CHAPTER 1 – INTRODUCTION
1.1 ABSTRACT
The doctrine of Corporate Criminal Liability is a very important part with respect to the relations between a corporation and a person. The doctrine states about the liability of the corporates for any acts which is done by agents or employees. Even though an individual will be committing a crime but the corporation is been operated by that individual and for the benefits of the company the crime is committed. Therefore because of this reason there was a need for criminal liability on the corporation. A corporation is having a separate legal entity but there were contradictions where without a soul or body how can a company be made criminal liable.
The case of Assistant Commissioner, Assessment – II, Bangalore & Ors & Vs. M/s. Velliappa Textiles Ltd. & Anr. Is a famous judgement of Supreme Court of India. The case mainly focuses on the Sections 276C, 277, 278 and 278B of the Income Tax Act, 1961 and also relating to income tax filing in the assessment year of 1985-86 income tax was filed for 1984-85 where deduction was also claimed by the company on investment allowance. The case was going on and question was raised where whether a company can be made liable by imprisonment or only fine can be imposed.
1.2 CONCEPTUAL DEFINITION
a. Person
A person is defined under Section 2 (31) of Income Tax Act, 1961 which includes –
i. an individual,
ii. a Hindu undivided family,
iii. a company,
iv. a firm,
v. an association of persons or a body of individuals, whether incorporated or not,
vi. a local authority, and
vii. every artificial juridical person, not falling within any of the preceding sub-clauses
Explanation – For the purposes of this clause, an association of persons or body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.
b. Company
- A company is defined under Section 2(17) of Income Tax Act, 1961 which means –
i. Any Indian company, or
ii. Any body corporate incorporated by or under the laws of a country outside India, or
iii. Any institution, association or body which is or was assessable or was assessed as a company for any for any assessment year under the Income-tax Act, 1922 (11 of 1922), or which is or was assessable or was assessed under this Act as a company for any assessment year commencing on or before the 1st day of April, 1970, or
iv. Any institution, association or body, whether incorporated or not and whether Indian or non-Indian, which is declared by general or special order of the Board to be a company.
Provided that such institution, association or body shall be deemed to be a company only for such assessment year or assessment years (whether commencing before the 1st day of April, 1971, or on or after the date) as may be specified in the declaration
- For the purpose of Section 278B of the Income tax Act, 1961 a company is a body corporate, and includes –
i. A firm; and
ii. An association of persons or a body of individuals whether incorporated or not.
1.3 REVIEW OF LITERATURE
a. Income Tax Act, 1961
The Income Tax Act, 1961 was commenced in the year 1961. It defines and gives various laws relating to income tax and punishment for the offences committed. It extends to the whole of India. In the case of Assistant Commissioner, Assessment – II, Bangalore & Ors & Vs. M/s. Velliappa Textiles Ltd. & Anr. , the Appellants had heavily relied on Section 276C[1], 277[2], 278[3], 278B[4] of Income Tax Act, 1961. The Appellant has tried all the manner which can be used in this Act for punishing the Respondents which is Section 276C which states about the wilful attempt to evade tax, Section 277 which states about giving false statement during verification, Section 278 with respect to abetment of false return and Section 278B which states about the offences which is done by companies.
b. The Author[5] stresses on simplifying the concept of Corporate Criminal Liability, its evolution, about its history in India. The Author provides with various cases with respect to Corporate Criminal Liability and also focused on the theory of vicarious liability the concept where how the employer is liable for the torts of his employee and discussed about it in detail.
1.4 STATEMENT OF PROBLEM
The acts done in the name of the company with the intention to commit a crime and also where if punished by the court. If the wrongful act is done can a company be made liable or imposition of fine can only be done. In the case of Assistant Commissioner, Assessment – II, Bangalore & Ors & Vs. M/s. Velliappa Textiles Ltd. & Anr. in which the managing director made false deduction in the income tax return. Can the company be made liable for the acts done by its directors or it can only be imposed fine.
1.5 OBJECTIVE
The purpose of this research is to examine whether the company and its employees are having a same relationship and having a vicarious liability. Also, whom can be the punishment given for the wrongful act done on behalf of the company.
