Holding

The sanction under Section 279 is valid without a hearing, but a company cannot be prosecuted under Sections 276C, 277 and 278B because the mandatory imprisonment component cannot be imposed on a juristic person.

Summary

The Commissioner of Income Tax sanctioned prosecution of Mis. Velliappa Textiles Ltd., a company, and its managing director under Sections 276C, 277 and 278B of the Income Tax Act for alleged false claims of depreciation. The company challenged the sanction on the ground that no opportunity of hearing was given, violating natural justice, and argued that a juristic person cannot be sentenced to imprisonment, which is mandatory under the statutes. The Supreme Court held that the sanction is a purely administrative act and does not require a hearing, but a company cannot be prosecuted where the statute mandates imprisonment coupled with a fine, as imprisonment cannot be imposed on a juristic person. Consequently, the appeal was dismissed with respect to the company but allowed against the managing director, permitting fresh prosecution against him after a hearing. The decision underscores the need for legislative amendment to allow fines in lieu of imprisonment for corporate offenders.

Issues considered

Whether the sanction granted under Section 279 of the Income Tax Act is invalid for lack of an opportunity of hearing.
Whether a company, as a juristic person, can be prosecuted under Sections 276C, 277 and 278B where the punishment includes a mandatory term of imprisonment.
Whether a fine alone can be imposed on a company when the statute prescribes both imprisonment and fine.

Legislation cited

Income Tax Act, 1961s. 276C, s. 277, s. 278, s. 278B, s. 279

Subjects

corporate criminal liabilitysanction under Section 279mandatory imprisonmentfine onlynatural justiceIncome Tax Actjuristic personpenal statute interpretation

Judgment

THE ASSISTANT COMMISSIONER, ASSESSMENT-II, A
BANGALORE AND ORS.
v.
Mis. VELLIAPPA TEXTILES LTD. AND ORS.

SEPTEMBER, 16, 2003
B
[S. RAJENDRA BABU, B.N. SRIKRISHNA
AND G.P. MATHUR, JJ.]

Income Tax Act, 1961 :

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-Adminis-
trat ive Law. D
Sections 276C, 277 and 2788--Prosecution of a company-Launch-
ing of -Punishment-Imprisonment and fine-Held : (per majority) :
Court not empowered to impose only a fine-Imprisonment coupled with
fine mandatory-Hence, company could not be prosecuted under Ss. 2 76C,
277 r/w S. 278B-(per minority) : Company could be awarded a sentence E
offine 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". F
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
G
under Section 482 of the Code of Criminal Procedure, 1973 in the High
Court on the following grounds :

(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 impris-
onment, 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 docu-
ments 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 indi-
vidualistic 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 actor-
employee 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
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
-
l

B 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]
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)
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 ofDelhi v. J.B. Bottling Coy., (1975) Crl. W
1148 and Oswal Vanaspati & Allied Industries v. State of UP., (1993) 1
Crl. LJ 172, overruled.
c
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
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)
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
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 punish-
ment 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
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]
G
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 apply-
ing 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. Com-
pounding 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 & Compara-
tive 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 ofDelhi 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
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)

B 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.
c 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. A

T.L.V. Iyer, G. Venkatesh Rao and B. Krishna Prasad for the
Appellants.

S.C. Birla for the Respondents. B
The following Orders of the Court were delivered

I have very carefully gone through the judgments of my learned
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 admin-
istrative 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
776 SUPREME COURT REPORTS (2003] SUPP. 3 S.C.R.

A 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."
B
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.
c
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 recapitu-
E 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:
D
"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
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." F
(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.
G
The question of criminal liability of a juristic person has troubled
Legislatures and Judges for long. Though, initially, it was supposed that
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:
"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
D 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 inappro-
E priate 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".

F 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
G
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." E
The Law Commission's recommendations focussed on the fact that
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 re-
writing 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 recom-
mendations made by the 47th Report of the Law Commission have been
accepted and implemented by Parliament vide the Taxation Laws (Amend-
ment) Act, 1975. Hence, the state of law as noticed by the Law Commission
continues. H
780 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:
"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
c 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
D 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
E 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
F
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
G punishment. We hasten to add, two other alternative interpre-
tations 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
H 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. State ofU.P., (1993) I CLJ 172
take 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. With great respect,
I am unable to subscribe to this view. Where the legislature has granted G
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. H
782 SUPREME COURT REPORTS (2003] SUPP. 3 S.C.R.

A Prior to the substitution of Section 276C, 277 and 278 by the Taxation
Laws (Amendment) Act, 1975 with effect from 1.10.1975 in the present
form, there was no minimum sentence of imprisonment provided for. The
intention of the legislature in imposing a minimum term of imprisonment
for offences punishable thereunder was to do away with the Court's
B discretion of only imposing of a fine and make the punishment more
stringent.

The Law Commission in its 47th Report recommended (Chapter 18,
pg. 157) that the punishment under sections 2768, 276C, 276E, 277 and
278 should be increased. It further recommended, "there should be a
C provision for minimum imprisonment and minimum fine'. These recom-
mendations were implemented vide the Taxation Laws (Amendment) Act,
1975. In fact, at the time of introduction of the amendment bill, the Finance
Minister Shri C. Subramaniam stated:

"To those who make a Jot of money through infringement of laws,
D
monetary penalties do not really serve as deterrents. The provi-
sions relating to prosecutions for tax offences are, therefore,
proposed to be tightened up. The Select Committee has further
recommended that in order to make the provisions relating to
prosecution more effective, the discretion vested in courts to
E award monetary punishment as an alternative to rigorous impris-
onment or to reduce the term of imprisonment below the
prescribed minimum should be taken away. I welcome these
changes and commend them to the house."

F Hence, it is apparent that the legislative mandate is to prohibit the
Courts from deviating from the minimum mandatory punishment pre-
scribed by the statute. If, in spite of the amendment, the situation is seen
as before, then I fail to see the purpose of the amendments made by the
Taxation Laws (Amendment) Act, 1975.

