both sides (majority and minority) in standard charted case [12].
As
Srikrishna J. in minority observed:
The maxim
lex non cogit ad impossibilia
like all maxims,
only tells us that law does not contemplate something which cannot
be
done. The maxim applies, in so far persuading the court to hold
that it
is impossible to send a company to prison. 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. Au contraire[13], the application of
these
maxims could equally persuade the court to ignore the language of
the
statutory provision in the case of juristic person, there being no
warrant
for the dissecting of the section and treating only one part as
capable
implementation when the mandate of the section is to impose the
whole of the prescribed punishment.[14]
K.J Balkrishanan J. in majority opinion held:
It is an acceptable legal maxim that law does not compel man to
do that which cannot possibly be performed [impotentia excusat
legem].
This principle can be found 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 on 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. This court applied
doctrine of
impossibility of performance [Lex non cogit ad impossibilia] in
numerous
cases...[15]
Law Commission Report
Law commission in its 41st report 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 imprisonment and fine and the offender is the
company or
other body corporate or an association of individuals, it shall be
competent to the court to sentence such offender to fine only.
This recommendation got no response from the parliament and again
in
the 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 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,
recommended that
the
following provision should be inserted in the penal code as, say,
Section 62:
(1) In every case in which the offence is punishable with
imprisonment only or with imprisonment and fine, and the offender
is the
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.
But this bill prepared on the basis of the recommendations of the
law
commission lapsed and it did not become law.
However few of these recommendations were accepted by parliament
and
by suitable amendment some of the provisions in the taxation
statutes
were amended.
Mens Rea
In as much as all criminal and quasi-criminal offences are
creatures
of statute, the amenability of the corporation to prosecution
necessarily depends upon the terminology employed in the statute.
In the
case of
strict liability, the terminology employed by the legislature is
such
as to repeal an intent that guilt shall not be predicted upon the
automatic breach of the statute but on the establishment of the
actus
reus,
subject to the defence of due diligence the law is primarily based
on
the terms of the statute. In the case of absolute liability where
the
legislature by the nearest intendment establishes an offence here
liability arises instantly upon the breach of the statutory
prohibition,
no
particular state of mind is a pre requisite of guilt. Corporations
and
individuals persons stand on the same footing in the face of such
a
statutory offence. It is a case of automatic primary
responsibility. It
is
only in the case requiring mens rea; a question arises whether the
corporation could be attributed with requisite mens rea to prove
the
guilt.[16]
U.S. Supreme Court in New York Central and Hudson River Rail
Road Co. v. U.N [17] clearly held that a corporation is liable for
crimes
of intent.
In
H.L BOLTON (engg.) co. ltd v. T.J Graham and sons[18]. Lord Dening
Observed:
A company may in many ways be likened to a human body. They
have a brain and a nerve centre, which controls what they do. They
also
have hands, which hold the tools and act in accordance with
directions
from the centre. Some of the people in the company are mere
servants
and agents who are nothing more than hands to do the work and
cannot be
said to represent the mind or will. Others are directors and
managers
who represent the directing mind and will of the company and
control
what
they do. The state of mind of these managers is state of mind of
company and it treated by law as such. So you will find that in
case
where
the law requires personal fault as a condition of liability in
tort, the
fault of the manager will be the personal fault of company.
That
is
made clear in Lord Haldene's in
Lennard's Carraying Company Ltd v.
Asiatic
Petroleum Co. Ltd
[19](Ac at pp. 713,714). So also in the criminal
law, in cases where the law requires a guilty mind of directors or
the
managers will render the company themselves guilty. [20]
In Standard Charted case [21] there was no issue of mens rea, so
why
it was left open. But in Velliapa Textiles case[22] Supreme Court
held
that mens rea of person in charge shall be treated as mens rea of
corporation. Srikrishna J. in majority on this point observed:
Though, initially, it was supposed that a corporation
could not be held liable criminally for offences where mens rea of
person
in charge of the affairs of the corporation, the alter ago, is
liable to
be extrapolated to the corporation, enabling even an artificial
person
to be prosecuted.[23]
Conclusion
Corporation undoubtedly rule the world today and due to which
there
is rise in crime by corporate bodies. People, especially human
rights
groups described judgment in
Velliapa Textiles case[24] a failure
of
imagination. But Standard Charted case [25] must satisfy them.
However,
it
is also true that principles of interpretation of statutes in
Standard
Charted case [26] are wrongly applied. Velliapa Textiles case[27]
is
expressly overruled on issue of imposition of fine when
imprisonment is
given as a mandatory punishment. But still it holds good on issue
of
mens
rea. Alter ego doctrine is upheld in Velliapa Textiles case[28].
These
two cases (Standard Charted case[29] and Velliapa Textiles
case[30])
are jointly made code for deciding criminal liability of corporate
world.
---------------------------------
[1] Lord Reid in Tesco Supermarkets Ltd. v. Natrass [1971] All ER
127
[2] Avtar Sngh?s Company Law at p.10 (14th Edition)
[3] K.J Balkrishanan J.in Standard Charted Bank v. Directorate Of
Enforcement at p. 284 JT 2005 (5) SC 267; (2005) 4 SCC 50
[4] Section 11 of I.P.C, 1860 tells The word
person shall
includes any company or association or body of persons, whether
incorporated or not.
[5] Standard Charted Bank v. Directorate Of Enforcement JT 2005
(5) SC 267; (2005) 4 SCC 50
[6] [JT 2003(suppl. 2) SC 99] ; (2003)11 SCC 405
[7] JT 2005 (5) SC 267; (2005) 4 SCC 50
[8] , Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd &
Anr. [JT 2003(suppl. 2) SC 99]; (2003) 11 SCC 405
[9] At p. 293 JT 2005 (5) SC 267; (2005) 4 SCC 50
[10] supra.
[11] Standard Charted Bank v. Directorate Of Enforcement JT 2005
(5) SC 267; (2005) 4 SCC 50
[12] ibid.
[13] Au contraire: to the contrary
[14] at p.280, JT 2005 (5) SC 267; (2005) 4 SCC 50
[15] at p.292, JT 2005 (5) SC 267; (2005) 4 SCC 50
[16] Standard Charted Bank v. Directorate Of Enforcement JT 2005
(5) SC 267
[17] 53 L Ed 613: 212 US 481 (1908)
[18] (1956) 3 ALL ER 624 at p.632
[19] 1915 AC 705:113 LJ 195
[20] at p. 630; (1956) 3 ALL ER 624 at p.632
[21] Standard Charted Bank v. Directorate Of Enforcement JT 2005
(5) SC 267
[22] Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd &
Anr. [ JT 2003( suppl. 2 ) SC 99] (2003) 11 SCC 405
[23] at p. 429 ; (2003) 11 SCC 405
[24] Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd &
Anr. [ JT 2003( suppl. 2 ) SC 99] ; (2003)11 SCC 405
[25] Standard Charted Bank v. Directorate Of Enforcement JT 2005
(5) SC 267
[26] ibid.
[27] Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd &
Anr. [ JT 2003( suppl. 2 ) SC 99] ; (2003)11 SCC 405
[28] ibid.
[29] Standard Charted Bank v. Directorate Of Enforcement JT 2005
(5) SC 267
[30] Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd &
Anr. [ JT 2003( suppl. 2 ) SC 99] ; (2003)11 SCC 405
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Criminal Liability Of Corporate Bodies
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