1.6 HYPOTHESIS
a. Whether a corporate body is capable of committing a crime?
b. How can a corporation be criminally liable by law?
CHAPTER 2 – CASE ANALYSIS OF ASSISTANT COMMISSIONER, ASSESSMENT – II, BANGALORE & ORS & VS. M/S. VELLIAPPA TEXTILES LTD. & ANR.[6]
2.1 FACTS OF THE CASE
Case decided by: – B.N. Srikrishna, J.
Case decided on:- September 16, 2003
- The case was before the High Court of Karnataka from where the Appellant filed an appeal against the order dated 12.04.1993 in Supreme Court by Special Leave where Section 482 of Code of Criminal Procedure, 1973 was allowed by the High Court and criminal complaint filed under Sections 276C[7], 277[8], 278[9] and 278B of Income tax Act was quashed. Sri. C. Velliappa is the Managing director and also Respondent No. 2 of the registered company M/s. Velliappa which is Respondent No. 1[10].
- During the assessment year of 1985-86 the company filed its return for the period ending 30.06.1984 which showed an income of Rs. 43,940. On account of depreciation and investment allowance the company claimed for deduction of Rs. 9,16.442, on such grounds that two machines had been purchased worth Rs. 14,79,589 and which was installed in the previous year which is relevant to assessment year of 1985-86. The documentary evidence was been asked to the company to show regarding the said purchase and also its installation but the company failed and the assessing officer disallowed the said claim.
- When the matter went into appeal before the Commissioner which was preferred by the Respondents, the assessing officer after making inquiries from M/s. Lakshmi Machine Works Ltd. Situated at Coimbatore from whom the machines were purchased and M/s. Voltas Ltd. who installed the said machines. After inquiry it was known that the machines were dispatched to the company on 02.07.1984 and 12.07.1984 and after the relevant documents was disclosed by M/s. Voltas Ltd. it clearly showed that the machines was installed after the accounting year ending 30.06.1984.
- After the relevant facts was brought before the company, the authorised representative of the company told that the claim which was made for deduction be disallowed. Subsequently the Commissioner of Income tax, Bangalore in his order dated 26.03.1992 sanctioned in filing the criminal complaint under Section 276C, 277 & 278B of the Income tax Act against the company and its Managing Director. After this incident the respondents filed a petition in High Court under Section 482 of Cr. P.C. for quashing the proceedings instituted against them in special court for Economic Offences at Bangalore.
2.2 ISSUE RAISED
- Whether a company can be attributed with mens rea on the basis that those who are working for it have committed a crime and can it be convicted under criminal case?
- Whether a company can be made liable for punishment of fine if the provision contemplates punishment which can be by way of imprisonment only or a minimum period of imprisonment plus fine or only fine can be imposed?
2.3 CONTENTIONS RAISED
By Mr. T.L.V. Iyer (Appellant)
a. Since the High court held that the Respondent were not given to opportunity of being heard the principles of natural justice is been violated. The learned senior counsel than argued that there is no need to grant an opportunity since the accused had committed offence before grant of sanction and High court committed factual mistake.
b. The learned counsel further argued that since the statute specifically provides penal liability of company, there is no need for starting prosecution against it.
c. Section 279 states that a person cannot be proceeded against the offences except with previous sanction of the Commissioner or any other appropriate authority. There are similar provisions in various other statutes like Section 197 of Code of Criminal Procedure, 1973, Section 19 of Prevention of Corruption Act.
d. Section 276C and 277 provides for both substantive sentence of imprisonment and fine. It is true that company cannot be sentence for imprisonment but there is no reason why cannot a company be awarded a sentence of fine only.
2.4 JUDGMENT
Judgment passed by the Supreme Court of India
- The Bench comprising of Justice B.N.Srikrishna, has held that if the is act is alleged against the accused which does not fall within the area of offence then he can’t be held liable and open to the court to paper it over some presumed intention of the legislature. The doctrine of casus omissus expressed in CST V. Parson Tools & Plants[11] is where if the legislature willingly omitted something or if there is casus omissus in statute, the court is not competent to introduce on it the omitted part.