G I am of the view that 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 to the accused.

As Loreburn,J. observed in Bristol Guardians v. Bristol Waterworks
H Company (1914) AC 379, 388:
ASSTT. COMMR ASSESSMENT-II BANGALORE >.VELLIAPPA TEXTILES LTD. [SRIKRISHNA, J.] 783

"After all, it is not our function to repair the blunders that are to A
be found in legislation. They must be corrected by the legislature."

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.
B
This was echoed by the Full Bench of the Calcutta High Court in
Tarak Chandra v. Ratanlal, AIR (1957) Cal. 257 thus:

"It is true that one must not expect in a statute the completeness
and elaboration of a deed, and where the minimum required to
make a particular meaning which is obviously intended is found, C
effect must be given to such meaning. But courts cannot dispense
with even the minimum. Even where such minimum is absent,
courts must declare the deficiency and let it have its effect rather
than strain themselves to make it good. Thereby, not only will
the courts prevent themselves from taking up the functions of the D
legislature but the legislature may also profit because it may take
care to avoid such deficiencies in future."

Whether the omission is intentional or inadvertent is no concern of
the court.
E
The observations in Tolaram Relumal & Anr. v. The State ofBombay,
AIR (1954) SC 496, Bijaya Kumar Agarwala v. State of Orissa, [1996]
5 SCC I, Sanjay Dutt v. State through CBI, Bombay(JI), [1994] 5 SCC
410, Niranjan Singh Karam Singh Punjabi, Advocate v. Jitendra Bhimraj
Bijjaya & Ors., [ 1990] 4 SCC 76 make it clear that while interpreting a
penal statute, if more than one view is possible, the court is obliged to lean F
in favour of the construction which exempts a citizen from penalty than
the one which imposes the penalty. The observations of Lord Esher, MR
in formulating, "the settled rule of construction of penal Sections", that "if
there is a reasonable interpretation which will avoid the penalty in any
particular case, we must adopt that construction. Ifthere are two reasonable G
constructions, we must give the more lenient one." (See Tuck & Sons v.
Priester, [1887] 19 QBD 629 and London & Norm Eastern Railway v.
Berriman, (1946) I ALL ER 255.

In State of Maharashtra v. Jugmander Lal, AIR (1966) SC 940 this
court held that the expression, "shall be punishable for imprisonment and H
784 SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A also for fine" means that the court is bound to award a sentence comprising
both imprisonment and fine and the word "punishable" does not mean
anything different from "shall be punished", punishment being obligatory ;_
in. either case. The judgment of the Bombay High court in State of
Maharashtra v. Syndicate Transport Company Pvt. Ltd., AIR (1964) Born.
B 195 also supports this view.

The view taken by me also finds support from the Australian
jurisdiction. Faced with the same situation, the legislature in Australia
enacted Part 2 .5 of the Commonwealth Criminal Code Act, 1995 to
specifically provide: "a body corporate may be found guilty of any offence,
C including one punishable by imprisonment." This provision has to be read
with Section 4B(3) of the Crimes Act, 1914 which provides: "where a body
corporate is convicted of an offence against a law of the Coll!monwealth,
the court may, if the contrary intention does not appear and the court thinks
fit, impose a pecuniary penalty not exceeding an amount equal to 5 times
D the amount of the maximum pecuniary penalty that could be imposed by
the court on a natural person convicted of the same offence." This was
a case of the legislature stepping in to supply the casus omissus. The
.
i
legislature in Australia has expressly empowered the court to exercise a
discretion to impose only fine even where a mandatory term of imprison-
E ment is prescribed, if the accused is a Corporation.

Contrasting the situation in India, against the background of the two
reports of the Law Commission referred to, with the situation in Australia,
drives home the point. I am of this view that this Court cannot, in the garb
of construction of the penal provisions of Section 276 (C), 277 and 278,
F impose a punishment of fine in a situation which calls for no punishment
by a virtual re-writing of the statute.

The argument that the term "person" has been defined in Section 2
(31) of the Act, so as to include a company, does not impress me. All
G definitions in the Act apply "unless the context otherwise requires". For
reasons which I have indicated, the context does indicate to the contrary,
while reading of the word "person" in the concerned Sections.

The judgment of the U.S. Supreme Court in United States v. Union
H Supply Company 54 Lawyers Ed. 87 (215 U.S.50) referred to in the
ASSTI. COMMR. ASSESSMENT-II BANGALORE v.VELLIAPPA TEXTILES LTD. [G.P. MATHUR, J] 785

judgment of brother Mathur, J seems to support the view that "the natural A
inference, when a statute prescribes two. independent penalties, is that it
means to inflict them so far as it can, and that, ifone of them is impossible,
it does not mean, on that account, to let the defendant escape." Apart from
this, I see no other reasoning contained therein. With respect, I am unable
to agree with the view taken in the judgment in United States v. Union B
Supply Company (supra). The situation in India was considered by two
Law Commissions whose recommendations I have referred to earlier. I
have already discussed that import.

For the aforesaid reasons, I am of the view that the first respondent
company cannot be prosecuted for offences under Sections 276C, 277 and C
278 read with Section 27.8B since each one 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 following observations of Stable, J. in R. v. lC. R. Haulage, Ltd., D
(1944) 1 AIL E.R. 691 made in similar situation are of relevance :

"Where the only punishment which the court can impose is death,
for this purpose the basis of this exception is being that 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 E
can be made."

Hence, in my judgment, the High Court was justified in quashing the
prosecution as far as the first respondent is concerned. I would therefore,
dismiss the appeal as far as the first respondent is concerned and allow the F
appeal with regard to the prosecution against the second respondent.

