LAW FOR ALL : Whether a transferee entity-a successor bank (DBS Bank) can be fastened with corporate criminal liability for the offences which the amalgamating entity-the erstwhile Laxmi Vilas Bank (LVB) is accused of.

Wednesday, February 14, 2024

Whether a transferee entity-a successor bank (DBS Bank) can be fastened with corporate criminal liability for the offences which the amalgamating entity-the erstwhile Laxmi Vilas Bank (LVB) is accused of.

[2023] 12 S.C.R. 197 : 2023 INSC 819

RELIGARE FINVEST LIMITED

STATE OF NCT OF DELHI & ANR.

(Criminal Appeal No(s). 2242 of 2023)

SEPTEMBER 11, 2023

[S. RAVINDRA BHAT* AND ARAVIND KUMAR, JJ.]

Issue for consideration: Whether a transferee entity-a successor

bank (DBS Bank) can be fastened with corporate criminal liability

for the offences which the amalgamating entity-the erstwhile Laxmi

Vilas Bank (LVB) is accused of.

Criminal Law – Corporate criminal liability – When cannot be

fastened on a transferee entity:

Held: Criminal liability of a company cannot be transferred ipso

facto, except when it is in the nature of penalty proceeding – Only

defined legal proceedings are succeeded to by the transferee

company, which is the DBS Bank in the instant case – Further,

every scheme of amalgamation is statutory and sanctioned under

the Banking Act – Such amalgamation aims at securing larger public

interest and health of the banking industry – Overall objective of

the scheme is to ensure recovery of what are the bank’s dues and

ensuring protection of the creditors – In the present case, Clause

3 (3) of the amalgamation scheme no doubt, mentions that legal

proceedings would be continued by or against the transferee bankDBS Bank however, when viewed in the backdrop as aforesaid,

the express mention of directors and such other individuals in

the proviso to Clause 3 (3) means that it is to that extent only

that prosecutions or other criminal proceedings can continue; in

the ordinary sense, criminal liability can neither be attributed to

DBS nor its directors, brought in after the amalgamation, whose

appointments were approved by the RBI– Criminal liability of the

individuals now attributed to DBS are actions of those who were

officials of LVB – Their individual responsibility and accountability

in criminal law remains unaffected by the amalgamation – No

involvement of DBS Bank revealed in the charge sheet – Pending

criminal proceedings to the extent it involved DBS, which was

the subject mat-ter of the impugned judgment and all consequent

* Author

198 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

proceedings arising therefrom (to the extent involving DBS),

quashed – Impugned judgment set aside – Banking Regulation

Act, 1949 – s.45(2) – Penal Code, 1860 – ss.409, 120B. [Paras

30-32, 34 and 35]

Criminal Law – Criminal liability of a company:

Held: Criminal liability of a company is recognized where it can be

attributable to individual acts of employees, directors or officials

of a company or juristic persons – It is recognized even if its

conviction results in a term of imprisonment – Further, the legal

effect of amalgamation of two companies is the destruction of the

corporate existence of the transferor company (LVB, in the present

case); it ceases to exist. [Para 30]

Criminal Law – Quashing – Exercise of power:

Held: Power to quash a criminal investigation or proceedings should

not be lightly exercised – Yet, to refuse recourse to that power, in

cases that require or may demand it, is being blind to justice – In

the present case, the public’s confidence in the banking industry

was at stake, when RBI stepped in, imposed the moratorium and

asked DBS to take over the entire functioning, management assets

and liabilities of the erstwhile LVB – To permit prosecution of DBS

for the acts of LVB officials (facing criminal charges) would result

in travesty of justice. [Para 35]

Criminal Law – Liability of corporate entities – Divergence of

opinion amongst certain High Courts – Discussed.

McLeod Russel India Limited v. Regional Provident

Fund Commissioner, Jalpaiguri & Ors., [2014] 9 SCR

162; Iridium India Telecom v. Motorola Inc., (2010) 14

(Addl.) SCR 591; M/s. General Radio & Appliances Co.

Ltd. v. M.A. Khader (dead) by LR’s, [1986] 2 SCR 607;

Saraswati Industrial Syndicate Ltd. v. CIT, Haryana, H.P.

& Delhi, [1990] 1 Supp SCR 332 – relied on.

Sham Sunder & Others v. State of Haryana, (1984) 4

SCC 630 : [1989] 3 SCR 886; M. Abbas Haji v. T.N.

