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Report No. 47

8.10. Points relating to Imports and Exports Act.-

A small point relating to the Imports and Exports Act may be noted at this stage here. The Act is not one of those listed above, but the point was raised during oral discussions. The Committee1 on Prevention of Corruption (Santhanam Committee) suggested the following amendments to section 5 of the Imports and Exports (Control) Act, 1947:

(a) To make the offenders liable to the Punished with imprisonment for a term which may extend to two years and also with fine, with a further provision that the imprisonment shall in no case be for a period of less than six months, unless the court decides, for special and adequate reasons to be recorded in the judgment, to impose a shorter term of imprisonment; and

(b) To make a separate provision making principal office-bearers also liable for offence committed by the company or partnership concern or any other incorporated body or association and to provide that the burden of proving the innocence shall be on them.

1. Report of the Santhanam Committee, (1963). p. 65, para. 7.25.

8.11. Action has already been taken on the first recommendation.

8.12. Clause recommended.-

As regards the second recommendation, the necessary Amendment has not been enacted. Presumably, it must have been felt at that time that the amendment may cause hardship, since the day to day handling of imported goods is not necessarily looked after by the principal officer. We, however, think that it is necessary to have a fresh look at the matter. Though the absence of such a provision may not lead to any great practical difficulty, because the director or other principal officer would still be liable for abetrnent1, we are of the view that to impress upon the directors2 the importance of complying with the relevant Acts, a provision is needed and we recommend an amendment accordingly.

1. Abdul Aziz v. State of Maharashtra, AIR 1963 SC 1470: (1964) 1 SCR 830.

2. Amendment to be drafted.

8.13. Application for license signed by Chairman or Managing Director-Liability of those officers.-

We are further of the view that in the case of offences under some of the Acts, namely the Foreign Exchange Regulation Act, the Imports and Exports Control Act and the Drugs and Cosmetics Act1 where a licence or permission is granted to a corporation as a result of an application in writing made on behalf of the corporation, it is desirable that the Chairman or Managing Director of the corporation should undertake criminal liability for offences connected with the transaction to which the license or permission, relates. Such a provision might appear to be unusual. But we think that it is necessary in order to prevent contraventions of the regulatory provisions of the Acts under which such licence or permission is granted.

1. The Imports etc. Act and the Drugs etc. Act are not included in the general ambit of this Report. But this point is discussed as being of special importance.

8.14. This could be achieved by, inserting two conclusive presumptions. Under the first, it shall be presumed that the offence was committed with the consent or connivance of the Chairman or Managing Director, if he has signed the application for licence or permission. Under the second presumption, even where the Chairman or Managing Director has not signed the application, he should be deemed to have signed it. This becomes necessary to cover cases where the application is signed by a lower officer of the corporation.

8.15. We do not think that such presumptions would go beyond the permissible limits under Article 19(1)(g) of the Constitution, with respect to the right of a person to carry on a business etc. The presumptions, though conclusive, would we venture to suggest, be regarded as reasonable restrictions in the interest of the general public within Article 19(6) of the Constitution. Our attention was drawn, in this connection, to a judgment of the Supreme Court, relating to a provision of the Gold Control Act.

Section 88 of the Gold Control Act was challenged1 in that case. Section 88 read thus (at that time):

"(1) A dealer or refiner who knows or has reason to believe that any provision of this Act or any rule or order made thereunder has been or is being contravened, by any person employed by him in the course of such employment, shall be deemed to have abetted an offence against this Act.

(2) Whoever abets, or is deemed under sub-section (1) to have abetted, an offence against this Act, shall be punished with imprisonment for a term which may extend to three years and shall also be liable to fine."

1. Harak Chand v. Union of India, AIR 1970 SC 1453 (1466), para. 21 (Ramaswami, J.).

8.16. The Supreme Court observed:-

"This section extends the scope of the vicarious liability of the dealer and makes him responsible for the contravention of any provision of the Act or rule or order by any person employed by him in the course of such employment. The rational basis in law for the imposition of vicarious liability is that the person made responsible may prevent commission of the crime and may help to bring the actual offender to book. In one sense the dealer is punished for the sins committed by his employee. It may perhaps be said if the dealer had been more alert to see that the law was observed the sin might not have been committed.

But the section goes further and makes the dealer liable for any past contravention perpetrated by the employees. It is evident that the dealer cannot reasonably be made liable for any past misconduct of his employee in the course of the employment and whom he can reasonably be expected to influence or control. The maxim qui facit per alium facit per se (he who acts through another acts though himself) is not generally applicable in criminal law. But in section 88 it has been extended beyond reasonable limits. We are, therefore, of opinion that section 88 imposes an unreasonable restriction on the fundamental right of the petitioners and is unconstitutional."