G.P. MATHUR, J. : I. This appeal by special leave has been
preferred against the judgment and order dated 12.4.1993 of High Court
of Karnataka by which the petition preferred by the respondents under
Section 482 Cr. P.C. was allowed and the criminal complaint filed against G
them under Section 276C, 277 and 278 read with Section 278B of the
Income Tax Act (hereinafter called "the Act") was quashed. Liberty was,
however, granted to the appellants to institute fresh prosecution against
respondent no.2 after affording him an opportunity of hearing before
according sanction under Section 279( I) of the Act. H
786 SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A 2. The respondent no. 1 in the appeal, Mis. Velliappa Textiles Ltd.,
is a company registered under the provisions of Companies Act and
respondent no. 2 Shri C. Velliappa is its Managing Director. For the A.Y.
1985-86 the company filed its return of income tax for the period ending
30.6.1984 showing an income of Rs. 43,9401-. The company had claimed
B deduction of Rs. 9, 16,4421- on account of depreciation and investment
allowance, etc. on the ground that two new machines worth Rs. 14,79,5891
- were purchased and installed during the previous year relevant to A.Y.
1985-86. The company was asked to produce documentary evidence in
support of purchase and installation of the machines but it failed to do so
and accordingly the assessing officer disallowed the assessee's claim. After
C the matter had been remanded by the CIT(A) in the appeal preferred by
the assessee, the Assessing Officer made inquiries from Mis. Lakshmi
Machine Works Ltd., Coimbatore from whom the machines had allegedly
been purchased and from Mis. Voltas Ltd. who had allegedly installed the
same. The inquiries revealed that the machines had actually been dis-
D patched to the assessee company on 2.7.1984 and 12.7.1984. The docu-
ments produced by Mis. Voltas Ltd. showed that the machines had been
installed after the close of the accounting period ending 30.6.1984. When
the aforesaid facts were brought to the notice of the assessee company, their
authorised representative made a statement that the claim made by them
E regarding depreciation and other allowances be disallowed. Subsequent
thereto, the Commissioner of Income Tax, Bangalore, by his order dated
26.3.1992 accorded sanction for filing of a criminal complaint under
Section 276C, 277 read with Section 278B of the Act against the company
and its Managing Director (respondents in the appeal). The respondents
F then filed a petition under Section 482 Cr.P.C. in the High Court for
quashing the proceedings of the complaint case which had been instituted
against them in the Special Court for Economic Offences at Bangalore.
Two pleas were raised before the High Court. The first was that the assessee
(respondent no. I) being a company which is a juristic person, it is not
liable for criminal prosecution. The second plea was that the sanction
G granted by the Commissioner, Income Tax, under Section 279 of the Act
was invalid as the same was given without affording any opportunity of
hearing to them. The High Court relying upon an earlier Division Bench
decision of the same Court in P. V. Pai v. R.L. Rinawma, !LR (1993) Kar.
709 held that as the company is a juristic person, it cannot be punished
H with imprisonment and, therefore, its prosecution was unpurposeful. The
ASSTT. COMMR. ASSESSMENT-II BANGALORE ,.VELLIAPPA TEXTILES LTD. [G.P. MATHUR, I.) 787

High Court further held that since sanction to prosecute the respondents A
had been granted without affording them any opportunity of hearing, the
principles of natural justice were violated and the order granting sanction
was invalid. On these findings, the petition was allowed and the proceed~
ings of the complaint case were quashed. However, liberty was given to
the appellants to accord fresh sanction for prosecution of respondent no. B
2 alone after giving him an opportunity of hearing and thereafter to take
appropriate action in accordance with law.

3. Mr. T.L.V. Iyer, learned senior counsel for the appellants has
submitted that though in law there is no requirement of affording an
opportunity of hearing to a person accused of having committed~ offence C
before grant of sanction but in the present case such an opportUnity had
in fact been given and the High Court has committed a factual mistake in
proceeding on the basis that no such opportunity was given by the
Commissioner, Income Tax before according sanction for the prosecution
of the respondents. He has also submitted that when the statute specifically D
provides penal liability of the company, there can be no legal impediment
in launching prosecution against it, even if the substantive sentence of
imprisonment cannot be awarded. Shri Iyer has submitted that as Section
276C of the Act provides for both, a substantive sentence and a fine, the
punishment of fine can be imposed upon a company and as such the E
view taken by the High Court for quashing the proceedings of the case
against the company is wholly erroneous in law. Shri S.C. Birla, learned
counsel for the respondents has submitted that the view taken by the High
Court was correct and there was no ground warranting interference with
the same. '"
F
4. A copy of the order passed by the Commissioner of Income Tax
on 26.3.1992 granting sanction under Section 279(1) of the Act has been
filed as Annexure A to the Petition. In para 7 of the order it is clearly
mentioned that in response to the show cause notice as to why the
provisions of Section 276C, 277 read with Section 278 should not be G
initiated, the assessee filed its explanation dated 9.1.1991and9.3.1992. It
is further mentioned that the explanation offered by the assessee company
was not satisfactoy. Learned counsel for the respondents has not disputed
th correctness of the aforesaid statement which clearly shows that an
opportunity of hearing was given to the respondentss before according H
788 SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A sanction for their prosecution. The High Court misread the order granting
sanction and clearly erred in quashing the proceedings on an erroneous
view that the Commissioner of Income Tax did not afford any opportunity
of hearing to the respondents before according sanction for their prosecution.

