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2004 DIGILAW 515 (GAU)

Brooke Bond Lipton India Ltd. v. State of Assam

2004-09-09

I.A.ANSARI, P.G.AGARWAL

body2004
JUDGMENT P.G. Agarwal, J. 1. Heard Mr. K.T.S. Tulsi and Mr. J.M. Choudhury, learned Sr. Counsel, assisted by Shri Sidhartha Luthra and Pallav Kataki for the Petitioner. Also heard Mr. P. Bora, learned Public Prosecutor for the Respondent - State of Assam. 2. This Criminal revision was heard by the Hon'ble the Chief Justice, while sitting singly, and, thereafter, vide order, dated 6th June, 2002, the matter was referred to a Division Bench, holding that the point raised in this revision is likely to arise again and again and, as such, an authoritative judgment is required and, therefore, the matter may be decided by a Division Bench. This is how the matter has been hear by this Bench. The Facts in Nutshell: 3. The Food Inspector, Sibsagar, Assam, collected samples of skimmed milk powder, allegedly manufactured by Liption India Ltd., from the shop of M/s. Amit Supply Agency of A.T. Road, Sibsagar, who are the re-distributor, stockist of the manufacturer. On sample being analysed, it was found to be adulterated and thereafter the vendor-stockist firm, Lipton India Ltd. and the Managing Director of Lipton India Ltd. were prosecuted by filing a complaint. Vide order, dated 10.10.94, the name of the Managing Director of Lipton India Ltd. was deleted and thereafter the name of Mr. R. Bhattacharjee. The nominee of Lipton India Ltd. was arrayed as accused No. 5. 4. While the prosecution was pending before the learned Chief Judicial Magistrate, Sibsagar, the Lipton India Ltd. got amalgamated with Brooke Bond India Ltd. The amalgamation scheme was approved by the Hon'ble Calcutta High Court. In view of the above amalgamation, the new company Brooke Bond Lipton India Ltd. was arrayed as an accused and, as a matter of fact, the Chief Judicial magistrate framed charge against Brooke Bond Lipton India Ltd. (formerly Lipton India Ltd.) As manufacturer, vide order dated 18.8.95. 5. In view of the above amalgamation, the new company Brooke Bond Lipton India Ltd. was arrayed as an accused and, as a matter of fact, the Chief Judicial magistrate framed charge against Brooke Bond Lipton India Ltd. (formerly Lipton India Ltd.) As manufacturer, vide order dated 18.8.95. 5. An application was moved by Brooke Bond Lipton India Ltd. that their name may be deleted from the array of accused, inasmuch as, when the offence was alleged to have been committed, the said company was not even in existence and, in fact, it came into existence on the amalgamation of Lipton India Ltd. with the Brooke Bond India Ltd. and Brooke Bond Lipton India Ltd. cannot be held liable for any alleged criminal act of the earlier company, i.e. Lipton India Ltd. This plea was negated by the Chief Judicial Magistrate on 18.8.95. 6. The present revision has been directed against the said order, dated 18.8.95, passed by the Chief Judicial Magistrate, whereby the application for dropping the charges against Brooke Bond Lipton India Ltd., hereinafter referred to as the Petitioner', was rejected. It is submitted on behalf of the Petitioner that the criminal liability of Lipton India Ltd. if any cannot be fastened or transferred to the Petitioner Company as the said company has not committed any offence and, as a matter of fact, was not in existence, when the criminal offence was allegedly committed. It is also stated that on merger or amalgamation of a company or the dissolution of the company itself, the existence of a company comes to an end, which in physical sense amounts to death of a company, and in case of merger, a new company comes into existence and hence, the prosecution cannot continue against such new company. The contention raised by the Petitioner was negated by the trial Court by holding. I have also gone through the scheme of arrangement between Lipton India Ltd. and Brooke Bond India Ltd. for amalgamation which has been sanctioned by Hon'ble Calcutta High Court. The contention raised by the Petitioner was negated by the trial Court by holding. I have also gone through the scheme of arrangement between Lipton India Ltd. and Brooke Bond India Ltd. for amalgamation which has been sanctioned by Hon'ble Calcutta High Court. In para 3 of the scheme it is stated that if any suit appeal or other proceeding of whatsoever nature by or against the transferor company (Lipton India Ltd.) be pending, the same shall not abate, be discontinued or by in any way prejudicially effected by reason of the transfer of the undertaking of the transferor company or of anything contained in the scheme but the proceeding may be continued, Prosecuted and enforced by or against the transferor company (Brooke Bond India Ltd.) in the same manner and to the same extent as it would or might have been contained. Prosecuted and enforced by or against the transferor company as if the scheme has not been made. So it can be said that all the liabilities of Lipton India Ltd. have been shouldered by Brooke Bond Lipton India Ltd. due to amalgamation between Lipton India Ltd. and Brooke Bond India Ltd. Under such circumstances accused No. 3 and its nominee cannot escape liability for mere change of name of the company. 