The Hindu Business Line : Larger issues for a larger Bench

THE Supreme Court is renowned for its sturdy independence, objectivity, realism and fairness. In a majority judgment in the Standard Chartered Bank vs Directorate of Enforcement (2005 66 CLA 225 SC), the court overruled its earlier judgment in the Assistant Commissioner vs Velliappa Textile Ltd (2003 56 CLA 221) case.

In the Velliappa case (supra), the two learned judges, who formed the majority, took the view that a corporation could not be prosecuted for an offence for which the punishment on conviction is imprisonment. The question was referred to a larger Bench in the Standard Chartered Bank (supra) case. Meanwhile, Section 278B of the Act, the scope of which had come up for consideration in the impugned judgment earlier, was amended by Parliament with the insertion of sub-section (3) by the Finance (No.2) Act, 2004 with effect from October 1, 2004:

"(3) Where an offence under this Act has been committed by a person being a company and the punishment for such offence is imprisonment and fine, then without prejudice to the provisions contained in sub-section (1) or sub-section (2), such company shall be punished with fine and every person referred to in sub-section (1) or the director, manager, secretary or other officer of the company referred to in sub-section (2) shall be liable to be proceeded against and punished in accordance with the provisions of this Act."

The amendment was meant to safeguard the Revenue and ensure prosecution and penalty or fine in the cases of companies committing serious offences under the Act alone. Much time and costs were entailed in getting similar amendments enacted in all statutes providing for prosecution of companies for their contraventions of law, particularly where the offences committed by them were of a grave nature, calling for the punishment or imprisonment.

There may also be pending cases against companies under the Act as well as other statutes pertaining to the earlier years. There was, therefore, no alternative to a consideration of the existing law on the subject by a larger Bench of the Supreme Court, before the Government undertook appropriate action for amendment of every statute in which a similar problem might arise.

It is good for the country that the Supreme Court has seen its way to hold that under the law as it exists the courts are free to impose a fine on a company where an offence of the nature committed by it would have entailed imprisonment if the offender had been any `person' other than a company.

It is hoped that the apex court will not hesitate to have other issues on which there have been conflicts of views considered likewise by a larger Bench to facilitate uniformity in judgments and obviate avoidable litigation with its implications of costs, time and inconvenience.

It goes without saying that the courts are not concerned with any legislative action that may be initiated by the Government. But the Supreme Court will certainly be interested in minimising litigation and removing conflicts in judicial opinion which may generate litigation. The issues vexing the Income-tax Department are probably numerous. Three which immediately come to mind are a) the tenability of treaty shopping in the area of double taxation avoidance, b) the legitimacy of tax `planning' and `legal' avoidance of tax, and c) the use of double taxation avoidance agreements to avoid tax altogether in India as well as the treaty countries in regard to capital gains and levy of tax on income from properties in certain cases.

(By arrangement with Corporate Law Adviser, New Delhi.)

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