Channakeshava, (2019) 9 SCC 606; Standard Chartered

Bank v. Directorate of Enforcement, [2005] 1 Suppl. )

SCR 49 – referred to.

[2023] 12 S.C.R. 199

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

Champa Agency v. R. Chowdhury, 1974 CHN 400;

Sunil Banerjee v. Krishna Nath, AIR 1949 Cal 689; AK

Khosla v. Venkatesan, (1992) 98 CrLJ 1448 (Cal); Esso

Standard Inc. v. Udharam Bhagwandas Japanwalla,

[1975] 45 Comp Cas 16 (Bom); Tesco Supermarkets

Ltd. v. Nattrass, 1971 (2) All ER 127; Meridian Global

Funds Management Asia Ltd v. Securities Commission,

[1995] 3 All ER 918; Walker’s Settlement 1935 (1)

Ch. D. 567; In Re: Skinner 1958 (3) All E.R 273 –

referred to.

Stroud’s Judicial Dictionary of Words and Phrases

(9th edition). 25 Black’s Law Dictionary, Eleventh

Edition – referred to.

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 2242

of 2023.

From the Judgment and Order dated 24.03.2023 of the High Court

of Delhi at New Delhi in CRLMC No. 3173 of 2021.

With

Criminal Appeal No. 2243 of 2023

Mukul Rohatgi, Jayant Bhushan, Jana Kalyan Das, Rana Mukherjee,

Sr. Advs., Amit Jajoo, Ms. Sushmita Gandhi, Malak Manish Bhatt,

Ms. Neeha Nagpal, Ms. Vatsala Pant, Ms. Samridhi, Sandeep

Devashish Das, Shreekant Neelappa Terdal, Ms. R. Bala, Sachin

Sharma, Bhawarpal Singh Jadon, Dr. N. Visakamurthy, Advs. for

the appearing parties.

The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. These appeals1

arise from a final order2

of the Delhi High Court

rejecting a petition for quashing criminal proceedings, filed by the DBS

Bank India Limited (second respondent in the first appeal /appellant

in second the appeal) (hereafter “DBS”). In the two appeals, Religare

Finvest Limited (hereafter “complainant” or “RFL”) and DBS have

1 Crl. A. No. 2242 / 2023 & Crl.A. No. 2243 / 2023.

2 Dated 24.3.2023 in Crl. M. C. No. 3173 of 2021.

200 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

challenged the impugned order. To be more specific, they are also

impleaded as second respondents in each other’s appeal.

2. RFL filed a commercial suit3

seeking to recover ₹791 Crores from (the

erstwhile) Laxmi Vilas Bank (hereafter “LVB”). The claim was based

on the allegations that LVB misappropriated Fixed Deposits (“FDs”)

furnished as security by RFL and its group companies, namely RHC

Holding Pvt. Ltd. (hereafter “RHC Holding”) and Ranchem Pvt. Ltd.

(hereafter “Ranchem”), to secure short-term loans.

3. Subsequently, on 23.9.2019, RFL lodged a criminal complaint

asserting that officials of LVB had conspired with RHC Holding

and Ranchem. This led to the registration of FIR4

by the Economic

Offences Wing under Sections 409 and 120B of the Indian Penal

Code, 1860 (IPC) (registered as Crime No. 1534/2020). The contents

of the FIR alleged that RFL had placed four FDs with a combined

value of ₹750 Crores as security for short-term loans. LVB extended

loans to RHC Holding and Ranchem, utilizing these FDs as security.

When RHC Holding and Ranchem defaulted on their loan payments,

LVB debited an amount of ₹723.71 crores from RFL’s current account

without obtaining proper authorization or prior notice.

4. Meanwhile, due to high net levels of Non-Performing Assets,

inadequate Capital to Risk (Weighted) Average Ratio and Common

Equity Tier-I Capital, two years of negative Return on Assets, and

high leverage, the Reserve Bank of India (hereafter “RBI”) placed

LVB under “Prompt Corrective Action”5

5. A chargesheet was filed against ten bank officials of LVB; however,

LVB itself was not implicated as an accused. The Chief Metropolitan

Magistrate took cognizance of these offenses on September 17, 2020.6

3 (Comm.) No. 940/2018.

4 FIR No. 189/2019.

5 Prompt Corrective Action (PCA) Framework is to enable Supervisory intervention at appropriate time

and require the Supervised Entity to initiate and implement remedial measures in a timely manner, so as to

restore its financial health. The PCA Framework is also intended to act as a tool for effective market discipline. The PCA Framework does not preclude the Reserve Bank of India from taking any other action as it

deems fit at any time in addition to the corrective actions prescribed in the Framework.

