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PETITIONER: M.V. JAVALI

       Vs.

RESPONDENT: MAHAJAN BOREWELL & CO. & ORS.

DATE OF JUDGMENT:       26/09/1997

BENCH: M.K. MUKHERJEE, M. JAGANNADHA RAO

ACT:

HEADNOTE:

JUDGMENT:                          O R D E R      Special Leave  granted.   Heard the learned counsel for the parties.      The appellant,  who is  an  Assistant  Commissioner  of Income Tax,  filed a  complaint in  the  Special  Court  for Economic Offences  at Pantalone  alleging commission  of  an offence under  section 276B,  read with section 278B, of the Income Tax  Act, 1961  ("Act’ for  short) by  M/s Borewell & Co., a registered partnership firm (the respondent No.1) and its three  partners (the  respondent Nos.  2  to  4).    The Special Court  took cognisance  of the  offence alleged  and issued process against the respondents for their attendance. After centering appearance they filed an application praying for their  discharge under  Section 245(2)  of the  Code  of Criminal  Procedure.     The   Special  Court   allowed  the application on  the ground that before granting sanction for their prosecution  under Section  279(1)  of  the  Act,  the Sanctioning  Authority   did  not  give  the  respondents  a personal  hearing.     The   other  grounds  raised  by  the respondents for  their discharge  were  however  kept  open. Assailing the  order of  discharge  the  appellant  filed  a revision petition  in the  High Court which was dismissed by the impugned order.  Hence this appeal.      In upholding the order of discharge, the High Court did not deal  with the ground that found favour with the Special Court but  held -  relying upon its earlier judgment in P.V. Pai Vs.  R.L. Rinawna  [ILR 1993  Karnataka 709]  - that the prosecuting of  respondent No.1  under section  276B was not maintainable for if ultimately the Special Court found it to be  guilty  it  (the  Court)  could  not  legally  impose  a substantive sentence upon it which was mandatory thereunder. As regards  the other  respondents, though  the  High  Court found it  to be  guilty it  (the Court)  could  not  legally impose a  substantive sentence  upon it  which was mandatory thereunder.   As regards  the other  respondents, though the High Court  found that  the  prosecution  against  them  was maintainable for  the above  offence, it  still upheld their discharge.      To answer  the question  whether a  company,  belong  a juristic person  and thus  incapable of  being sentenced  to

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imprisonment  can  be  prosecuted  -  and  for  that  matter convicted -  for committing  an offence  under the Act which provides for  compulsory imprisonment  and fine,  it will be necessary to  refer to  the provisions of the Act with which we are concerned in this appeal.      Section 276B lays down that if a person fails to pay to the credit  of the  Central Government,  the tax deducted at source by  him as  required by  or under  the provisions  of Chapter  XVII-B  [which  includes  section  194  C  (2)  for violation of  which the  prosecution in the instant case was lodged] he  shall be punished with rigorous imprisonment for a term  which shall  not be less than three months but which may extend  to seven  years and  with fine.   Section  278 B reads as under;      278B (1)  "Where an  offence  under      this Act  has been  committed by  a      company, 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 business of the company as well      as the  company shall  be deemed to      be quilty  of the offence and shall      be liable  to be  proceeded against      and punished accordingly.      Provided that  nothing contained in      this sub-section  render  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      dilligence    to     prevent    the      commission of such office.      (2)    Notwithstanding     anything      contained in sub-section (1), where      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 deemed      to be  quilty of  that offence  and      shall be  liable  to  be  proceeded      against and punished accordingly.      Explanation -  For the  purposes of      this Section-      (a)   "company"    means   a   body      corporate, and includes-      (i) a firm; and      (ii) an association of persons or a      body   of    individuals    whether      incorporated or not; and      (b) "director", In relation to-      (i) a  firm, means a partner in the      firm,      (ii) any  association of persons or      a body  of individuals,  means  any      members  controlling   the  affairs      thereof."           (emphasis supplied)      From a  plain  reading  of  the  above  Section  it  is

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manifest that  if an offence under the Act is committed by a company the  persons who  a reliable 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  incharge 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 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 purpose  vicariously   liable  for   the  offence,  are  not arraigned, for  it is  the company which is primarily guilty of the offence.      Even though  in view of the above provisions of Section 278B, a  company cam  be  prosecuted  and  punished  for  an offence committed under Section 276B (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 situation can be resolved, needless to  say, only  by a  proper interpretation  of  the section.   Before we  proceed  to  consider  the  principles governing the  interpretation of  statutes we may profitably look to the 47th report of the Law Commission of India dated February 28,  1972.   While dealing with social and economic offences committed  by  Corporations  (including  companies, firms and  association  of  individuals)  if  observed  that though a  company  has  no  physical  body  and  traditional punishments might  thus prove  ineffective, the real penalty could be  inflicted upon its respectability, that is, by way of a  stigma. Therefore, it was appropriate that the company itself be  punished so  that in  the public mind the offence would be  linked with  the name  of the  Corporation and not merely with the name of the director or manager who might be a  non-entity.    Punishment  of  fine  in  substitution  of imprisonment could  solve the  problem in  this behalf.  The Commission  recommended,   apart  from   introduction  of  a provision  in   Section  62   of  the   Indian  Penal  Code, appropriate amendments  in the  Central  Excise  Act,  1944, Wealth Tax  Act, 1957  and Income tax Act, 1961 on the lines of Section 93 of the Gold Control Act, 1968.  The provisions contained in  Section 278B  of the Act appear to be based on the recommendations  of the Law Commission.  Para 8.1 of the Law Commission Report reads as under:      "8.1. An  important type  of while-      collar crime  is that  committed by      Corporations, Since  a  Corporation      has no  physical body  on which the      pain   of   punishment   could   be      inflicted, not  a mind which can be      guilty  of   a   criminal   intent,      traditional    punishments    prove      ineffective, and  new and different      punishments  have  to  be  devised.      The real  penalty of  a corporation      is      the      diminution      of      respectability,   that    is,   the      stigma.   It is now usual to insert      provisions to  the effect  that the      Director or  Manager who  has acted      for  the   corporation  should   be      punished.   But it  is  appropriate