B 5. At this stage, I consider it appropriate to clarify the legal position
regarding grant of sanction for launching prosecution. Section 279 of the
Act lays down that a person shall not be proceeded against for the offences
enumerated in the Section except with the previous sanction of the
Commissioner or Commissioner (Appeals) or the appropriate authority.
C There are similar provisions in many other statutes which put an embargo
on the power of the Court to take cognizance of the offence except with
the previous sanction of the competent authority provided in the Statute
like Section 197 Code of Ciminal Procedure, Section 19 Prevention of
Corruption Act or Section 20 Prevention of Food Adulteration Act. The
basic idea behind such provision is to save persons from frivolous or
D malicious prosecutions instituted by private persons, who may do so on
account of business rivalry or feeling hurt on account of any action taken
by a public servant in discharge of his official duty. Any one can set the
machinery of law into motion by either lodging an F.l.R. or filing a
complaint in Court. The Magistrate can take cognizance of the offence
E under Section 190(l)(b) Cr.P.C. in the former case if the police, after
investigation, submits a charge-sheet and in the latter case under Section
190(l)(c) Cr.P.C. In order to protect persons from unnecessary prosecu-
tions and consequent harassment that a provision for sanction is made. The
sanction to prosecute is undoubtedly an important matter and it constitutes
F a condition precedent to the institution of the prosecution. For a valid
sanction, it must be proved that the sanction 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
G sanction, the prosecution must, in the course of the trial, prove by
extraneous evidence that those facts were placed before the sanctioning
authority and the authority after applying his mind to the relevant facts had
accorded the sanction. The authority giving the sanction shout prima facie
consider the evidence and all other attending circumstances before he
H comes to a conclusion that the prosecution in the circumstances be
ASSTI. COMMR. ASSESSMENT-II BANGALOREv.VELLIAPPA TEXTILES LTD. [G.P. MATHUR,].) 789

sanctioned or forbidden. But he is not required to hold any inquiry to satisfy A
himself as to the truth of facts alleged.

6. The main reason given in P. V. Pai v. R.L. Rinawma, !LR (1993)
Kar. 709 for holding that an opportunity of hearing should be given to an
accused before grant of sanction is that under Section 279(2) of the Act B
any offence under Chapter XXII may, either before or after the institution
of proceedings be compounded by the Board, or a Chief Commissioner or
a Director General authorised by the Board in this behalf and, therefore,
if an opportunity is given to an assessee before grant of sanction, he may
offer for composition in order to save himself from the "disgrace and
ignominy of the prosecution". It is difficult to agree with the reasoning of C
the High Court. If some 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 it is his
unilateral act. It can only be done with consent of the authorities enumer-
ated in the provision. No additional right can be created in favour of an D
accused to enable him to save himself from the "disgrace and ignominy
of the prosecution".

7. The High Court has also held that the principles of natural justice
would apply at the stage of accordinff sanction under Section 279 of the
Act and as the sanction was granted without affording an opportunity of E
hearing, the same was ~valid. It may be pointed out that by grant of
sanction the competent authority under the Act only becomes empowered
to institute the complaint before the Court. In many other statutes the order
of sanction has the effect of lifting the embargo on the power of the Court
to take cognizance of the offence. An order of sanction, by itself does not F
have the effect of a conviction or imposing a penalty causing any 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 procedure
established by law. In Administrative Law by David Foulkes (Seventh Ed.)
page 285, the law on the applicability of the principles of natural justice G
viz. afffording an opportunity of hearing at a stage anterior to actual
commencement of the proceedings before the Court or Tribunal has been
stated as under :

"Where the administration is merely initiating a procedure or
seeking to establish whether a prima facie case exists, the courts H
790 SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A will not be likely to extend the statutory procedure at least where
it gives a full opportunity to be heard leter in the proceedings. In
Wiseman v. Borneman, (1971) AC 297 a tribunal's function was
to decide whether, on the basis of documents submitted to it by
the taxpayer and by the Inland Revenue, there was a prima facie
case for the Revenue to rec'>ver unpaid tax. The House of Lords
B held that the taxpayer was not entitled to see and answer the
statements in the Revenue's documents to the tribunal. But some
of the judgments suggest that procedure would not have been
adequate if the tribunal had been entitled to pronounce a fnal
judgment : in that case the courts could supplement it as in Cooper
c v. Wandsworth Board of Works, (1963) 14 CBNS 180. Likewise,
in Pear/berg v. Varty, (1972) 2 All ER 6 the taxpayer was not
entitled to be made heard before a Commissioner gave leave for
an assessment of tax to be made against him. The opportunity to
be heard would come later. A comparison was made with a
D decision to prosecute and the Attorney-General's consent to
prosecution. Thus in Wiseman v. Borneman Lord Reid Said :

"Every public officer who has to decide whether to pros-
ecute or raise proceedings ought first to decide whether there
is a prim a facie case but no one supposes that justice requires
E that he should first seek the comments of the accused or the
defendant on the material before him. So there is nothing
inherently unjust in reaching such a decision in the absence
of the other party."

F
In R. v. Raymond, (1981) 2 All ER 246 it was held that the rule
requiring a hearing was inapplicable to the process of preferring a bill of
indictment : the defendant would have an opportunity of being heard at
his trial."
G 8. The grant of sanction is purely an administrative act and affording
of opportunity of hearing to the accused is not contemplated at that stage.
An identical question has been considered by this Court with reference to
Section 6 of Prevention of Corruption Act, 1947 in Superintendent of
Police (C.B.l.) v. Deepak Chowdhary & Ors., [1995] 6 SCC 225 and it
H was held as under in para 5 of the reports :
ASSTI. COMMR. ASSESSMENT-II BANGALORE v.VELLIAPPA TEXTILES LTD. [G.P MATHUR. I J 791

" ..... The grant of sanction is only an administrative function, A
though it is true that the accused may be saddled with the liability
to be prosecuted in a court of law. What is material at that time
is that the necessary facts collected during investigation constitut-
ing the offence have to be placed before the sanctioning authority
and it has to consider the material. Prima facie, the authority is B
required to reach the satisfaction that the relevant facts would
constitute the offence and then either grant or refuse to grant
sanction. The grant of sanction, therefore, being administrative act
the need to provide an opportunity of hearing to the accused
before according sanction does not arise. The High Court, there-
fore, was clearly in error in holding that the order of sanction is C
vitiated by violation of the principles of natural justice."

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 D
the High Court is clearly erroneous in law.