7. The argument of the Petitioner may be summed up as below: That the Petitioner company came into existence pursuant the order, dated 15.12.1993, of the Calcutta High Court, whereby the original accused No. 3, viz Lipton India Ltd. got amalgamated in the Petitioner company. The incident of offence alleged to have been committed by Lipton India Ltd., the original accused, was on 9.9.1992, when the Petitioner company was not even in existence. Even at the time, when the complaint was filed in the Court on 10.3.1993, the Petitioner was not in existence, nor was the Petitioner born even on the date on which cognizance was taken. 8. It is an established law that where the rights and liabilities of a company are taken over by a successor company, it does not automatically transfer all kinds of rights and liabilities. Only such rights and liabilities, which are capable of a lawful transfer, are transferred. 8. It is an established law that where the rights and liabilities of a company are taken over by a successor company, it does not automatically transfer all kinds of rights and liabilities. Only such rights and liabilities, which are capable of a lawful transfer, are transferred. Otherwise, the dissolution, consequent to amalgamation of the company, is treated as the death of a natural person leading to complete destruction, whereby the transferor company looses its identity and ceases to exist for all purposes except those, which are permitted by statute or the agreement, to be continued. Since criminal liability is incapable of transfer either under law or contract, the question of automatically fastening the criminal liability of the dead company on the Petitioner company is unheard of and impractical. 9. So far as the terms and conditions of amalgamation, as approved by the Hon'ble Calcutta High Court and quoted by the trial Court, as stated above, are concerned, these are not disputed or challenged. On a query by this Court at the time of hearing of this argument, whether the Hon'ble Calcutta High Court was informed at the time of consideration of the amalgamation scheme about the pendency of the criminal proceedings against Lipton India Ltd., learned Counsel for the Petitioner expressed their ignorance in the matter as the amalgamation proceeding was conducted by other set of lawyers at Kolkata and that too about 10 years back. 10. Shri KTS Tulsi, learned Sr. Counsel, has submitted that so far the question raised in this case is concerned, there is no direct case law of Indian Courts on the point. The learned Counsel, however, placed reliance on the principles of Section 394 Code of Criminal Procedure, which provides for abatement of the appeal on the death of the accused. Although Section 394 expressly applies only to appeal, learned Counsel has stated that the principle underlying the said provision, i.e. non-transferability of the criminal liability would be applicable to all other criminal proceedings. Although Section 394 Code of Criminal Procedure applies only on the appeals, we find that an appeal against an order of acquittal abates on the death of the accused and as a corollary to the above, although there is no specific provision in the Code of Criminal Procedure, a criminal trial abates against the accused on his death. 11. Although Section 394 Code of Criminal Procedure applies only on the appeals, we find that an appeal against an order of acquittal abates on the death of the accused and as a corollary to the above, although there is no specific provision in the Code of Criminal Procedure, a criminal trial abates against the accused on his death. 11. In re Walker's Settlement (Corporation of the Royal Exchange Assurance v. Walker) the Chancery Division, reported in All E.R. 567, Honb'le Buckley, J. (as he then was) said: Now what is an amalgamation? An amalgamation involves, I think, a different idea. There you must have the rolling, somehow or other, of two concern into one. You must weld two things together and arrive at an amalgam - a blending of two undertakings. It does not necessarily follow that the whole of the two undertakings should pass substantially they must pass nor need all the corporators be parties, although substantially all must be parties. The difference between reconstruction and amalgamation is that in the latter is involved the blending of two concerns one with the other, but not merely the continuance of one concern. 