6 Crime Case No. 1534/2020, titled State vs. Malvinder Mohan Singh.

[2023] 12 S.C.R. 201

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

6. On November 17, 2020, RBI imposed a moratorium7

on LVB in terms

of Section 45(2) of the Banking Regulation Act, 1949 [hereafter

“the Banking Act”]. On November 25, 2020, due to LVB’s unstable

financial condition, the Central Government directed its non-voluntary

amalgamation to DBS8

7. On February 12, 2021, a supplementary chargesheet or final report

was filed, to implead LVB, represented through its director, (now

DBS Bank India Limited after amalgamation), as an accused9

along

with bank officials and the companies RHC Holding and Ranchem.

It was alleged that LVB and other accused parties conspired to

siphon off funds that were lent, and belonged to RFL. LVB stood

to make substantial profits from this lending, as it obtained the

FDs at a 4.5% interest rate and then ostensibly lent the money at

a rate of 10% p.a. Investigation revealed that LVB’s actions were

based on the premise that RFL, RHC Holding, and Ranchem were

group companies under the same promoters. LVB created security

against FDs of RFL. However, proper authorization from RFL was

not secured for this arrangement. The loans advanced by LVB to

RHC Holding and Ranchem against FDs of RFL were ultimately

utilized by RHC Holding. Consequently, when RHC Holding failed

to repay the loans to LVB, the FDs of RFL were adjusted by LVB

against the outstanding loan amounts. As a result, it was observed

that the actual beneficiaries of RFL’s funds, amounting to ₹729.13

Crores, was the RHC Holding. In absence of sufficient documentation

supporting explicit authorization from RFL led to the allegation that

LVB facilitated the diversion of funds for the promoter’s personal gain.

8. In this way, LVB revoked the FDs worth ₹729 Crores and also

benefited by earning ₹115 crores, in interest. It was alleged that the

parties involved acted in connivance with each other and committed

acts of commission and omission in furtherance of the conspiracy

to cheat the complainant company.

7 Moratorium order dated 17.11.2020.

8 under section 45(7) of the Banking Regulation Act, 1949.

9 in Crime No. 1534/2020.

202 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

9. Summons were issued to DBS (identified as accused No. 12) on

16.2.2021. Aggrieved, DBS filed a Criminal Miscellaneous Case10

before the Delhi High Court, seeking to quash the supplementary

chargesheet dated 12.2.2021 and summoning order dated

16.2.202111, contending inter alia that LVB had ceased to exist due

to the non-voluntary amalgamation scheme and that DBS should

not face prosecution for the acts and omissions of the entity which

it merged with, as directed by the Government of India and the RBI.

Additionally, Clause 3(3) of the Amalgamation scheme provides for

the institution of criminal proceedings against officials of LVB and

therefore, liability should not be attributed to the rescuer bank.

10. The High Court, by its impugned order, observed that quashing the

summoning order against the DBS at this stage may hamper the

purpose of the scheme since there was no explicit provision for

abatement of criminal proceedings against the DBS bank in the

scheme sanctioned by the RBI. The court directed the involved

parties to seek clarification regarding the interpretation of Clause

3(3) of the scheme in respect of criminal proceedings constituted

against transferor bank if be carried forward to transferee bank or

not after the amalgamation from RBI. Additionally, the court stayed

the summoning order issued on February 16, 2021, against DBS

Bank till clarification was issued by RBI. DBS appeals to this court,

aggrieved by the refusal to quash criminal proceedings by the

impugned order; RFL’s appeal is limited to the point that the court

ought not to have deferred the issue, for consideration by RBI and

should have dismissed the request for quashing, simpliciter and

ought not to have indefinitely stayed the summoning order.

Contentions of RFL

11. Mr. Rana Mukherjee, learned senior counsel for RFL, contends that

the High Court ought not to have indefinitely stayed the summoning

order, especially when it observed that quashing the summoning order

against DBS would not be in public interest. This is more significant

10 Crl. M. C. No. 3173/2021.

11 Arising out FIR No. 189/2019.

[2023] 12 S.C.R. 203

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

because the High Court denied such interim measure in its previous

order dated 17.12.2021.