9. The next question which requires consideration is whether pros-
ecution of a company is unsustainable as it being a juristic person no
substantive sentence of imprisonment can be awarded to it. Section 276C
of the Act lays down that if a person willfully attempts in any manner E
whatsoever to evade any tax, penalty or interest chargeable or imposable
under the Act, he shall without prejudice to any penalty that may be
imposable on him under any provision of the Act, be punishable in a case
where the amount sought to be evaded exceeds one hundred thousand
rupees with rigorous imprisonment for a term which shall not be less then F
six months but which may extend to seven years and with fine and in any
other case rigorous imprisonment for a term which shall not be less then
three months but which may extend to three years and with fine. Section
277 contains a similar provision and makes false verificatiion an offence
which is punishable with sentence and fine. Section 2(31) of the Act G
defines a "person" and it includes a company and this provision is exactly
similar to Section 3(42) General Clauses Act. Section 278B of the Act is
important and it reads as under :

"278B. (I) Where an offence under this Act has been committed
by a company, every person who, at the time the offence was H
792 SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A committed, was in charge of, and was responsible to, the company
for the conduct of the business of the company as well as the
company shall be deemed to be guilty of the offene and shall be
liable to be proceeded against and punished accordingly.

Provided that nothing ccntained in this sub-section shall render
B any such person liable to any punishment if he proves that the
offence was committed without his knowledge or that he had
exercised all due diligence to prevent the commission of such
offence.

(2) Notwithstanding anything contained in sub-section (I), where
c an offence under this Act has been committed by a company and
it is proved that the offence has been committed with the consent
or connivance of, or is attributable to any neglect on the part of,
any director, manager, secretary or other officer of the company,
such director, manager, secretary or other officer shall also be
D deemed to be guilty of that offence and shall be liable to be
proceeded against and punished accordingly.

Explanation - ........................................... (omitted)"

It may be mentioned here that many other statutes which make a
E provision for offences by companies contain exactly similar provisions.
Reference may be made to Section 35-H wealth Tax Act, Section 14-A
Employees Provident Fund and Miscellaneous Provisions Act, Section 141
Negotiable Instruments Act, Section 34 Drugs and Cosmetics Act, Section
10 Essential Commodities Act, Section 6 Indian Merchandise Act, Section
F 38 Narcotic Drugs and Psychotropic Substances Act and Section 17
Prevention of Food Adulteration Act. Section 276C of the Act uses the
word "willfully" and Section 277 uses the expression "which he either
knows or believes to be false, or does not believe to be true". Following
S.M Badsha v. Income Tax Officer, 168 ITR 332; Shri Singhvi Brothers
v. Union of India, 187 ITR 215 and Kusum Products Ltd v. S.K. Sinha,
G 126 !TR 804, which are decisions by Kerala, Rajasthan and Calcutta High
Courts respectively, the High Court in P. V. Pai v. R.L. Rinawma (supra)
held that mens rea being an essential ingredient for an offence of false
statement in a verification under Section 277 of the Act, only an actual
person who does any of the acts indicated in the Section with a specific
H knowledge or intent can be made liable for the said offence. The High
ASSTI. COMMR. ASSESSMENT-II BANGALORE >'.VELLIAPPA TEXTILES LTD. [G.P MATHUR, J J 793

Court further held that although under Section 2(31) the definition of A
"person" is wide enough to include a company or any juristic person, the
word "person" could not have been used by Parliament in Section 266B
or 277 of the Act in that sense because imprisonment has been made
compulsory for an offence under the Sections and as a company or juristic
person cannot be sent to prison, it is not open to a Court to impose a B
sentence of fine only and not to award any substantive sentence if the
Court finds a company guilty under the Section. If the Court does so, it
would be altering the very scheme of the Act and usurping the legislative
function.

I 0. Business was previously being carried on by individuals and joint C
families and the concept of Company came to our country under the British
rule. It will, therefore, be apposite to briefly notice the legal position in
England and United States. The general belief earlier was that corporations
could not be held criminally liable. As the presence and importance of
corporations grew, initially the Courts extended corporate criminal liability D
from public nuisance to all offences that did not require criminal intent.
However, in the year 1909 the U.S. Supreme Court in New York Central
& Hudson River Railroad Company v. United States, 33 Lawyers Edn. 613
clearly held that a corporation is liable for crimes of intent. This is what
the Court said at page 622 of the Reports :
E
"It is true that there are crimes which, in their nature, cannot
be committed by corporations. But there is a large class of
offences, of which rebating under the Federal statutes is one,
wherein the crime consists in purposely doing the things prohib-
ited by statute. In that class of crimes we see no good reason why
corporations may not be held responsible for and charged with the F
knowledge and purposes of their agents, acting within the author-
ity conferred upon them. If it were not so, many offences might
go unpunished and acts be committed in violation of law where,
as in the present case, the statute required all persons, corporate
or private, to refrain from certain practices, forbidden in the G
interest of public policy.

We see no valid objection in law, and every reason in public
policy, why the corporation, which profits by the transaction, and H
794 SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A can only act through its agents and officers, shall be held
punishable by fine because of the knowledge and intent of its
agents to whom it has entrusted authority to act in the subject-
matter of making and fixing rates of transportation, and whose
knowledge and purposes may well be attributed to the corporation
for which the agents act. While the law should have regard to the
B rights of all, and to those of corporations no less than to those of
individuals, it cannot shut its eyes to the fact that the great
majority of business transactions in modem times are conducted
through these bodies, and particularly that interstate commerce is
almost entirely in their hands, and to give them immunity from
c all punishment because of the old and exploded doctrine that a
corporation cannot commit a crime would virtually take away the
only means of effectually controlling the subject-matter and
correcting the abuses aimed at."