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    that the corporation itself, should      be punished.   In  the public mind,      the offence  should be  linked with      the name  of the  corporation,  and      not merely  with the  name  of  the      Director or  Manger, who  may be  a      non-entity. Punishment  of fine  in      substitution of imprisonment in the      case of  a corporation  could solve      the problem  in one aspect; but, at      the  same,  it  is  necessary  that      there  should  be  some  procedure,      like a  judgment  of  condemnation,      available in  the case  of an anti-      social    or    economic    offence      committed by  a Corporation.   This      will be analogous to the punishment      of  public   censure  proposed  for      individuals."      And Para  8.3, to  the extent  it is  relevant for  our purposes, reads as under:      "8.3.  In many of the Acts relating      to economic offences, imprisonment      is mandatory.  Where the convicted      person is a corporation, this      provision becomes unworkable, and      it is desirable to provide that in      such cases, it shall be competent      to the court to impose a fine.      This difficulty can arise under the      Penal Code also, but it is likely      to arise more frequently in the      case of economic laws."      Coming now  to  the  principles  of  interpretation  of statutes this  Court observed  in Siraj-ui-Hag  Khan vs. The Sunni Central  Board of  Wakf U.P.  (A.I.R. 1959  SC 198) as under:      "It  is   well  settled   that   in      construing  the   provisions  of  a      statute, courts  should be  slow to      adopt a construction which tends to      make  any   part  of   the  statute      meaningless  or   ineffective;  and      attempt must  always be  made so to      reconcile the  relevant  provisions      as to  advance the  remedy intended      by the statute.  In such a case, it      is legitimate and even necessary to      adopt   the    rule   of    liberal      construction so  as to give meaning      to all  parts of  the provision and      to make  the whole  of it effective      and operative."      Again in Union of India Vs. Filip Tiago De Gama (A.I.R. 1990 SC 981) this Court observed:      "The paramount  object in statutory      interpretation is  to discover what      the  legislature  intended.    This      intention  is   primarily   to   be      ascertained  form   the   text   of      enactment in  question.   That does      not mean  the text  to be construed      merely as a piece of prose, without      reference to its nature or purpose.      A statute  is  neither  a  literary

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    text nor  a  divine  revelation.  ’      Words are  certainly not  crystals,      transparent and  unchanged’ as  Mr.      Justice  Holmes   has  wisely   and      properly warned  (Towne v. Eisjher,      (1918) 245  US 418,  425.   Learned      Hand, J.  was equally emphatic when      he   said   ’Statutes   should   be      construed,  not   as  theorems   of      Euclid, but  with some  imagination      of the  purposes which  lie  behind      them’.  (Lenigh Valley Coal Co. vs.      Yensavage: 218 FR 547 at 553)"      It further observed as under:      "If there is obvious anomaly in the      application of  law the Court could      shape  the   law  to   remove   the      anomaly.   If the strict grammtical      interpretation   gives    rise   to      absurdity  or   inconsistency,  the      Court    could     discard     such      interpretation   and    adopt    an      interpretation  which   will   give      effect  to   the  purpose   of  the      legislature.   That could  be done,      if necessary  even by  modification      of  the   language  used.      (See      Mahadeolal   Kanodia    v.      The      Administrator   General   of   West      Bengal (1950)  3 SCR 578; (AIR 1960      SC 936).   The  legislators do  not      always    deal     with    specific      controversies  which   the   Courts      decide.   They incorporate  general      purpose behind  the statutory words      and it  is for  the court to decide      specific cases.   If  a  given case      is well  within the general purpose      of the  legislature but  not within      the literal meaning of the statute,      then  the  Court  must  strike  the      balance."      Keeping  in   view  the   recommendations  of  the  Law Commission and  the above  principles of  interpretation  of Statutes we  are of  the opinion  that the  only  harmonious construction that  can be  given to Section 276B 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 punishment.    We  hasten  to  add,  two  other  alternative interpretations 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 278B or wholly inconsistent with its plain language.      For the  foregoing discussion  w are  unable to sustain the impugned  order of the High Court so far as it held that the   prosecution    of   respondent    No.1   was   legally impermissible.   Equally unsustainable  is the  order of the High Court  dismissing the  revision petition  oua the other respondents in  absence of  any finding  to indicate that it agreed with  the reasoning  of the  trial  Court  for  their discharge.   We, therefore, allow this appeal, set aside the impugned order  of the High Court upholding the discharge of

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the respondents  and direct it to hear the revision petition filed by  the appellant afresh in accordance with law and in the light of the observations made herein before.