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Companies lose shield

New Delhi, May 5: The Supreme Court today ripped off the cloak of immunity companies embroiled in income-tax and financial irregularities have enjoyed till date by ruling that corporate bodies can also be criminally prosecuted and their head honchos and other executives arrested.

The Supreme Court also gave the lower courts the freedom to slap penalties on corporate entities for economic offences.

A five-judge full Constitution bench headed by Justice N. Santosh Hegde by a 3:2 majority set aside an earlier ruling of the court under which companies could not be prosecuted in economic offences as they were not a 'natural person' and could not be imprisoned if found guilty.

Justice K.G. Balakrishnan, writing the judgment for the majority, said courts trying corporate bodies can always impose fines.

There is no 'blanket immunity' to any company and in view of the large-scale financial irregularities witnessed in the country and its ripple effects in the economy as well as society, it is necessary that companies should face prosecution.

Justices D.M. Dharmadhikari and Arun Kumar agreed with Balakrishnan, forming the majority. Justice B.N. Srikrishna agreed with Hegde who dissented, making up the minority.

The minority view agreed with the earlier ruling that a company cannot be criminally prosecuted as it is not a 'natural person'.

The majority said: 'Once the court comes to a conclusion about the guilt, it is bound to prescribe punishment for the offence which was just like day following the night.'

The judgment came on a batch of petitions by companies like ANZ Grindlays Bank, Standard Chartered Bank, Iridium Telecom Ltd. and National Fertilizers. Some of these were involved in the 1991 securities scam and are now liable for criminal prosecution and fine.

Banks and financial institutions had challenged the Centre’s move to launch criminal prosecution against them and opposed fines.

The Centre prayed for prosecuting these companies and institutions arguing that provisions of Section 276 of the Income-Tax Act (IT Act) and Section 56 of the Foreign Exchange Regulation Act should be 'read in harmony' so that the errant companies were brought within the parameters of prosecution.

It said that 'since the penalty of imprisonment cannot be given to a company, the company will not be liable to imprisonment and only a fine can be imposed'.

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