D In 19 American Jurisprudence 2nd para 1434 dealing with the topic
on criminal liability of corporations it has been stated as under :

"Lord Holt is reported to have said (Anonymous, 12 Mod
559, 88 Eng. Reprint, 1164) that "a corporation is not indictable,
but the particular members of it are." On the strength of this
E statement it was said by the early writers that a corporation is not
indictable at common law, and this view was taken by the courts
in some of the earlier cases. The broad general rule is now well
established, however, that a corporation may be criminally liable.
This rule applies as well to acts of misfeasance as to those of
F nonfeasance, and it is immaterial that the act constituting the
offence was ultra vires. It has been held that a de facto corporation
may be held criminally liable.

As in case of torts the general rule prevails that a corporation
may be criminally liable for the acts of an officer or agent,
G assumed to be done by him when exercising authorized powers,
and without proof that his act was expressly authorized or
approved by the corporation. A specific prohibition made by the
corporation to its against violation of the law is no defence. The
rule has been laid down, however, that corporations are liable,
H civilly or criminally, only for the acts of their agents who are
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authorized to act for them in the particular matter out of which A
the unlawful conduct with which they are charged grows or in the
business to which it relates."

11. In para 1435 of the same volume it is stated that there is a conflict
of judicial opinion as to whether a specific or malicious intention may be B
imputed to the corporation on behalf of which an act is done in order to
render it criminally responsible therefor but in most cases it has been held
that a corporation may be indicted for a crime to which a specific intent
is essential.

Similar statement is made in 19 Corpus Juris Secundum para 1358 C
that corporations are liable to criminal prosecution for crimes punishable
by fine. Regarding the crimes where the guilty mind or mens rea is
essential, the law has been stated as under in paragraph 1363 :

"A corporation may be criminally liable for crimes which
involve specific element of intent as well for those which do not, D
and, although some crimes require such a personal, malicious
intent, that a corporation is considered incapable of committing
them, nevertheless under the proper circumstances the criminal
intent of its agent may be imputed to it so as to render it liable,
the requisites of such imputation being essentially the same E
as those required to impute malice to corporations in civil
actions."

12. The law on the subject in England also has come round to the
position that a company can be prosecuted for the acts done by its
responsible officers. This question was considered in considerable detail F
in Director of Public Prosecutions v. Kent and Sussex Contractors Ltd.,
(1944) 1 All ER 119. The respondents here were a limited company and
an officer thereof. Both were charged with offences under the Defence
(General) Regulations in that with intent to deceive, they produced
documents and furnished information for the purposes of the Motor Fuel G
Rationing Order which were false in material particulars. The returns were
signed by the transport manager of the company. The respondents con-
tended that the offences charged required for their commission an act of
will or state of mind which a body corporate could not have. It was held
by Macnaughten, J : H
796 SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A " ............ A body corporate is a "person" to whom, amongst
the various attributes it may have, there should be imputed the
attribute of a mind capable of knowing and forming an intention
- indeed it is much too late in the day to suggest the contrary. It
can only know or form an intention through its human agents, but
circumstances may be such that the knowledge of the agent must
B
be imputed to the body corporate. Counsel for the respondents
says that, although a body corporate may be capable of having an
intention, it is not capable of having a criminal intention. In this
particular case the intention was the intention to deceive. If, as in
this case, the responsible agent of a body corporate puts forward
c a document knowing it to be false and intending that it should
deceive, I apprehend, according to the authorities that Viscount
Caldecote, L.C.J., has cited, his knowledge and intention must be
imputed to the body corporate."

D Lord Denning in HL. Bolton Company v. T.J. Graham & Sons,
(1956) 3 All. E.R. 624 at 630 explained the position more succinctly in
the following manner :

"A company may in many ways be likened to a human body.
E 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
F the directing mind or will of the company, and control what they
do. The state of mind of these managers is the state of mind of
the company and is treated by the law as such. So you will find
that in cases where the law requires personal fault as a condition
of liability in tort, the fault of the manager will be the personal
G fault of the company. That is made clear in Lord Haldane's speech
in Lennard's Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., 4
(1915) A.C. 705 at pp. 713, 714. So also in the criminal law, in
cases where the law requires a guilty mind as a condition of a
criminal offence, the guilty mind of the directors or the managers
H will render the company themselves guilty."
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In a decision by House of Lords in Tesco Supermarkets Ltd. v. A
Nattrass, (1971) 2 All E.R. 127, Lord Reid, while considering the question
of commission of an offence by a company, ruled as under :

"I must start by considering the nature of the personality
which by a fiction the law attributes to a corporation. A living B
person has a mind which can have knowledge or intention or be
negligent and he has hands to carry out his intentions. A corporation
has none of these; it must act through living persons, though not
always one or the same person. Then the person who acts is not
speaking or acting for the company. He is acting as the company
and his mind which directs his acts is the mind of the company. C
There is no question of the company bing vicariously liable. He
is not acting as a servant, representative, agent or delegate. He is
an embodiment of the company or, one could say, he hears and
speaks through the persona of the company, within his appropriate
sphere, and his mind is the mind of the company. If it is guilty D
mind then that guilt is the guilt of the company. It must be a
question of law whether, once the facts have been ascertained, a
person in doing particular things is to be regarded as the company
or merely as the company's servant or agent. In that case any
liability of the company can only be a statutory or vicarious E
liability."

In Vol. 9(2) Halsbury's Laws of England para 1184, the law on the
point has been stated as under :

"A corporation may not be found guilty of criminal offences, F
such as treason or murder, for which death or imprisonment is the
only penalty, nor may it be indicted for offences which cannot be
vicariously committed, such as perjury or bigamy. Subject to these
exceptions, a corporation may be indicted and convicted for the
criminal acts of the directors and managers who represent the
directing mind and will of the corporation and control what it G
does. The acts and state of mind of such persons are, in law, the
acts and state of mind of the corporation itself. A corporation may
not be convicted for the criminal acts of its inferior employees or
agent unless the offence is one for which an employer or principal
may be vicariously liable. H
798 SUPREME COURT REPORTS [2003] SUPP. 3 S.C.R.

