Criminal liability of a company

A company has none of features that characterize a living person, a mind that can have knowledge or intention or be negligent. But company, being a body corporate can sue and be sued in its own name. In the statutes defining crimes, the prohibition is frequently directed against any person who commits the prohibited act, in many statutes the term – person is defined. Section 3(42) of General Clauses Act, 1897 defines person as:

Person shall include any company or association or body of individuals, whether incorporated or not. Even person is not specifically defined, it is necessarily includes a corporation. It is usually construed to include a corporation so as to bring it within the prohibition of the statutes and subject it to punishment. Various kinds of punishments are mentioned under various statutes. As section 53 of I.P.C, 1860 tells that the punishments to which offenders are liable under the provisions of I.P.C are death, imprisonment of life, imprisonment, forfeiture of property and fine.

There is no controversy when fine is only punishment given under any statute. There is also no lis when statute entrusts the court with discretion to inflict fine or imprisonment, as in this case court shall inflict only fine on company. Because a company being a Juristic person cannot obviously be sentenced to imprisonment as cannot suffer imprisonment. Judicial controversy lies in that situation when statute prescribes mandatory imprisonment with fine as a punishment for an offence. In 2003 Supreme Court in Assistant Commissioner, Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd & Anr. took the view that since an artificial person like a company could not be physically punished to a term of imprisonment, such a section, which makes it mandatory to impose minimum term of imprisonment, cannot apply to the case of artificial person. However, Supreme Court in 2005 in Standard Charted Bank v. Directorate of Enforcement in majority decision of 3:2 expressly overruled the Velliapa Textiles case on this issue. K.J Balkrishanan J. in majority opinion held:
We hold that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which punishment prescribed is mandatory imprisonment. We overrule the views expressed by the majority in Velliappa Textiles on this point.

In Standard Charted Bank v. Directorate Of Enforcement appellant filed a writ petition before High Court Of Bombay challenging various notices issued under section 50 read with section 51 of Foreign Exchange Regulation Act, 1973 & contended that the appellant company was not liable to be prosecuted for an offence under section 56 of FERA Act, 1973 against the decision of High Court appellant filed a special leave before Supreme Court, contended that no criminal proceeding can be initiated against appellant company under section 56(1) of FERA Act, 1973 as the minimum punishment prescribed under section 6(1) (i) is imprisonment for a term which shall not be less than six months and with fine. Section 56 of FERA Act, 1973 read as follow:

56. Offences and prosecutions (1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes any of the provisions of this Act (other than section 13, clause (a) of subsection (1) of section 18, section 18A, clause (a) of subsection (1) of section 19, sub-section (2) of section 44 and sections 57 and 58, or of any rule, direction or order made thereunder, he shall, upon conviction by a court, be punishable, –

(i) In the case of an offence the amount or value involved in which exceeds one lac of rupees, with imprisonment for a tern not less than six months, but which may extend to seven years and with fine:
Provided that the court may, for any adequate and special reasons to be mentioned in the Judgment, impose a sentence of imprisonment for a term of less than six months.

The question for consideration before court was:
Whether a company or a corporation being a juristic person, can be prosecuted for an offence for which mandatory punishment prescribed is imprisonment & fine

Prosecution is pre-requisite for inflicting any punishment. But it is natural when no punishment can be inflicted, no prosecution can be launched. So it is clear from Standard Charted case that prosecution can be initiated and fine can be imposed even when imprisonment is given as mandatory punishment with fine.

Aishwarya Says:

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