- The legal maxim “Judicis est jus dicere, non dare” explains the duty of the court i.e. to decide what the law is and apply and not to make it. That in 41st report of Law Commission of India at para 24.7 it recommended for overcoming the difficulty that since it is impossible to imprison a corporation the only punishment which can be imposed is that of fine. In order to overcome with such difficulty it recommends to make provisions in Indian Penal Code which is related to punishments that where the offender is the company or other body corporate or an association of individual it will be competent to court to sentence to fine only.
- Again afterwards in its 47th report of Law Commission of India in para 8.3 it further recommended that in many Acts related to economic offences imprisonment is mandatory and where convicted person is a corporation than in such cases, it shall be competent to court to impose fine. Even though these recommendations made by them is not acted upon.
- In the case of M.V.Javali Vs. Mahajan Borewell & Company & Ors.[12] the observations made in paragraphs 6 and 8 which is that if an offence is committed under the Act by the company the person who will be made liable against and punished are the company, every person who were during the time the offence was committed were incharge of, and were responsible to the company, manager, any director, secretary with whose consent the offence was committed. The words which appear “as well as the company” makes it clear that the company can also be alone prosecuted and punished. Further the persons who are vicariously liable for the offence for its company is also guilty of the offence.
- In the 47th report the Law Commission of India also recommended in Chapter 18, Pg. 157 about the punishments under Section 276B, 276C, 276E, 277 and 278 to be increased and it was implemented in the Taxation Laws (Amendment) Act, 1975. During the time of amendment bill, the finance minister Shri. C. Subramaniam told about those who make a lot of money by doing offences do not serve as detterents and therefore provisions for taxes for prosecutions should be tighten. The Select Committee further recommended to award monetary punishment as a substitute to rigorous imprisonment or to reduce the imprisonment below the prescribed minimum period should be taken away.
- Whereas, in the case of State of Maharashtra Vs. Jugmander Lal[13] the court also expressed “shall be punishable for imprisonment and for fine” which states that court is bound to award for both imprisonment and fine and the word “punishable” means shall be punished. Same view was supported in the judgment of the Bombay High Court in State of Maharashtra Vs. Syndicate Transport Company Pvt. Ltd.[14]
- Hence, the High Court was justified in quashing the prosecution with respect to the first Respondent and therefore, appeal with regard to first respondent is dismissed and allowed with respect to prosecution against the second respondent.
2.5 CASE ANALYSIS
- In this case the company was prosecuted for various offences under Income tax Act where under the said sections it made compulsory for imprisonment along with fine. Giving the similar reasons by the Supreme Court held that, the Corporation cannot be made liable for punishment of imprisonment but need to pay the amount of fine.
- The same view was taken in the case of from M.V.Javali V. Mahajan Borewell & Co. in which it was held that if a Corporation is held liable to punishment of imprisonment and fine then it should be liable for only fine.
- The Law Commission also had the same views on this and gave recommendations to the Parliament.
- The landmark case which is Standard Chartered Bank and Ors. Vs. Directorate of Enforcement and Ors.[15] by establishing the fact that even the companies can be held criminally liable and stated that in present time the companies are involved in various sectors which impact the liberty and life on the people. Thus, Courts have authority to impose fine on the company as well as can waive off the imprisonment.
- In another case i.e. Iridium India Telecom Ltd. Vs. Motorola Inc. and Ors.[16] relating to Corporate Criminal Liability and Supreme Court held that if employees commit a crime then their acts would be affecting the respective company, also the position of a company in terms of liability, is the same as other person.
- In the recent case of Sunil Bharti Mittal Vs. Central Bureau of Investigation and Ors.[17] where the court relied in the previous case of Iridium case. Also the directors can be prosecuted for the offences which are committed by the company and also under circumstances where there is active involvement and criminal intent of that person and also the legislation should impose the liability on the director or person in charge in the affairs of the company. Thus, finally concluding that the vicarious liability is imputed on the person dealing in the business of the company and be imposed fine and imprisonment both.