A Wherever a duty is imposed by statute in such a way that a
breach of the duty amounts to a disobedience of the law, then, if
there is nothing in the statute either expressly or impliedly to the
contrary, a breach of the statute is an offence for which a
corporation may be indicted, whether or not the statute refers in
terms to corporations."
B
Vol. 11 (I) Halsbury' s Laws of England para 35 deals with the
capacity of a corporation to commit a crime. It has been stated that in
general a corporation is in the same position in relation to criminal liability
as a natural person and may be convicted of common law and statutory
C offences including those requiring mens rea. Criminal liability of a
corporation arises where an offence is committed in the course of the
corporation's business by a person in control of its affairs to such a dgree
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 corporation. So, the position
D in England is that corporations are liable for criminal prosecution even
where the offence requires a criminal intent.

13. The decisions of Canadian Courts regarding the criminal liability
of corporations have developed in a way very anl}fogous to the English case
E Jaw and indeed in some instances based on it. The Courts have used alter
ego doctrine to attribute mens rea offences to corporations and this doctrine
was finally established by a decision of the Canadian Supreme Court in
Canadian Dredge & Dock Company v. R., (1985) 11 RCSC 662 that not
only the Board of Directors would be seen as the directing mind of a
company but also the Managing Director or any other person to whom
F authority has been delegated by the Board and it suffices that the act has
been committed by a person on behalf of and within the capacity of the
corporation. Under the Regime of the 1992 French Code penal the general
part of the Code lists in detail all the possible sanctions that can be applied
to corporations. Corporations can be fined to five times the maximum for
G individual offenders. For repeated offence the maximum is lO times.
Besides fines, numerous other types of sanctions are possible : dissolution
of the corporation, disqualification from carrying on specific economic
activities, closing down plants that have been used to commit the offence
charged, publication of the judgment. Corporations can even be temporar-
H ily placed under judicial supervision. It is generally accepted that the
ASSTT. COMMR. ASSESSMENT-II BANGALORE ,.VELLIAPPA TEXTILES LTD. [G.P. MATHUR,!.] 799

amount of the fine should be such as to encompass the proceeds from crime A
and needs to have a deterrent effect as to hold otherwise would create a
de facto incentive for crime. Under the German law heavy fines are
provided for corporate crimes and there is a specific provision that the
amount of fine should be increased if they are less than the ill gotten gains.
(See article - Corporate Criminal Liability : A Comparative Perspective by B
Guy Stessens in Vol. 43 (1994) International & Comparative Law
Quarterly page 493.)

14. Section 276C and 277 of the Act provide both substantive
sentence of imprisonment and fine. It is true that a company cannot be
made to undergo a substantive sentence of imprisonment. However, there C
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 basically 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 D
of the 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. Sub-Section (2) of Section 235 Cr. P.C. lays
down that if the accused is convicted, the Judge shall, unless he proceeds
in accordance with the provisions of Section 360, hear the accused on the E
question of sentence and then pass sentence on him according to law. The
Court has very wide discretion in a matter of awarding 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 F
age, health, social background, mental condition, etc. While convicting a
person under Section 326 !PC, the Court has wide discretion to award any
sentence which can extend from one day to imprisonment for life having
regard to the facts and circumstances of the case. There are statutory
provisions which indicate that even where a person is convicted and G
sentenced, it is not necessary that he must be sent to jail to undergo the
sentence. Section 360 Cr.P.C. empowers the Court to release a person on
probation ifhe is over 21 years of age and has been convicted of an offence
which is punishable for a term of seven years and in a case where the person
convicted is under 21 years of age or is a woman, the benefit of release H
800 SUPREME COURT REPORTS [2003) SUPP. 3 S.C.R.

A on probation 'can be given if he or she is convicted of an offence not
punishable with death or imprisonment for life. There are also statutory
enactments for premature release of prisoners. The appropriate Govern-
ment has also the power to commute the sentence and release a prisoner.
These provisions show that even after a person has been convicted and
B 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
pronouncement of judgment of conviction and sentence of an accused is
in the realm of execution of sentence. Non-compliance or breach in the
matter of execution of sentence can have no bearing on the trial or
C conviction of the accused or the sentence awarded by the Court. There is
no way in which a Court may compel the parties to actually comply with
a decree of restitution of conjugal rights. The remedy provided viz.
attachment and sale of the property of the judgment debtor or payment of
periodical sum provided in Order XXI Rules 32 and 33 CPC is hardly a
D substitute for husband and wife living together and performing their marital
obligations. That does not mean that a decree for restitution of conjugal
rights should not be passed. Therefore, 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 be prosecuted at all. In the event of its conviction, an
E appropriate fine can be imposed upon it which is also one of the
punishments provided under Sections 276C and 277 of the Act.

15. It should be borne in mind that reputation of a person is always
a matter of great importance to him. Reputation is not built or acquired in
a day but it takes long years and sustained good work, conduct and sound
F integrity which builds up the reputation of a person. In the business world
the companies or corporations also acquire a reputation by producting good
products and fair dealings. The conviction of a company for an offence
by itself is bound to affect its reputation and in the long run may affect
its business interests. Section I 0-B Essential Commodities Act lays down
G that where a company is convicted under the Act, it shall be competent for
the Court convicting the company to cause the name and place of business
of the company, the nature of the contravention and such other particulars
as the Court may consider to be appropriate in the circumstances of the
case, to be published at the expense of the company in newspapers. Section
H 35 Drugs and Cosmetics Act contains similar provision and it lays down
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that if any person is convicted of an offence under the Act, the Court on A
the application of the Drug Inspector shall cause offender's name, address,
offence of which he has been convicted and penalty which has been
inflicted upon him to be published at the expenses of such person in
newspapers or in such other manner as the Court may direct and the
expense of such publication shall be recoverable from the person con- B
victed. If a company is not to be prosecuted only on the ground that
substantive sentence cannot be awarded to it, provisions of Section I 0-B
Essential Commodities Act and Section 35 Drugs and Cosmetics Act would
never come into operation, clearly defeating the legislative intent and the
purpose for which they have been enacted.
c
16. The publication in newspapers about prosecution and conviction
of a company is bound to bring bad name to the company and lower its
image before public at large. Section 278A of the Act makes second
conviction punishable with more severe punishment. A company may be
black listed or may be denied licences with the result that its manufacturing D
activity may come to stand still which may have great financial repercus-
sion on it.