12. In Re Skinner (deceased), (1958) 4 All E.R. 273, Hon'ble Sackls, J. observed: Thirdly, it has been made clear by the speeches in Nokes v. Doncaster Amalgamated Collieries, ltd. (I) (1940) 3 All E.R. 549) that 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. (I) (1940) 3 All E.R. 549) that 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 thereof must be taken to operate in a manner not repugnant to the general law of England (Re "L" Hotel Co., Ltd. and Langham Hotel Co., Ltd. (2) (1946) 1 ALL E.R. 319), if however, on a proper construction of the terms of a scheme some part of it happens by inadvertence expressly to order an act which, had there been no scheme, the parties could not, either in relation to the interests of third parties or otherwise bind themselves to do, then that part of the scheme would, in my view, have to be treated as a nullity in so far as it purported so to order. To my mind, this later principle equally applies where a scheme expressly prohibits an act which the parties could not under the general law of this conuntry, bind themselves to refrain from doing. 13. The next case law relied upon by the learned Counsel for the Petitioner is of U.S. Supreme Court in the case of Oklahoma Natural Gas Co. v. State of Oklahoma 273 U.S. 257 (1927) in which it was held: It follows, therefore, that as the death of the natural person abates all pending litigation to which such a person is a party, dissolution of a corporation at common law abates all litigation in which the corporation is appearing either as Plaintiff or Defendant. To allow actions to continue would be to continue the extence of the corporation pro hac vice. But corporations exist for specific purposes, and only by legislative act, so that if the life of the corporation is to continue even only for litigating purposes it is necessary that there would be some statutory authority for the prolongation. The matter is really not procedural or controlled by the rules of the Court in which the litigation pends. But corporations exist for specific purposes, and only by legislative act, so that if the life of the corporation is to continue even only for litigating purposes it is necessary that there would be some statutory authority for the prolongation. The matter is really not procedural or controlled by the rules of the Court in which the litigation pends. It concerns the fundamental law of the corporation enacted by the state which brought the corporation into being. 14. In the case of Chicago Title and Trust Co. v. forty-one Thirty Six Wilcox Bldg. 302 U.S. 120 (1937), Hon'ble Justice Sutherland of the U.S. Supreme Court (as he then was), observed: In American Exch. Bank v. Mitchell, 179 3 App. 612, 615, 616, the general Rule was announced that, after a corporation is dissolved, it is in capable of maintaining an action, and that all such actions pending at the time of dissolution abate, in the absence of a statute to the contrary. In the same case it was further observed: It is suggested that the state cannot keep the corporation alive for its own purposes and deny it life for federal purposes. The proposition need not be challenged, since it is perfectly evident that here the state has reserved nothing for itself which it has denied to the federal authority. The only relevant provisions are those relating to legal proceedings. The state law permits such proceedings to be instituted on behalf of a dissolved corporation within two years, but these proceedings may be brought either in the state Courts, or, when appropriate, in the federal Courts. After two years, no proceedings may be initiated on behalf of the corporation in either state or federal Courts, but such proceedings as have been instituted during that period in any of these Courts may be prosecuted to completion Singer and Talcott Co. v. Hutchinson, (supra,) 176 m, 48, at pages 52, 53, 51 N.E. 622. The right of resort to the Courts of the state, and to those of the nation having jurisdiction, both in respect of the initiation of proceedings and the completion of proceedings already initiated, so far as Illinois law is concerned stands upon an exact parity. 15. The above decision, to our mind, does not help the Petitioner much. The right of resort to the Courts of the state, and to those of the nation having jurisdiction, both in respect of the initiation of proceedings and the completion of proceedings already initiated, so far as Illinois law is concerned stands upon an exact parity. 