8.17. In our opinion, the provision which we are proposing is distinguishable, inasmuch as the Chairman or Managing Director is not to be responsible for the past misconduct of any other person.

8.18. Accordingly, we recommend that in the section relating to liability of individual officers of corporation in the Foreign Exchange Act and in the Drugs Act,1 two Explanations2 should be inserted, as follows:-

Explanations to be inserted in the Foreign Exchange Act and the Drugs Cosmetics Act, 1946 in the section relating to liability of officers of corporation.

Explanation 2.-Where a person, being the Chairman or Managing Director of a company has, on behalf of the company, signed an application for licence3 under this Act, any contravention of the conditions of that licence shall, so long as such person holds an office in the company, be conclusively presumed to have been committed with his consent or connivance.

Explanation 3.-Where an application for licence under this Act is signed by an officer of a company other than the Chairman or Managing Director, it shall, for the purposes of this section, be deemed to have been signed also by the Chairman and the Managing Director of the Company.

1. The Drugs and Cosmietics Act, 1940.

2. In the Imports Act, similar Explanations will, as recommended in para. 8.13,, be inserted while adding the new clause under para. 8.12.

3. In the Case of the Foreign Exchange Act, the word "permission" would be appropriate instead of "licence".

8.19. There is one point in connection with the Directors of Companies, on which a provision is required to be inserted. Punishment of Directors under the usual provision making them individually liable results in their imprisonment or fine under that provision. But, in addition, it should be permissible for the Court to order that the person convicted shall be disqualified from holding office as Director of the company, for a specified period.

A suggestion to that effect was made during our oral discussions, and we accept the suggestion. The point was made with reference to the Foreign Exchange Act and the Imports and Exports Control Act, but we think that the amendment could usefully extend to all the major Acts with which this Report is concerned, besides the Imports and Exports Control Act.

8.20. The Companies Act has a variety of provisions dealing with the disqualification imposed on person from holding office as a Director, on his being convicted by court of an offence1. Further, under an amendment inserted in 1963, the Central Government has power to make a reference to the High Court of cases against managerial personnel in certain circumstances; and one of the circumstances in which this power can be exercised is the fact that the business of the company is conducted and managed for a "fraudulent or unlawful purpose or in a manner prejudicial to public interest"2. It should be noted that the provisions as to disqualification fall broadly in three categories; first, conviction of an offence in connection with the promotion, formation or management of the company3; secondly, conviction of an offence involving moral turpitude4; and thirdly, carrying on the business of the company for an unlawful purpose5.

1. Sections 203(1)(a), 267(c), 274(1)(d) & (f), 283(1)(e), 336(c) and 385(1)(c) of the Companies Act, 1956.

2. Section 388B(1)(d), Companies Act.

3. Section 203(1)(a), Companies Act.

4. Section 267(c), Companies Act.

5. Section 388B(1)(d), Companies Act.

8.21. It appears to us that for the present purpose, the most appropriate provision is the one1 under which, where a person is convicted of any offence in connection with the promotion, formation or management of a company, 'the court' may make an order that that person shall not, without the leave of the court, be a director or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for such period not exceeding five years as may be specified in the order. By definition2, the expression 'the court' includes the convicting court, as well as any court having jurisdiction to wind up the company as respects which the offence was committed.

So far as the leave referred to in the section is concerned, it is provided3 that the expression 'court' means any court having jurisdiction to wind up the company as respects which leave is sought. There are separate provisions4 as to the vacation of office held by the convicted person. In order that all these detailed provisions could be availed of without repeating them, it would be convenient if the case of a person convicted of an offence under the various enactments5 with which this report is concerned, is included in the main provisions in the Companies Act (which at present relates to conviction of an offence in connection with the promotion, formation or management of a company).

1. Section 203(1)(a), Companies Act.

2. Section 203(2), Companies Act.

3. Section 203(2)(b), Companies Act.

4. Section 274(1)(b) and sections 283(1)(j), Companies Act.

5. The Imports Act has also to be added.

6. Section 203(1)(a), Companies Act.

8.22. We, therefore, recommend that section 203(1)(a) of the Companies Act should be amended by inserting, at the end of clause (a) the following:-

"or of any offence under the following Acts punishable with imprisonment for more than three years, namely,-

[The 8 major Acts and the Imports and Exports Control Act could be mentioned here.]"

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