17. Within few months of the decision in New York Central & Hudson
River Railroad Company (supra), a similar controversy came up for E
consideration before the U.S. Supreme Court in United States v. Union
Supply Company, 54 Lawyers Ed. 87 (215 U.S. 50). Section 6 of relevant
Statute required wholesale dealers in particular commodities to keep
certain books and to keep certain returns and further provided "any person
who willfully violates any of the provisions of this Section shall, for each F
offence, be fined not less than fifty dollars and not exceeding five hundred
dollars and imprisoned not less than thirty days nor more than six months."
The District Court quashed the indictment on the ground that the Section
was not applicable to corporation. In a writ of error, Justice Holmes, who
spoke for the Court, pointed out that "if the defendant escapes, it does so
on the single ground that, as it cannot suffer both parts of the imprisonment, G
it need not suffer one." The judgment under challenge was reversed with
the following observation :

"It seems to us that a reasonable interpretation to the words used
does not lead to such a result. If we compare Section 5, the H
802 SUPREME COURT REPORTS [2003) SUPP. 3 S.C.R.

A 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. See
Hawke v. E. Hulton & Co., (1909) 2 KB 93, 98. And, if we free
our minds from the notion that criminal statutes must be construed
B 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."

c 18. This question has also been examined by some of the High Courts.
In Municipal Corporation of Delhi v. J.B. Bottling Co., (I 975) Crl. L.J.
1148 a Full Bench of Delhi High Court held that the conviction of a
company under Section 16 Prevention of Food Adulteration Act and award
D of fine only would be perfectly valid even though it cannot be sentenced
to imprisonment which was the mandatory requirement of law. Similar
view was taken by a Full Bench of Allahabad High Court in Oswal
Vanaspati & Allied Industries v. State of UP., (1993) I Company Law
Journal 172 and it was held that a company cannot enjoy immunity from
prosecution on the ground that mandatory punishment of imprisonment
E cannot be awarded to it. In both these cases it was held that the company
can be prosecuted and if found guilty a sentence of fine alone can be
awarded. In Manian Transports v. S. Krishnamurthy, 1991 (72) Company
Cases 746 it was held by a learned Single Judge of Madras High Court
that a company or firm can be prosecuted under Section 276C and 277 of
F the Act and if convicted a sentence of fine alone could be awarded. I am
of the opinion that the view taken in these cases is the legally correct view.

19. Proof of mens rea or guilty mind is not absolutely e:rsential in
every case. In P.K. Tejani v. MR. Dange, AIR (1974) SC 228, a
· G Constitution Bench held that in food offences strict liability is the rule. In
Sarjoo Prasadv. State of UP., AIR (1961) SC 631 and Ashu Jaiwant v.
State of Maharashtra, AIR (1975) SC 2175 it was clearly held that mens
rea in the ordinary or usual sense of term is not required for proof of
offence under Section 7 P.F. Act and it is enough if the articles sold or
H distributed contravene any provision of the Act or the Rules. Same
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principle applies for offences under Section 7 Essential Commodities Act, A
namely, mens rea or knowledge are not essential ingredients. (See State
ofMP. v. Narayan Singh, AIR (1989) SC 1789. In RadheyShyam Khemka
& Anr. v. State of Bihar, [1993] 3 SCC 54 it has been held that there is
a basic difference between offences under the Penal Code and acts and
omissions which have been made punishable under different Acts and B
Statutes. It has been further held that for framing charges in respect of those
acts and omissions, in many cases, 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 become liable for punishment.
c
20. In M V. Javali v. Mahajan Borewell & Ors., [1997] 8 SCC 72
this Court after examining the question of maintainability of prosecution
against a company and the nature of sentence to be imposed on it and the
individuals liable for the offence, held as under :

"From a plain reading of Section 276-B of the IT Act, it is
D
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 E
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 F
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.
G
Even though in view of Section 278-B, a company can be
prosecuted and punished for an offence committed under Section
276-B (besides other offences under the Act), the sentence of
imprisonment which has got to be imposed thereunder cannot be
imposed, it being a juristic person. This apparent anomalous H
804 SUPREME COURT REPORTS [2003) SUPP. 3 S.C.R.

A situation can be resolved only by a proper interpretation of
section. Keeping in view the recommendation contained in paras
8.1 and 8.3 of 47th Report of Law Commission of India and
principles of interpretation, the only harmonious construction that
can be giv~n to Section 276-B is that the mandatory sentence of
imprisonment and fine is to be imposed where it can be imposed,
B
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 imprisonment."

21. Courts would be shirking their responsibility of imparting justice
C by holding that prosecution of a company is unsustainable merely on the
ground that being juristic person it cannot be sent to jail to undergo the
sentence. Companies are growing in size and have 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 other's lives.
D More than four thousand people lost life and thousands others suffered
permanent impairment in Bhopal on account of gross criminal act of a
multinational corporation. It will be wholly wrong to allow a company to
go away scot free without even .being prosecuted in the event of commis-
sion of a crime only on the ground that it cannot be made to suffer part
E of the mandatory punishment.

In view of the discussion made above, I am of the opinion that the
view taken by the High Court is wholly erroneous in law. The appeal
accordingly deserves to be allowed and the judgment and order of the High
Court is liable to be set aside.
F
ORDER

In accordance with the majority view, the appeal is dismissed as
regards I st respondent and it is allowed as regards prosecution against the
second respondent.
G
v.s.s. Appeal dismissed.