15. The above decision, to our mind, does not help the Petitioner much. As stated in Chicago Title (Supra), the Court approved the redemption proceeding for a period of 12 years after the dissolution of the company. Moreover, the Courts were concerned with the existing laws of the country and held that the entire matter will depend upon the scheme of amalgamation and terms and conditions are same. The next case relied upon by the learned Counsel for the Petitioner is General Radio and Appliances Co. Ltd. and Anr. v. M.A. Khader, AIR 1986 SC 128, wherein the Apex Court held: Thus, by an order sanctioning amalgamation, the rights, interest and abilities of the transferor company are transferred and vested in the transferred company. It appears that by the order of amalgamation, the interest, rights of the transferor company in all its properties including leasehold interest and tenancy rights are transferred and vested in the transferee company. 16. The position was made clear by the Apex Court in the case of Saraswati Industrial Syndicate Ltd. v. C.I.T. Haryana, Himachal Pradesh, Delhi-III, New Delhi, AIR 1991 SC 70 when it held: The High Court's view that on amalgamation there is no complete destruction of corporate personality of the transferor company instead there is a blending of the corporate personality of one with another corporate body and it continues as such with the other is not sustainable in law. The true effect and character of the amalgamation largely depends on the terms of the scheme of merger. But there can not 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. 17. 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. 17. The Petitioner also places reliance on an unreported decision of the learned single Judge (Chief Justice) of the Himachal Pradesh High Court in Criminal Revision No. 150/94, which is in respect of the Petitioner company concerning the amalgamation; but we find that no finding was recorded by the Hon'ble Himachal Pradesh High Court and the matter was remitted back with a direction to the Petitioner company to produce copy of the merger agreement approved by the Calcutta High Court before the learned trial Court. The principle that emerges from the above referred decision is that in the matter of transfer of liability from the transferor company to the transferee company in case of amalgamation etc. it is governed by the terms and conditions of merger agreement or amalgamation scheme as approved by the High Court or as per the statutory provisions applicable. The Petitioner has not been able to show any statutory provisions under which the liability of erstwhile Lipton India Ltd. cannot be transferred to the transferor company, i.e. the Petitioner. The criminal proceeding was pending against the Lipton India Ltd., when the scheme was placed before the Hon'ble Calcutta High Court for approval but admittedly, this was not brought to the notice of the High Court. On the other hand, condition of merger, as stated above, clearly shows that any suit, appeal or other proceedings shall not abate and continue against the transferor company, i.e. the Brooke Bond India Ltd. The word prosecuted has also been used and this leaves no room for any doubt that the merger scheme provided that any criminal prosecution against the transferor company shall continue against the transferee company. 18. There is another aspect of the matter. The present prosecution is under the provision of Food Adulteration Act and the Petitioner company has been arrayed under Section 17 of the Prevention of Food Adulteration Act. Which reads as follows: 17. Offences by companies. 18. There is another aspect of the matter. The present prosecution is under the provision of Food Adulteration Act and the Petitioner company has been arrayed under Section 17 of the Prevention of Food Adulteration Act. Which reads as follows: 17. Offences by companies. (1) Where an offence under this Act has been committed by a company: (a) (i) the person, if any, who has been nominated under Sub-section (2) to be in charge of and responsible to the company for the conduct of the business of the company (hereinafter in this section to be referred as the person responsible), or (ii) where no person has been so nominated, every person who at the time the offence was committed was incharge of and was responsible to the company for the conduct of the business of the company and (b) the company shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly; Provided that nothing contained in this Sub-section shall render any such person liable to any punishment provided in this Act if he proves that the offence was committed; without his knowledge and that he exercised all due diligence to prevent the commission of such offence. (2) Any company may, by order in writing, authorize any of its directors of managers (such manager being employed mainly in a managerial or supervisory capacity) to exercise all such powers and take all such steps as may be necessary or expedient to prevent the commission by the company of any offence under the Act and may give notice to the Local (Health) Authority, in