12. It was argued that the direction to approach RBI for clarification is

beyond the scope of the original petition as DBS did not assert or

seek relief in its quashing petition for the parties to approach the RBI

for clarification. This direction essentially imposes a new obligation

on the parties involved. If the High Court deemed it necessary to

seek RBI’s view, it should have ideally impleaded RBI as a necessary

party. Nevertheless, the RBI cannot sit in appeal over the findings

of the High Court. Additionally, the High Court failed to take into

account its own findings regarding interpretation of Clause 3(3) of

the amalgamation scheme, that is –

“15. Now, if one peruse sub clause 3 of Clause 3 of Scheme of

Merger, it may appear there is no impediment to prosecute the

petitioner company as the proviso of the said Scheme specifically

says any cause of action or any other proceedings of whatsoever

nature, against the transferee bank, the same shall not abate but

shall be prosecuted by or against the transferee bank. The proviso

to sub clause 3 appears to be only qua Director, Secretary, Manager,

officer or other employee of the transferee bank who has actually

committed criminal offence.”

13. RFL argued that criminal proceedings do not automatically abate

upon the amalgamation of a company. LVB gained from the illegal

transaction, and DBS is benefited from the assets of LVB, which

included misappropriated funds obtained from RFL’s fixed deposits.

Moreover, Clause 3(3) of the scheme incorporates the notion of

criminal accountability, and there is no such bar on transferring

criminal liability onto the transferee bank. The High Court’s decision

essentially denies the petitioner the chance to pursue the case on

merits, and instead, it necessitates involving an external body to

interpret the amalgamation scheme. Lastly, as the trial is in its early

stages, an indefinite stay will further delay the trial process.

Contentions of DBS

14. Mr. Mukul Rohatgi and Mr. Jayant Bhushan, learned senior counsel,

argued that the acts outlined in the chargesheet occurred well

204 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

before the appointed date of the amalgamation, i.e., 27.11.2020.

LVB was not implicated as an accused prior to the appointed date

and was only added in the supplementary chargesheet. Before the

amalgamation, LVB had no ties to DBS. LVB existed as a distinct

and separate entity without being part of the same group or affiliate

of or in any manner associated with DBS in any capacity. It ceased

to exist in terms of Clause 7(2) of the scheme of amalgamation.

15. It was submitted that it is well settled principle that only the actual

wrongdoer can only be punished for its wrongdoing, and no vicarious

criminal liability can be inherited by a transferee company. Reliance was

placed on Sham Sunder & Others v. State of Haryana12 and McLeod

Russel India Limited v. Regional Provident Fund Commissioner,

Jalpaiguri & Ors.13 It was further submitted that the High Court has

wrongly ignored/rejected a binding judgment passed by a coordinate

bench of the same High Court in Nicholas Piramal India Limited v. S.

Sundaranayagam14 passed in similar circumstances, wherein it was

held that no vicarious criminal liability was being passed on to the

transferee company in an amalgamation where the relevant Clause

of the scheme was more or less identical by observing:

“The legal position which emerges from afore-noted judicial decisions

is that upon an amalgamation between two companies, the transferor

company dies a civil death and the entity which has evolved upon

amalgamation cannot be prosecuted for an offence committed by

the transferor company. […] So far as clause 8 relied upon by the

counsel for the State is concerned, same relates to transfer of legal

proceedings. The clause does not contemplate that criminal liability

for offence committed by the earlier company would be transferable

to the petitioner company.”

16. It was submitted that after the amalgamation, particularly, a nonvoluntary scheme of amalgamation necessitated to safeguard the

public interests, LVB ceased to exist and criminal proceedings

12 (1989) 4 SCC 630.

13 2014 (9) SCR 162.

14 Rendered on August 23, 2007, in Cri. M.C. No. 5392 of 2005.

[2023] 12 S.C.R. 205

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

against LVB shall abate. The transfer pertained to civil liability, with

no provision concerning the continuation of criminal proceedings for

the transferee company. Moreover, it was submitted that criminal

proceedings cannot be transferred through a contract or statute, let

alone by a scheme. Similarly, it placed reliance on M. Abbas Haji v.

T. N. Channakeshava15 to submit that even in the case of a natural

person where upon the demise of an accused person, criminal

proceedings do not pass on to legal heirs or successors.

17. It was further submitted that the High Court was wrong to rely on

foreign cases to observe that a transferee company can entail

criminal liability as those judgments were rendered by considering

legal interpretations distinct from those in India.

18. It was submitted that while one arm of the Government, namely

the RBI and the Central Government, took proactive measures by

formulating the Scheme under Section 45(7) of the Banking Act to

safeguard the interests of LVB’s depositors, employees, and others,

another arm of the Government, represented by Respondent No. 1,

cannot vitiate the process by imposing criminal liability against DBS

for the past actions of LVB.

