PROSECUTION OF A COMPANY OR CORPORATE BODY

PROSECUTION OF A COMPANY OR CORPORATE BODY

Company Law Corporate Law LAW EXPLAINED
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FERA stands for Foreign Exchange Regulation Act, 1973. This act was established to regulate the foreign exchange market of India. This act imposes restrictions and monitors the transaction related to foreign exchange. This act also keeps eye on the import and export of the currency. This act is applicable to every citizen of India. In FERA the person is bound to get authorized by the RBI. It also imposes restrictions on the import and export of the currency. Impose restrictions on the entry of third parties in transactions during the involvement of financial currency. Impose restrictions on holding any kind of immovable property outside the territorial boundaries of India. Restrictions on receiving or making any kind of payment outside India. This act also provides power to RBI to call off or seize documents anytime if required.

FERA Foreign Exchange Regulation Act, 1973 was later amended and renamed as FEMA Foreign Exchange Management Act, 1999. FEMA is the extension to the FERA. FEMA is not only designed to regulate foreign exchange but, also to promote foreign trade and payments to. This law liberalised foreign exchange control and also impose restriction on foreign investment to an significant extend. Anything related with foreign exchange was regulated under Foreign Exchange Regulation Act through with best of intension the growth of Indian Industries to its excessively stringent restrictions. After, the introduction of the FEMA,  major change came which is control to management of foreign exchange in India.

Section 56(1) – FER Act, 1973.

Foreign Exchange Regulation Act, 1973 section 56 deals with the offenses and prosecution. This section sub- section (1) deals with the penalty awarded by the officer mention under is act. If the person found guilty under any of the below mentioned provisions other than section 13 of the same act will be punished. Provision are –

1. Sub section(1) of 1 section 18 which deals with the payment for exported goods. This clause of section 18 states that the central government may be notified in the official gazette that there is prohibition on exporting of the goods, any goods or class of the goods prescribed by the government directly or indirectly at any part of the world. The authority is required to provide prescribed form supported by such evidence which are true and mention of the amount. [1]

2. Section 18 (a)  which deals with the payment of lease, hire or other arrangements. This se tion States that, no person is allowed to send goods out side the India through land, sea or air on lease, hire or other arrangements, except the general or special permission of  the Reserve Bank of India.

3. Clause (a) of sub section 1 of section 19 which deals with the regualtion of export and transfer of securities. This section states that under the provision of section 81 of the Companies Act, 1956 no person is allowed to transfer any security outside the Indian unless he don’t have gernal or special permission from the Reserve Bank of India.[2]

4. Section 44 deals with the bar of legal proceedings. This section states that no legal proceedings can filed against the Central Government, Reserve Bank of India or against any officer of the Central Government and Reserve Bank of India and any other officer who is exercising his power  for discharging any function or the officer is performing his duty under the guidelines of the act.

5. Section 57 of the act deals with the punishment. If any person who is found to be guilty during trial will fails to pay the penalty which is imposed on him by the authorized officer or by the High Court then he will be punished with imprisonment for 2 years or with fine or both.

If person failed to fulfill above mention provisions then he will be convicted in front of the court and punished as –

1. If the amount is one lakh of rupees the person will be sentenced with  imprisonment for not less then six month and it can extend to seven years and with fine and,

2. In any other case the person will be sentenced  with imprisonment for the term which may extend to three years  or with fine or both.

Criminal Liability of a Corporate Body.

A Corporate Body is considered as individual and as a separate legal entity. When ever there is a violation occuries as per criminal law, criminal liability will be attached. The criminal liability is based on the Latin maxim ” Actus non facit reum mens sit rea” which simple states that if a person or any entity is liable it’s must be shown that there is an omission which is punishable under law. With mens rea which is understood as there is a guilty mind behind the same.

Criminal liability of a corporate body  can be defined as a crime which has been committed by the individual or group of individuals who came together for a common purpose which is earning profit in accordance to fulfill that they commit omission or any such act which is punishable under the law for they benefit. Perviously, when there is no concept of criminal liability of corporate body the corporation was not held liable because it’s an artificial legal person and it could not be punished with imprisonment.

Corporate crimes are those crimes which are committed by the corporation or any of its member with the motive of its on benefit. In the case of Zee Tele Film Ltd. v. Sahara India Could. Corp. Ltd the company was discharged from the criminal liability because of absence of the mens rea which is required as an implicit under the law. In earlier times authorities are failed to identify the presence of the mens rea in corporate because of absence of criminal tents.[3] A corporate body could not be punished with imprisonment or death which is given on commit of any criminal act. As per the norms of the court the accused must need to present in the court during trial of the case which is not at all possible in the case’s of corporate body. But, after the introduction of the concept of criminal liability the director or officer are treated as liable for the act.

In India social legislations like the essential food commodities act, the environment protection Act, the negotiable instruments act if the corporate body found guilty then there employees are also pronounced as guilty.

The corporate can held criminally liable in crimes like 1. Conspiracy, 2. Maintaining public nuisance, 3. Violation of consumer protection laws, 4. The illegal practice of medicine and 5. Antitrust laws violations. In Companies Act, 2013 corporate criminal liability are fallen into following sections- section 53- prohibition of shares at a discount, 118(12)- minutes of proceedings of general, meeting of boards of directors and other meetings, 128(6)- books of account etc kept by company, 129(7)- financial statements, 134- financial statements boards report etc, 57- punishment for personation of shareholders, 58(6)- refusal for registration and appeal against refusal, 182(4)- prohibition and restrictions regarding political contributions, 184(4)- disclosure of interest by directors and 447- punishment for fraud.