such form and in such manner as may be prescribed, that it has nominated such director or manager as the person responsible, along with the written consent of such director or manager for being so nominated. Explanation. Explanation. Where a company has different establishments or branches or different units in any establishment or branch, different persons may be nominated under this Sub-section in relation to different establishments or branches or units and the person nominated in relation to any establishment, branch or unit shall be deemed to be the person responsible in respect of such establishment, branch or unit (3) The person nominated under Sub-section (2) shall, until: (i) Further notice canceling such nomination is received from the company by the local (Health) authority; or (ii) he ceases to be a director or, as the case may be manager of the company or (iii) he makes a request in writing to the Local (Health) Authority, under intimation to the company, to cancel the nomination (which request shall be complied with by the Local (health) authority; whichever is the earliest, continue to be the person responsible: Provided that where such person ceases to be a director or as the case may be manager of the company, he shall intimate the fact of such ceaser to the Local (Health) Authority: Provided further that where such person makes a request under Clause (iii), the Local (Health) Authority shall not cancel such nomination with effect from a date earlier than the date on which the request is made. (4) Notwithstanding anything contained in the foregoing Sub-sections where an offence under this Act has been committed by a company and pit is proved that the offence has been committed with the consent or convenience of, or is attributable to, any neglect on the part of any director, manager, secretary or other officer of the company, (not being a person) nominated under Sub-section (2) such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation For the purposes of this section: (a) "Company" means any body corporate and includes a firm or other association of Individuals: (b) "director" in relation to a firm means a partner in the firm and (c) "manager" in relation to a company engaged in hotel industry, includes the person in charge of the catering department of any hotel managed or run by it. 19. From the Explanation we find that the word 'company' also includes a firm or other association of individuals, which includes a partnership firm. 19. From the Explanation we find that the word 'company' also includes a firm or other association of individuals, which includes a partnership firm. The Petitioner is a company registered under the Companies Act and as such in case of dissolution etc. the approval of some authorities is required, but in case of partnership firm, no such approval is required. The partners, at their sweet will, may dissolve firm at any point of time. As we know, the prevention of food Adulteration act is a social welfare law to protect the health of the society. Some unscrupulous persons may join hands by forming a partnership and thereafter play havoc with the health of the society by resorting to adulteration of food and when such firm, is to be prosecuted, they may resort to dissolution of the firms and start another under another name. In such circumstances, can it be said that the firm has met with natural death on its dissolution; and the firm shall not be accountable or cannot be prosecuted, the moment it has been dissolved? Such an interpretation will give a long rope to the unruly prospective adulterators to play with the law and save themselves by simply informing the authorities that the firm stands dissolved. 20. Learned Public Prosecutor, Mr. Bora, has placed reliance on condition No. 3 of the Scheme (as quoted above) approved by the Hon'ble Calcutta High Court in the matter of amalgamation of Lipton India Ltd. With Brooke Bond India Ltd. 21. Sri Bora has submitted that the language is very specific and in view of the memorandum of amalgamation, the Petitioner company cannot escape liability. 22. On analysis of the submissions made and on perusal of the various decisions as quoted above, we hold as below: (i) a criminal proceedings shall not abate ipso facto on merger or amalgamation of a company, (ii) the question against whom the prosecution would continue shall depend upon the terms and conditions of merger/amalgamation; (iii) a pending criminal prosecution cannot be thrown over board by subsequent dissolution/amalgamation or merger of a firm. We, therefore, hold that the Petitioner company is not entitled to the benefit of abatement of proceedings against it on the ground of the amalgamation. 23. We, therefore, hold that the Petitioner company is not entitled to the benefit of abatement of proceedings against it on the ground of the amalgamation. 