19. Furthermore, DBS highlighted that RFL itself argued before the High

Court that an interpretation from the RBI was necessary and that the

Court should not make a determination on this matter. RFL presented

in its Reply dated 09.01.2022 before the High Court, the following:

“21. Without prejudice to the submissions made herein, as per the

Clause 13 of the Scheme of amalgamation, if any doubt arises in

the interpretation of the provisions of the scheme, in that case the

matter is to be raised and referred to the RBI.”

Therefore, through the current appeal, RFL is blowing hot and cold by

contesting the impugned order, asserting that such clarification wasn’t

needed and the stay of the summoning order is wrong.

20. Lastly, it was submitted that subsequent to the Impugned Order,

RBI through its letter dated 14.06.2023, provided clarification that

15 (2019) 9 SCC 606.

206 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

criminal proceedings against the officials of the transferor bank do

not get carried forward to the transferee.

Analysis

21. Before discussing and dealing with the rival submissions, it would

be useful to extract provisions of the scheme of amalgamation

published by the RBI. Clause 3(3) of the amalgamation notification

reads as follows:

“3. Transfer of assets and liabilities and general effect thereof. -

(1)-(2) xxxxxxx

(3) If on the appointed date, any cause of action, suit, decrees,

recovery certificates, appeals or other proceedings of whatever nature

is pending by or against the transferor bank before any court or

tribunal or any other authority (including for the avoidance of doubt,

an arbitral tribunal), the same shall not abate, be discontinued or

be ill any way prejudicially affected, but shall, subject to the other

provisions of this Scheme, be prosecuted and enforced by or against

the transferee bank:

Provided that where a contravention of any of the provision of any

statute or of any rule, regulation, direction or order made thereunder

has been committed by or any proceeding for a criminal offence has

been instituted against, a director or secretary, manager, officer or

other employee of the transferor bank before the appointed date,

such director, secretary, manager, officer or other employee shall,

without prejudice to the application of section 6 of the General

Clauses Act, 1897 (10 of 1897), be liable to be proceeded against

under such law and punished accordingly, as if the transferor bank,

being a banking company had not been dissolved.”

Section 45(5)(e) of the Banking Act reads as follows:

“45. Power of Reserve Bank to apply to Central Government for

suspension of business by a banking company and to prepare

scheme of reconstruction or amalgamation. —

(1) Notwithstanding anything contained in the foregoing provisions of

this Part or in any other law or [any agreement or other instrument],

[2023] 12 S.C.R. 207

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

for the time being in force, where it appears to the Reserve Bank

that there is good reason so to do, the Reserve Bank may apply to

the Central Government for an order of moratorium in respect of [a

banking company].

(2) to (4) xxx

(5) The scheme aforesaid may contain provisions for all or any of

the following matters, namely:—

(e) subject to the provisions of the scheme, the continuation by or

against the banking company on its reconstruction or, as the case

may be, the transferee bank, of any actions or proceedings pending

against the banking company immediately before the [reconstruction

or amalgamation]”

Clause 13 of the Amalgamation scheme in the present case, i.e.,

relating to interpretation by RBI in the case of disputes, is as follows:

“13. Interpretation of provisions of this Scheme. – If any doubt

arises in the interpretation of the provisions of this Scheme, the

matter shall be referred to the Reserve Bank and its views on the

issue shall be final and binding on all concerned.”

22. As is apparent from the factual narrative and the above discussion,

the issue which this court is concerned with, is whether a transferee

entity (here, a successor bank) can be fastened with corporate

criminal liability for the offences which the amalgamating entity- the

erstwhile LVB is accused of.

23. There was some divergence of opinion amongst certain High Court

about the liability of corporate entities. The Calcutta High Court’s view

was that that only natural persons, could be ascribed with intention

or “mens rea”. Resultantly, a juristic person such as a company

could not be ascribed with criminal intent [Ref Champa Agency v.

R. Chowdhury16, Sunil Banerjee v. Krishna Nath17, and AK Khosla

v. Venkatesan18 ]. The Bombay High Court, differed, and had taken

16 1974 CHN 400.

17 AIR 1949 Cal 689.

18 1992 (98) CrLJ 1448 (Cal).