CHAPTER 3 – CONCLUSION
Imposition on criminal liability is essential on Corporation because it is one of the higher important part of the economy. A company can escape from conviction if this doctrine would not have brought. Along with development various crimes which are done for industrialisation or globalisation, this doctrine will keep a check on such issues. Various laws, rules, regulations should be made under various Acts for proper punishments which can be given in such criminal liability. The concept of Corporate Criminal Liability has been evolving with time where initially there was many difficulties as to how can the evidence be adduced. In the cases above, the courts further clarified the concept of criminal liability. The case of Assistant Commissioner Vs. Velliappa Textiles Ltd. where the issue came to be known gradually after cases were arising where same issues was been faced by the judiciary the concept of corporate criminal liability was thus more clarified in Iridium’s case and then Sunil Bharti Mittal’s case. Thus, corporate entities cannot claim immunity on the ground of absence of legal personality when the person involved can be held liable for their acts in the company.
REFERENCE
A. PRIMARY SOURCES
- Income Tax Act, 1961
- The Prevention of Corruption Act, 1988
B. SECONDARY SOURCES
ARTICLES
a. Vijaya Lakshmi,”Corporate Criminal Liability – A Critical Legal Study”, Pen Acclaims, Volume 5, ISSN 2581-5504, (January 2019). http://www.penacclaims.com/wp-content/uploads/2019/03/V-Vijaya-Lakshmi.pdf
b. Shreya Bhattacharjee, “Corporate Criminal Liability in the Globalizing World: A Means to Achieve Social Justice”, Journal on Contemporary Issues of Law (JCIL), Volume 2, Issue 2, (March 2013).
https://jcil.lsyndicate.com/wp-content/uploads/2016/03/CORPORATE-CRIMINAL-LIABILITY-Shreya-Bhattacharjee.pdf
WEBSITES
a. https://manupatra.com/
b. https://www.scconline.com
c. https://www.mondaq.com/india/corporate-crime/423044/corporate-criminal-liability-revisiting-iridium#:~:text=The%20significance%20of%20Iridium%20lies,for%20crimes%20requiring%20mens%20rea.&text=This%20principle%20is%20invoked%20when,foisting%20criminal%20liability%2C%20comes%20up.
Notes:
[1] Income Tax Act, 1961, §276C, Act of Parliament, 1961, (India).
[2] Income Tax Act, 1961, §277, Act of Parliament, 1961, (India).
[3] Income Tax Act, 1961, §278, Act of Parliament, 1961, (India).
[4] Income Tax Act, 1961, §276C, Act of Parliament, 1961, (India).
[5] Ganesh Bhaskar Lata, “Corporate Criminal Liability”, Journal on Contemporary Issues of Law (JCIL), Volume 5, Issue 4, ISSN 2455-4782.
[6] Assistant Commissioner, Assessment – II, Bangalore & Ors & Vs. M/s. Velliappa Textiles Ltd. & Anr. , AIR 2004 SC 86.
[7] Income Tax Act, 1961, §276C, Act of Parliament, 1961, (India).
[8] Income Tax Act, 1961, §277, Act of Parliament, 1961, (India).
[9] Income Tax Act, 1961, §278, Act of Parliament, 1961, (India).
[10] Income Tax Act, 1961, §278B, Act of Parliament, 1961, (India).
[11] CST V. Parson Tools & Plants ,1975 AIR 1039
[12] M.V.Javali Vs. Mahajan Borewell & Company & Ors. (1997) 8 SCC 72
[13] State of Maharashtra Vs. Jugmander Lal, AIR (1966) SC 940.
[14] State of Maharashtra Vs. Syndicate Transport Company Pvt. Ltd., AIR (1964) Bom. 195.
[15] Standard Chartered Bank and Ors. Vs. Directorate of Enforcement and Ors., AIR 2005 SC 2622
[16] Iridium India Telecom Ltd. Vs. Motorola Inc and Ors., AIR (2011) SC 20.
[17] Sunil Bharti Mittal Vs. Central Bureau of Investigation and Ors., AIR 2015 SC 923; (2015) 4 SCC 609.
Author Bio
Dear Sri Amrut, Good Evening. I am happy to read your comments on the ruling in The ASSt. Commr. v. Velliappa Textiles LTd. Can you or Can I contact you for some clarifications on the ruling. Waiting for reply. Thanks Dr. Cs Raghu Raman Retired Professor, Law Hyderabad 9490190210