Vijaya Commercial Credit Ltd. Vs. Sixth Income-tax Officer - Court Judgment

M.S. Patil, J.

1. In this revision petition filed under section 397 read with section 401, Cr. P. C., the petitioner, M/s. Vijaya Commercial Credit Ltd., Formerly known as M/s. Vijaya Bank Ltd., accused No. 1, in C. C. Nos. 4 to 17 of 1982, on the file of the court of the Presiding Officer, Special Court for Economic Offences, Bangalore, represented by its managing director, Sri. P. K. Alva, has sought to challenge the legality and correctness of the order dated February 9, 1983, whereby the application made for discharging it of the offences alleged has been rejected.

2. The criminal cases have been instituted on private complaints filed by the Sixth Income-tax Officer, Mangalore Circle, Mangalore, on being authorised by the Commissioner of Income-tax, Karnataka-I, Bangalore, as provided under section 279 of the Income-tax Act, 1961, hereinafter referred to as 'the Act', on the allegation that M/s. Vijaya Bank Ltd. (A-1), being a scheduled bank and a company registered under the Indian Companies Act, with its registered office at Mangalore, South Kanara, and having its branches all over India, as provided under section 285 of the Act, was required to submit returns in the prescribed form and verified in the prescribed manner of the names and addresses of all the persons to whom interest exceeding Rs. 400 had been paid during each financial year and although there were large deposits in the names of seventeen different persons, most of whom were fictitious persons, in various branches of M/s. Vijaya Bank, hereinafter referred to as the 'company', to whom interest exceeding Rs. 400 had been paid during the financial years ending with March 31, 1972, March 31, 1973, March 31, 1974, and March 31, 1975 (details given), with a view to prevent detection of the source of deposit being inquired into by the Income-tax Officer, at the instance of and/or instruction and guidance of the then chairman, the company had deliberately and intentionally failed to furnish that information in the annual returns of the said years filed by the company verified by the branch manager, Mr. B. Manohar Shetty (A-4), and forwarded by Mr. C. H. Sreedharan (A-3), while the company (A-1) had thereby committed an offence punishable under section 277 of the Act, the officials of the company (A-2 to A-5) had committed an offence punishable under section 278 of the Act and they were, therefore, liable to be punished.

3. The complaints were filed before the nationalisation of the petitioner company, M/s. Vijaya Bank (A-1), represented by the principal officer and chairman, Mr. M. Sundar Ram Shetty, in the court of the JMFC, Mangalore. During enquiry, when the evidence was being recorded, on the application filed by the complainant-respondent herein, the cases were transferred from the court of the Magistrate at Mangalore to the court of the Presiding Officer, Special Court for Economic Offences at Bangalore. Later on, when the chairman of the petitioner-company, Mr. M. Sundar Ram Shetty died, the successor chairman, Mr. B. T. R. Punja, was arrayed as party representing the petitioner-company.

4. The petitioner-company sought for discharge of the offence, firstly, on the ground that the banking undertaking of Vijaya Bank Ltd., having been nationalised with effect from April 15, 1980, under the Banking Companies (Acquisition and Transfer of Undertakings) Ordinance, 1980, which was replaced by the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980, the proceedings against the petitioner-company as it stood prior to the nationalisation cannot be continued; and, secondly, on the ground that during the relevant periods, in the provisions as contained in section 278 of the Act, before its amendment, there was no penal liability attached to the bank/company for offences committed under the Act, and, therefore, the petitioner-company deserved to be discharged of the offence.

5. The court below rejected both the contentions and observed that even after the nationalisation of the banking business, A-1 company continued to be in existence and that the criminal liability cannot be transferred to the corresponding new company coming into existence after the nationalisation and since for the purpose of section 285, 'person responsible for paying' means a company including the principal officer and under section 277 such person is liable to be punished, the liability of the company to answer the charge does not cease, although it may be that the new chairman, Mr. B. T. R. Punja, who succeeded the then chairman of the company, will not be liable for the offence personally. In that view, he having rejected the application made for discharge, the petitioner-company has come up with this revision.

6. Mr. Naganand, learned counsel for the petitioner, in addition to these two grounds urged before the Magistrate for discharge of the petitioner company, also submitted that since the offence under section 277 is punishable with rigorous imprisonment for not less than six months, but extending to seven years, and no discretion is left to the court in the matter of imposition of sentence of imprisonment on conviction and since the petitioner-company is a body corporate and even on conviction, imposition of sentence of imprisonment being not possible, no useful purpose will be serve in proceeding with the enquiry and trial as against the petitioner-company and, therefore, the criminal proceedings instituted as against the petitioner deserved to be quashed. In support of this contention, learned counsel also relied on various authorities.

7. Mr. Chandrakumar, learned counsel for the respondent, refuting all those contentions submitted that the expression 'person' as defined under the Act is wide enough to include a company or any juristic person. Therefore, the petitioner-company as well as the other accused were liable to be punished and since A-1 company continues to be in existence even after nationalisation of the banking business of the company, the court below was right in rejecting the applications and no interference was at all called for.