208 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

note of developments in the United Kingdom. In Esso Standard Inc.

v. Udharam Bhagwandas Japanwalla19 arguments were advanced

before the court on whether a company can have mens rea, and

on how the process of attribution would, in fact, operate, with the

precise question being whose mens rea would be attributed to the

company. The High Court accepted that a strict test of mens rea was

required to locate or ascribe criminal responsibility of a company,

on the concerned decision maker. The Court adopted this line of

reasoning, approving Lord Diplock’s opinion in Tesco Supermarkets

Ltd. v. Nattrass20, including the following relevant observations:

“In my view, therefore, the question: what natural persons are to be

treated in law as being the company for the purpose of acts done

in the course of its business, including the taking of precautions and

the exercise of due diligence to avoid the commission of a criminal

offence, is to be found by identifying those natural persons who by

the memorandum and articles of association or as a result of action

taken by the directors, or by the company in general meeting pursuant

to the articles, are entrusted with the exercise of the powers of the

company.”

In Meridian Global Funds Management Asia Ltd v Securities Commission21,

a more nuanced approach was adopted:

“These primary rules of attribution are obviously not enough to enable

a company to go out into the world and do business. Not every act

on behalf of the company could be expected to be the subject of a

resolution of the board or a unanimous decision of the shareholders.

The company therefore builds upon the primary rules of attribution

by using general rules of attribution which are equally available to

natural persons, namely, the principles of agency. It will appoint

servants and agents whose acts, by a combination of the general

principles of agency and the company’s primary rules of attribution,

count as the acts of the company. And having done so, it will also

19 [1975] 45 Comp Cas 16 (Bom).

20 1971 (2) All ER 127.

21 [1995] 3 All ER 918.

[2023] 12 S.C.R. 209

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

make itself subject to the general rules by which liability for the acts

of others can be attributed to natural persons, such as estoppel or

ostensible authority in contract and vicarious liability or tort.

It is worth pausing at this stage to make what may seem an obvious

point. Any statement about what a company has or has not done,

or can or cannot do, is necessarily a reference to the rules of

attribution (primary and general) as they apply to that company.

Judges sometimes say that a company ‘as such’ cannot do anything;

it must act by servants or agents. This may seem an unexceptionable,

even banal remark. And of course the meaning is usually perfectly

clear. But a reference to a company ‘as such’ might suggest that

there is something out there called the company of which one can

meaningfully say that it can or cannot do something. There is in fact

no such thing as the company as such, no ding an such, only the

applicable rules. To say that a company cannot do something means

only that there is no one whose doing of that act would, under the

applicable rules of attribution, count as an act of the company.

The company’s primary rules of attribution together with the general

principles of agency, vicarious liability and so forth are usually

sufficient to enable one to determine its rights and obligations. In

exceptional cases, however, they will not provide an answer. This will

be the case when a rule of law, either expressly or by implication,

excludes attribution on the basis of the general principles of agency

or vicarious liability. For example, a rule may be stated in language

primarily applicable to a natural person and require some act or state

of mind on the part of that person ‘himself’ as opposed to his servants

or agents. This is generally true of rules of the criminal law, which

ordinarily impose liability only for the actus reus and mens rea of the

defendant himself. How is such a rule to be applied to a company?

One possibility is that the court may come to the conclusion that the

rule was not intended to apply to companies at all; for example, a law

which created an offence for which the only penalty was community

service. Another possibility is that the court might interpret the law

as meaning that it could apply to a company only on the basis of its

primary rules of attribution, i.e. if the act giving rise to liability was

210 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

specifically authorised by a resolution of the board or an unanimous

agreement of the shareholders. But there will be many cases in which

neither of these solutions is satisfactory; in which the court considers

that the law was intended to apply to companies and that, although

it excludes ordinary vicarious liability, insistence on the primary rules

of attribution would in practice defeat that intention. In such a case,

the court must fashion a special rule of attribution for the particular

substantive rule. This is always a matter of interpretation: given

that it was intended to apply to a company, how was it intended

to apply? Whose act (or knowledge, or state of mind) was for this

purpose intended to count as the act etc. of the company? One

finds the answer to this question by applying the usual canons of

interpretation, taking into account the language of the rule (if it is a

statute) and its content and policy.’

Lord Hoffmann, in his opinion stated that:

“. . their Lordships would wish to guard themselves against being

understood to mean that whenever a servant of a company has

authority to do an act on its behalf, knowledge of that act will for all

purposes be attributed to the company. It is a question of construction

in each case as to whether the particular rule requires that the

knowledge that an act has been done, or the state of mind with

which it was done, should be attributed to the company. Sometimes,

as in In re Supply of Ready Mixed Concrete (No. 2) [1995] 1 A.C.