In India the absence of the concept of the criminal liability was first noticed by the 41st law commission in which they suggested amendment in section 62 of the India penal code. Whenever the corporation held liable, the employees also suffers both criminally and financially.

A company is a juristic person in the eye of law, hence on this it’s viewed that a company could not be charged with offences because there is a difficult of arrest etc is occured. The Supreme Court considered about the criminal liability of the company. This can  be done through the principle of attribution. This principle can be invoked whenever the question as to whose mental element is arisen to trick of the companies criminal liabilities.

A corporate can be made criminal liable if any unlawful act is conducted with in their scope of authority. The act must be committed in futherance of the benefit of the corporation. This doctrine of corporate criminsl liability is playing very important role around the global and in India especially after the landmark judgments given by Supreme Court in Standard Chartered Bank v. Directorate of Enforcement. After this case the concept of criminal liability in India is changes which is reorganized in the case of Assistant Commissioner v. Velliappa Textile Ltd. In the year 2003. Where court held that the company have to go through the prosecution even if the punishment prescribed results to imprisonment with fine.

Assistant Commr. v. Velliappa Textile Ltd., 2003

The respected is of section 482 of Cr.PC and the criminal complaint was filed under sections 276c, 277 and 278 of the Income Tax Act. The Velliappa Textile Ltd. is a corporate body which is registered under the Companies Act and Ms. C.Velliappa is managing director of the same. In this case the company filed it’s return of income tax for the financial year ending on 30-06-1984 with income Rs. 43,940. The company claimed the deduction of Rs. 9,16,442 from depreciation and investment allowance on the ground that they purchased and installed two new machines in pervious year worth Rs. 14,79,589. The court demanded to produce the documentary evidence in support of the purchase and installation made. But, they failed in doing that. Later the case was remanded by the commissioner, the officer made inquiry and check it with M/s. Lakshmi machines work Ltd.  from whom the machinery purchased and M/s. Voltas Ltd. who installed the same. During the inquiry it’s was founded that the machinery is dispatched on 02-07-1984 and 12-07-1984. The documents produced by the installation company shows that the machine was installed after the closure of the financial year 30-06-1984. Later, it was found that the claim made by the company in regard of depreciation and other  allowances are disallowed. In view of the above mention situation the commissioner of income tax ordered to filed criminal complaint under section 276c, 227 and section 278b against the company and the managing director M/s. C.Velliappa.[4]

In this case honorable Supreme Court held that since the corporate body is a artificial person and could not be physically punished with imprisonment. But, the act committed by the corporate is punishable with the minimum term of imprisonment. Therefore, only fine can be imposed as punishment and offense in which fine is the alternative punishment can only be prosecuted against the corporate body.

Standard Chartered Bank v. Directorate of Enforcement,  2005.

The appellant in Civil Appeal No. 1748 of 1999 filed a writ petition before the High Court of Bombay challenging various notices issued to them under Section 50 read with Section 51 of the Foreign Exchange Regulation Act, 1973 (for short the FERA Act) and contended that the appellant Company was not liable to be prosecuted for the offence under section 56 of the fera act. In this appeal filed against the judgment of the Division Bench of the Bombay High Court dated 7-11-1998, the appellant contends that no criminal proceedings can be initiated against the appellant Company for the offence under section 56(1) of the fera act as the minimum punishment prescribed under section 56(1)(i) is imprisonment for a term which shall not be less than six months and with fine. [5]

In this case supreme Court of India deals with question of weather the corporate body can be trialled for the offense in which imprisonment is a mandatory punishment. The court also deals with the concept of judicial heroism. In this case Supreme Court overruled the judgment given in Assistant Commr. v. Velliappa Textile Ltd., 2003. “We hold that there is no immunity to the companies from the merely because the prosecution is mandatory imprisonment”. So, in this case it’s clear that fine can only imposed even if the imprisonment is given as a mandatory punishment with fine.

Conclusion.

Through above mentioned information and respected case law, we can easily understand that if a company or corporate body found guilty in accordance to section 56(1) of FERA which is now FEMA, 1999 the prosecution will take place against the same. Even if, the section carries the mandatory punishment of imprisonment.

So, company of ‘X’ will face the prosecution in front of the respect court. Even, if the section provides the mandatory punishment of imprisonment of not less than six month with fine. As per the case of assistant commissioner v. Velliappa Textile Ltd. the honorable court imposed the fine on the Velliappa Textile Ltd. and M/s.C.Velliappa the managing director of the company. In the case of Standard Chartered Bank v. Directorate of Enforcement the court overruled the judgment and said We hold that there is no immunity to the companies from the merely because the prosecution is mandatory imprisonment”.[6]

In the illustration given we can say that the X will prosecuted by the court and have to go through the trial. Even if, the company is committed the crime Under section 56(1) of FERA which deals with the offense and prosecution with the following mentioned sections in the section.


[1] FER Act, 1973.

[2] Legalservicesindia.com.

[3] Legalservicesindia.com.

[4] Indiankanoon.org.

[5] Casemime.com.

[6] Papers.ssrn.com.

-BY DHEERAJ KUMAR

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