8. Before considering these contentions on their merits, it would be relevant to mention here that section 277 of the Act as it stood originally prescribed punishment of simple imprisonment extending to six months or with fine extending to Rs. 1,000 or both. That was the position till March 31, 1964. Thereafter, the provision were amended and rigorous imprisonment for a term extending to seven years was made compulsory. The provisions were amended by the Taxation Laws (Amendment) Act, 1975, and the provisions of section 277, as amended, read as follows:

'If a person makes a statement in any verification under this Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, he shall be punishable -

(i) in a case where the amount of tax, which would have been evaded if the statement or account had been accepted as true, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with rigorous imprisonment for a term which shall not be less than three months but which may extend to three years and with fine'.

9. Section 278, with the aid of which the other accused are sought to be prosecuted for the offence punishable under section 277 of the Act, reads as follows:

'If a person abets or induces in any manner another person to make and deliver an account or a statement or declaration relating to any income chargeable to tax which is false and which he either knows to be false does not believe to be true or to commit an offence under sub-section (1) of section 276C, he shall be punishable -

(i) in a case where the amount of tax, penalty or interest which would have been evaded, if the declaration, account or statement had been accepted as true, or which is wilfully attempted to be evaded, exceeds one hundred thousand rupees, with rigorous imprisonment for a term which shall not be less than six months but which may extend to seven years and with fine;

(ii) in any other case, with rigorous imprisonment for a term which shall be less than three months but which may extend to three years and with fine. '

10. Section 278B provides: ' (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 guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall 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 diligence to prevent the commission of such offence.

(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 guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation. - For the purpose 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 -

(ii) any association of person or a body of individuals, means any member controlling the affairs thereof. '

11. Obviously, for the offences alleged as having been committed during the period 1971-72 to 1974-75, on conviction, sentence of imprisonment's undoubtedly compulsory. As stated earlier, apart from the two contentions urged before the court below, the main and substantial contention now raised by Mr. Naganand, learned counsel for the petitioner, is that since on conviction the offence is punishable with imprisonment, the petitioner-company being a body corporate, imposition of sentence of imprisonment being not possible, no useful purpose would be served by proceeding with the enquiry and trial as against the petitioner-company and, therefore, the proceedings instituted against the petitioner-company deserve to be quashed. The contention not only merits consideration, but also finds support from various decisions referred to and relied upon by him. It is not necessary to refer to all those decisions, since a bare reading of the provisions of section 277 of the Act as they now stand makes it clear that the person who makes the statement in any verification under the Act or under any rule made thereunder, or delivers an account or statement which is false, and which he either knows or believes to be false, or does not believe to be true, shall be punishable with imprisonment and fine. In other words, mens rea, as in other criminal cases, is an essential ingredient of the offence.

12. Although, as argued by Mr. Chandrakumar, learned counsel for the respondent, the word or expression 'person' as defined under section 2(31) is wide enough to include a company or other juristic person, having regard to the fact that sentence of imprisonment has been made compulsory, it cannot be said that the expression 'person' has been used in that sense, inasmuch as it is not possible for the court on conviction to impose a sentence of imprisonment. In the case of Kusum Products Ltd. v. S. K. Sinha : [1980]126ITR804(Cal) , considering these provisions, a Division Bench of the Calcutta High Court has observed as follows (p. 808) :

'.... mens rea is an essential ingredient of an offence under section 277 of the Act is clear from the section itself and only an actual person who does any of the acts indicated therein with a specific knowledge or intent can be made liable. Although under section 2(31) of the Act 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 277 of the Act in the sense given in the definition clause. That this was the intention of Parliament is clear because imprisonment has been made compulsory for an offence under section 277 of the Act. A company or a juristic person cannot possibly be sent to prison, and it is not open to a court to impose a sentence of fine or not to award any punishment if the court finds a company guilty under the said section. If the court does so, it would be altering the very scheme of the Act and usurping the legislative function. '

13. Although as provided under section 278B, where an offence under Act is 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 guilty of the offence and punished accordingly, yet it would appear there is no point in proceeding against the company, whether it amounts to abuse of the process of court or not. Since, as pointed out by their Lordships of the Supreme Court in the case of Sheoratan Agarwal v. State of Madhya Pradesh, : [1985]1SCR719 , there is no statutory compulsion to prosecute a company alongside the officer or persons in charge of and responsible to the company and such officers or the persons responsible to the company may be prosecuted without prosecuting the company, it appears, there criminal proceedings instituted against the petitioner-company, being futile, deserve to be quashed.

14. In the result and for the reasons stated above, the petition is allowed. The criminal proceedings instituted as against the petitioner-company in C. C. Nos. 4 to 17 of 1982, on the file of the Presiding Officer, Special Court for Economic Offences, Bangalore, are quashed.