456 and this case, it will be appropriate . . .. On the other hand,

the fact that a company’s employee is authorised to drive a lorry

does not in itself lead to the conclusion that if he kills someone by

reckless driving, the company will be guilty of manslaughter. There

is no inconsistency. Each is an example of an attribution rule for a

particular purpose, tailored as it always must be to the terms and

policies of the substantive rule.”

24. This court, considered the issue in Iridium India Telecom v Motorola

Inc22 and held, inter alia, that:

22 [2010) 14 (ADDL.) SCR 591.

[2023] 12 S.C.R. 211

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

“38. From the above it becomes evident that a corporation is virtually in

the same position as any individual and may be convicted of common

law as well as statutory offences including those requiring mens rea.

The criminal liability of a corporation would arise when an offence is

committed in relation to the business of the corporation by a person

or body of persons in control of its affairs. In such circumstances, it

would be necessary to ascertain that the degree and control of the

person or body of persons is so intense that a corporation may be

said to think and act through the person or the body of persons.”

Earlier, in the Constitution Bench ruling in Standard Chartered Bank v

Directorate of Enforcement23, the court referred to Section 11 of the IPC,

which defined “person”. “The word “person” includes any Company or

Association or body of persons, whether incorporated or not”; the court

also referred to the 41st and 47th Law Commission reports. The Law

Commission had stated that

“In every case in which the offence is only punishable with

imprisonment or with imprisonment and fine and the offender is a

company or other body corporate or an association of individuals, it

shall be competent to the court to sentence such offender to fine only.”

The judges- in the majority held that all penal statutes are to be strictly

construed, in the sense that the court must see that the thing charged

as an offence is within the plain meaning of the words used and must

not strain the words. Any act falling within the mischief that is addressed

should be intended to be included and has to included if thought of. Further,

all penal provisions, like all other statutes, need to be fairly construed in

terms of expressed legislative intent. The intent to prosecute corporate

bodies for the offences committed by them was clear and explicit, and

the statute did not intend to exonerate them from prosecution. The court,

therefore, held that it would be violence to commonsense that the legislature

intended to punish the corporate bodies for minor and silly offences while

at the same time, extended immunity of prosecution to major and grave

economic crimes.

23 2005 [Supp] (1) SCR 49.

212 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

25. According to Stroud24, “amalgamation” is “welding or blending of

two or more concerns into one.” It also states that “where there

the companies concerned retain separate entities, [] there is no

amalgamation”. Black25 defines amalgamation as the “act of combining

or uniting; consolidation < amalgamation of two small companies

to form a new corporation >…” The Companies Act, 2013 does not

contain any express definition of amalgamation; it rather outlines

and regulates the procedure for amalgamation and spells out its

legal effect, which results in extinguishment of the corporate identity

of the transferor company26 [read, in this case, LVB]. In Walker’s

Settlement27, the term ‘amalgamation’ is defined as:

“The word ‘amalgamation’ has no definite legal meaning. It

contemplates a state of things under which 2 companies are so

joined as to form a third entity or one company is absorbed into and

blended with another company.”

In Re: Skinner28 too referred to amalgamation schemes and their effect

as follows:

“…schemes and orders made by virtue of Section 206 and Section

208 of the Companies Act 1948 can only transfer such rights, powers,

duties and property as are capable of being lawfully transferred by

a party to the scheme if no such sections of the Companies Act

existed. It is not necessary in a scheme to exclude specifically from

its operation things incapable of such transfer as general words in

the scheme and any order in furtherance must be taken to operate

in a manner not to repugnant to the general law of England.”

26. In M/s. General Radio & Appliances Co. Ltd. vs. M.A. Khader (dead) by

LR’s29, the effect of amalgamation of two companies was considered

24 Stroud’s Judicial Dictionary of Words and Phrases (9thedition).

25 Black’s Law Dictionary, Eleventh Edition.

26 Section 233 of the Companies Act, 2013 outlines the result of acceptance of a scheme of amalgamation:

“(8) The registration of the scheme under sub-section (3) or sub-section (7) shall be deemed to have the effect of

dissolution of the transferor company without process of winding-up.”

27 1935 (1) Ch. D. 567.

28 1958 (3) All E.R 273.

29 1986 (2) SCR 607.