23. The next submission on which the Petitioner has sought quashing of prosecution against the company is that the Petitioner cannot be punished under Section 16 of the Act as it has been charged for violation of provision under Section 7(i) of the Prevention of Food Adulteration Act and under Section 16, the convict shall be liable, in addition to the penalty of fine, to undergo imprisonment for a term, which shall not be less than 6 (six) months and which may extend to 3 years. The learned single Judge (Hon'ble the Chief Justice) relying on the decision of the Apex Court in M.V. Javali v. Mahajan Borewell and Co. and Ors. 1997 (8) SCC 72 , held that in such a situation the Court may sentence the company to pay fine only, as no imprisonment can be awarded against the company. The decision in M.V. Javali (Supra) was considered by a Three Judge Bench in a recent case of Asstt. Commissioner Assessemnt-II. Bangalore v. M/s. Vellappa Textiles Ltd., judgment Today 2003 Supp 2 SCC 99 / 2003 (11) SCC 405 and in the above case the Court (by a majority decision) held that where the Sections of law require the minimum mandatory term of imprisonment coupled with a fine and there is no specific provision otherwise, a company cannot be prosecuted. It was observed that this is a lacuna in a number of enactments, including the Prevention of Food Adulteration Act and the said lacuna cannot be allowed to be filled up by interpretation or construction of the provision of law. The minority view was taken by Hon'ble Mathur, J. who observed: Courts would be shirking their responsibility of imparting justice by holding that prosecution of a company is unsustainable merely on the ground that being juristic person it cannot be sent to jail to undergo the sentence companies are growing in size and have huge resources and finances at their command. In the course of their business activity they may sometimes commit breach of the law of the land or endanger others lives. More than four thousand people lost life and thousands others suffered permanent impairment in Bhopal on account of gross criminal act of a multinational corporation. In the course of their business activity they may sometimes commit breach of the law of the land or endanger others lives. More than four thousand people lost life and thousands others suffered permanent impairment in Bhopal on account of gross criminal act of a multinational corporation. It will be wholly wrong to allow a company to go away scot free without even being prosecuted in the event of commission of a crime only on the ground that it cannot be made to suffer part of the mandatory punishment. 24. In view of the law laid down by the Apex Court in M/s. Vellappa Textiles (Supra) the prosecution against the Petitioner Brooke Bond Lipton India Ltd. cannot be allowed to continue as under Section16(1)(a)(ii) of Prevention of Food Adulteration Act, the sentence provided is: 16. Penalties: (1) Subject to the provisions of Sub-section (IA) if any person- (a) whether by himself or by any other person on his behalf, imports into India or manufacturer for sales or stores. Sells or distributes any article of food; (i).... (ii) other than an article of food referred to in Sub-clause (i) in contravention of any of the provisions of this Act or of any rule made there-under; or (b) .... (c) .... (d) .... (e) .... (f) .... (g) .... he shall, in addition to the penalty to which he may be liable under the provisions of Section 6, be punishable with imprisonment for a term which shall not be less than six months but which may extend to three years, and with fine which shall not be less that one thousand rupees: Provided that (i) .... (ii) if the offence is under Sub-clause (ii) of Clause (a), but not being an offence with respect to the contravention of any rule made under Clause (a) or Clause (g) of Sub-section (1A) of Section 23 or under Clause (b) of Sub-section (2) of section24the Court may for any adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment for a term which shall not be less than three months but which may extend to two years, and with fine which shall not be less than five hundred rupees. Provided further that if the offence is under sub-clause (ii) of Clause (a) and is with respect to the contravention of any rule made under Clause (a) or Clause (g) of Sub-section (1A) of Section 23 or under Clause (b) of Sub-section (2) of section 24, the Court may, for any adequate and special reasons to be mentioned in the judgment, impose a sentence of imprisonment for a term which may extend to three months and with fine which may extend to five hundred rupees. .... .... 25. In the result, we hereby quash the charges against the said company. The trial shall, however, proceed against the other accused persons. Send down the records.