[2023] 12 S.C.R. 213

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

by the Supreme Court. It was held that after the amalgamation of

two companies, the transferor company ceases to have any entity,

and the amalgamated company acquires a new status, and it is not

possible to treat the two companies as partners or jointly liable in

respect of their liabilities and assets.

27. In the context of income tax liability, this court, in Saraswati Industrial

Syndicate Ltd. vs. CIT, Haryana, H.P. & Delhi30, observed that:

“The true effect and character of the amalgamation largely depends

on the terms and scheme of merger but there cannot be any doubt

that when two companies amalgamate and merge into one the

transferor company loses its entity as it ceases to have its business.

However, their respective rights or liabilities are determined under the

scheme of amalgamation but the corporate entity of the transferor

company ceases to exist with effect from the date the amalgamation

is made effective.”

28. McLeod Russel India Limited v. Regional Provident Fund

Commissioner, Jalpaiguri & Ors31. was a case involving default in

paying provident fund dues under the Employees Provident Fund

Act, 1952 (“the EPF Act”). In this case, one Mathura Tea Estate

owned Saroda Tea Company Ltd., which was covered by the EPF

Act. During the pendency of recovery and penalty proceedings, the

entire management of Mathura Tea Estate (including ownership of

Saroda Tea Co. Ltd and the estate) was taken over by Eveready

Industries (India) Ltd., which discharged the principal EPF liability but

sought to disclaim penalty (for non-compliance in the requirement to

remit or deposit EPF contributions). This court negatived its position

by noticing that the takeover document clearly noted the liability and

how it was to be treated as McLeod Russel’s liability:

“13. There is no gainsaying that criminal liability remains steadfastly

fastened to the actual perpetrator and cannot be transferred by any

compact between persons or even by statute. But this incontrovertible

legal principle does not support or validate the contention of Mr. Jayant

30 1990 Supp (1) SCR 332.

31 2014 (9) SCR 162.

214 [2023] 12 S.C.R.

SUPREME COURT REPORT: DIGITAL

Bhushan, Learned Senior Advocate for the Appellants, that damages

levied in terms of Section 14B of the EPF Act cannot be foisted onto

his clients. Sections 14, 14A, 14AA, 14AB and 14AC of the EPF Act

are the provisions postulating prosecution; in contradistinction Section

14B contemplates the power to “recover from the employer by way

of penalty such damages, not exceeding the amount of arrears, as

may be specified in the Scheme”. It is true that it is not a river but

a mere rivulet that segregates and distinguishes the legal concepts

of damages or compensatory damages or exemplary damages or

deterrent damages or punitive damages or retributory damages.

We shall abjure from writing a dissertation on this compelling legal

nodus; save to clarify that modern jurisprudence recognizes that the

imposition of punitive damages, quintessentially quasi-criminal in

character, can be resorted to even in civil proceedings to deter wilful

wrongdoing by making an admonished example of the wrongdoer.

This is the essential purpose, it seems to us, of Section 14B of the

EPF Act, and an imposition within its confines does not assume

criminal prosecution so as to stand proscribed insofar as transfer

of establishment from one management/employer to its successor

is concerned.”

29. In Shyam Sundar v State of Haryana (supra), the liability of a

partnership firm, based on the agency of every partner for the

individual criminal acts of its partners, was negatived:

“9. But we are concerned with a criminal liability under penal provision

and not a civil liability. The penal provision must be strictly construed

in the first place. Secondly, there is no vicarious liability in criminal

law unless the statute takes that also within its fold. Section 10 does

not provide for such liability. It does not make all the partners liable

for the offence whether they do business or not.”

30. It is, therefore, noticeable that the criminal liability of a company

(a) is recognized where it can be attributable to individual acts

of employees, directors or officials of a company or juristic

persons (Tesco, Meridian Global Funds, Standard Chartered

Bank, and Iridium)

[2023] 12 S.C.R. 215

RELIGARE FINVEST LIMITED v. STATE OF NCT OF DELHI & ANR.

(b) recognized even if its conviction results in a term of imprisonment

(Meridian, Iridium);

of penalty proceeding (McLeod Russel)

(d) the legal effect of amalgamation of two companies is the

destruction of the corporate existence of the transferor company

(in this case, LVB); it ceases to exist.

(e) that apart, only defined legal proceedings, are succeeded to by

the transferee company, which, in this case, is the DBS Bank32 .

31. As noted earlier, Clause 3 (3) of the scheme in this case, no doubt

mentions that legal proceedings would be continued by or against

the transferee bank (read DBS Bank). However, it is also important

to notice the proviso: