Holding

Section 11AC imposes a mandatory civil penalty for breach of statutory duty, does not require mens rea, and leaves no discretion to the adjudicating authority; Rules 96ZQ and 96ZO likewise do not introduce discretion.

Summary

The Supreme Court examined whether Section 11AC of the Central Excise Act, 1944 imposes a mandatory penalty for short levy or non‑levy of duty and whether mens rea is an essential element. The Court held that the provision creates a civil liability for breach of a statutory obligation and the penalty is mandatory, leaving no discretion to levy a lower amount. It further ruled that Rules 96ZQ and 96ZO do not introduce any mens‑reа requirement or discretion. The Court distinguished the provision from the Income‑Tax Act’s Section 271(1)(c) and clarified that the penalty is civil, not criminal. Consequently, the appeals were allowed in part and the remaining matters were remitted to the Division Bench for disposal. The judgment also reiterated principles of statutory interpretation, emphasizing that courts cannot read into clear provisions and must avoid creating a casus omissus.

Issues considered

Whether Section 11AC of the Central Excise Act, 1944 imposes a mandatory penalty and requires mens rea.
Whether the adjudicating authority has discretion to levy a penalty lower than the statutory amount under Section 11AC.
Whether Rules 96ZQ(5) and 96ZO of the Central Excise Rules, 1944 incorporate a mens rea requirement or discretion.
How Section 11AC relates to Section 271(1)(c) of the Income‑Tax Act, 1961 and whether the same test of mens rea applies.
The correct method of interpreting statutes to avoid creating a casus omissus.

Legislation cited

Central Excise Act, 1944s. 11A, s. 11AB, s. 11AC
Central Excise Rules, 1944s. 96ZO, s. 96ZQ
Income Tax Act, 1961s. 271(1)(c), s. 271C, s. 276C
Securities and Exchange Board of India Act, 1992s. 15-1, s. 15-D, s. 15-E, s. 15-J

Subjects

central excisepenaltymens reamandatory penaltystatutory obligationdiscretioninterpretation of statutescasus omissusRule 96ZQRule 96ZOIncome Tax Actcivil liability

Judgment

[2008] 14 S.C.R. 13

--\ UNION OF INDIA AND ORS. A
II.
M/S DHARAMENDRA TEXTILE PROCESSORS AND
ORS.
(Civil Appeal Nos. 10289-10303 of 2003)
1 SEPTEMBER 29, 2008 B'

[DR. ARIJIT PASAYAT, P. SATHASIVAM AND AFTAB
ALAM, JJ]

CENTRAL Exc1sE Acr, 1944: c
s.11AC- penalty for short levy or non levy of excise duty
- Nature of - HELD: Penalty under the provision is for breach
of civil obligation .and is mandatory - Mens rea is not an es-
sential element for imposing the penalty - The adjudicatory
authority has no discretion to levy duty less than what is le-' D
gaily and statutorily /eviable - Interpretation ofStatutes - Gen-
tral Excise Rules, 1944, rr. 96ZO and 96ZQ.
Interpretation of-Statutes - Principles of casus omissus,
and reading the statute as a whole - Explained.
E
Maxims:
(i) Casus omissus et oblivioni datus dispositioni com-
munis juris relinquitur, and

< (ii) Quad enim semel ailt bis existit praetereunt . F
legislatores - Applicability of
In the instant appeals, a Division Bench of the Su-
preme Court noticing the decision in Chairman, SEBl's
case 1 , and doubting the correctness of the decision in
Dilip N. Shroff's case 2 , referred for consideration of the G
larger Bench the questions (i) whether Section 11AC of
the Central Excise Act, 1944 inserted by Finance Act, 1996
with the intention of imposing mandatory penalty on per-
sons who evaded payment of tax should be read to con-
13 H
14 SUPREME COURT REPORTS [2008] 14 S.C.R.

A tain mens rea as an essential ingredient and (ii) whether
there was a scope for levying a penalty below the pre-
scribed minimum. .
In some of the cases the assessees had challenged
the vires of Rule 96ZQ(5) of the Central Excise Rules, 1944
B and the High Court held that the said rule incorporated )
the requirement of mens rea. The Division Bench of the
\.-·
Supreme Court referring the matter to the larger Bench
clarified that if the larger bench would take a view to say
that the· penalty leviable under the said clause was man-
c datory, itwas st.ill open to the assessee to challenge the
vires of Rule 96ZQ(5). During the course of hearing, par-
ties agreed that a similar is·sue was involved in respect of
Rule 96ZO.
Answering the reference and allowing some of the
D
appeals, the Cqurt
·~.
j

HELD: 1.1 In Chairman SE.Bi's case, the Court rightly
held that mens rea was not an essential element for im-
posing pen.alty for breach of civil obligation. In that case,
E reference was made to the statutory scheme. It was noted r
that the penalty was mandatory. It was pointed out that
there was a scheme attracting imposition of penalty with \.
reference to a statute relating to breach of civil obligation.
!
[para 9] [37-B]
F 1.2 In Dilip Shroff's case, the c:onceptual and contex-
ti.tal difference between Section 271 (1) (c) and Section
276C of the Income Tax Act, 1961 was lost sight of. The
Explanations appended to Section 272(1)(c) of the IT Act
entirely indicates the element of strict liability on the as-
G sessee for concealment or for giving inaccurate particu:.
lars while fifing return. The judgment in Dilp N. Shroof's
\..
case has not considered the effect and relevance of Sec- j

tion 276C of the l.T. Act. The objec.t behind the enactment
of Section 271 (1 )(e) read with the Explanations indicates
H that the said section has been enacted to provide for a
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 15
TEXTILE PROCESSORS & ORS.

remedy for loss of revenue. The penalty under that provi- A
sion is a civil liability. Wilful concealment is not an essen-
tial ingredient for attracting civil liability as is the case in
the matter of prosecution under Section 276C of the l.T.
Act. [para 25] [49-0-E]
2.1 In Union Budget of 1996-97, Section 11AC of the B
Central Excise Act, 1944 was introduced. It has made the
position clear that there is no scope for any discretion. In
para 136 of the Union Budget reference has been made
. to the provision stating that the levy of penalty is a man-
datory penalty. In the Notes on Clauses also the similar C
indication has been given. [para 26] [49-F]
2.2 It cannot be accepted that the use of the expres-
sion "assessee shall be liable" proves the existence of
discretion. In fact in the same provision there is an ex-
0
press ion used, "liability to pay duty". It can not be said
that the adjudicating authority has even a discretion to
levy duty less than what is legally and statutorily leviable.
Most of cases relied upon on behalf of the assessee had
their foundation on Bharat Heavy Electrical's case, which
was a case based on concession and in any event did E
not indicate the correct position in law. Even otherwise, it
was not open to the Bench to read into a statute, which
was specific and clear, something which· is not specifi-
y cally provided for in the statute. [para 11 and 12] [45-8-E]
·F
State of M.P and Ors. v. Bharat Heavy Electricals 1997
(3) Suppl. SCR 435 = 1997 (7) SCC 1 - held inapplic·able.

2.3 The plea that the Rules 96ZQ and 96ZO of Central G
Excise Rules, 1944 have a concept of discretion inbuilt
cannot be sustained. [para 27] [49-G]
3.1 Two principles of construction - one re\ating to
casus omissus and the other in regard to reading the stat-
ute as a whole - appear to be well settled. Under the first H
16 SUPREME COURT REPORTS [2008] 14 S.C.R.

;-·
A principle, a casus omissus cannot be supplied by the
court except in the case of clear necessity and when rea-
son for it is found in the four corners of the statute itself
but at the same time a casus omissus should not be
readily inferred and for that purpose all the parts of a stat-
B ute or section must be construed together and every
clause of a section should be construed with reference
to the context and other clauses thereof so that the con- 't-·
struction to be put on a particular provision makes a con- ,
sistent enactment of the whole statute. [para 18] [47-B-D]
c Institute of Chartered Accountants of India v. Price
Waterhouse 1977 6 SCC 312; State of Gujarat v. Dilipbhai
Nathjib~ai Patel 1998 (2) SCR 56 =
1998 (3) SCC 234; Union
of India v. Filip Tiago De Gama of Vedem Vasco De Gama
(1990) 1 SCC 277; D.R. Venkatachalam v. Dy. Transport
=
D Commr. 1977 ( 2) SCR 392 (1977) 2 SCC 273; and CST
\.
=
v. Popular Trading Co. 2000 (2) SCR 983 (2000) 5 SCC
511 - referred to.
Crawford v. Spooner (1846) 6 MOO PC1 ; Stock v. Frank
) Jones_(Tipton) Ltd 1978 (1) ALL ER 948; Lenigh Valley Coal
E Co. v. Yensavage 218 FR 547; Artemiou v. Procopiou (1965)
3 ALL ER 539 All ER p. 544 I; Luke v. /RC (1963) AC 557 ;
and All ER p.664 I - referred to.
3.2 A casus omissus ought not to be created by inter-
F pretation, save in some case of strong necessity. Where,
however, a casus omissus does really occur, either through
the inadvertence of the legislature, or on the principle quod
enim semel aut bis existit praetereunt legislatores, the rule is
that the particular case, thus left unprovided for, must be
,G disposed of according to the law as it existed before such
statute' - casus omissus et oblivioni datus dispositioni com-
munis juris relinquitur; "a casus omissus", "can in no case
r
be supplied by a court of law, for that would be to make
laws." [para 20] [48-8-D]
H Maulavi Hussein Haji Abraham Umarji v. State of Gujarat
UNION OF INDIA & ORS. v. MIS DHARAMENDRA 17
TEXTILE PROCESSORS & ORS.

2004 (6) SCC 672; Sangeeta Singh v. Union of India and Ors. A
2005 (2) Suppl. SCR 823 =, 2005 (7) SCC 484 - referred to.
Jones v. Smarl 1785 (1) TR 44:99 ER 963 - referred to.
4. Dilip N. Shroff's case was not correctly decided but
Chairman, SEBl's case has analysed the legal position in B
the correct perspectives. The matter would be placed· be-
~ fore the Division Bench to deal with the matter in the light
of the judgment only so far as the cases where challenge
is made to vires of Rule 967Q (5). In all other cases the
orders of the High Court or the Tribunal, as the case may c
be, are quashed and the matter remitted to it for disposal
in the light of the judgment. [para 27] [49-G, 50-A]
Chairman, SEBI v. Shriram Mutual Fund and Anr. 2006
(2) Suppl. SCR 833 =(2006 (5) sec 361 - upheld.
D
Dilip N. Shroff v. Jo{nt Commissioner of Income Tax,
Mumbai and Anr. 2007(7f SCR 499=2007 (8) SCALE 304 -
overruled.
CASE LAW REFERENCE
2007(7) SCR 499 overruled para 2 E
2006 (2) Suppl. SCR 833 upheld para 2
1997 (3) Suppl. SCR 435 held inapplicable para 7
1911 6 sec 312 referred to. Para 14
F
(1846) 6 MOO PC1 referred to. Para 14
1998 ( 2 } SCR 56 referred to. Para 14
1978 (1) ALL ER 948 referred to para 14
218 FR 547 referred to para 15
G
(1990) 1 sec 211 referred to para 15
i
1977 ( 2) SCR 392 refered to para 16
2000 ( 2 } SCR 983 referred to para 17
(1965) 3 ALL ER 539 referred to para 18 H
18 SUPREME COURT REPORTS [2008] 14 S.C.R.

A All ER p.511 I referred to para 18
(1963) AC 557 referred· to para 18
All ER p.664 I referred to para 18
1785 (1) TR 44:99 ER 963 referred to para 20
8 2004 (3) Suppl. SCR 202 referred to para 20
2005 (2) Suppl. SCR 823 referred to ·para 23
1
Chairman, SEBI v. Shriram Mutual Fund and Anr. 2006
Suppl. (2 ) scR 833 = 2006 (5) sec 361
c Dilip N. Shroff v. Joint Commissioner of Income Tax,
2

Mumbai and Anr. 2007(7) SCR 499=2007 (8) SCALE 304
CIViL APPELLATE JURISDICTION : Civil Appeal NOs.
10289-10303 of 2003
D
From the final Judgment and Order dated 7/3/2002 of the
High Court of Gujarat atAhmedabad in S.C.A.Nos. 2602, 2209,
2603,2604,2208,2898,2899,2900,39870f2001,351,352,
693, 742, 1935 and 1936 of 2002

E WITH
C.A. Nos. 3398-3399, 3397/2003, 4094, 4096/2004,
3388/2006,4331,4332,4321,4322,4323,432~4311,4316/
2007, 5277/2006, 4320, 4333, 675, 1420, 4317, 2793/2007,
5928,5929,5930,5931,5932,5933,5934,5935,5937,5938,
F 5939, 5940, 5941, 5H42 and 5943/2008, 5272/2006, 5977,
' 5978, 5944, 5945, 5952, 5953, 5955, 5956/2008, 6001/2007,
5957,5958,5959,5960,5961,5962,5963,5964,5965,5966,
5967, 5968, 5969, 5970/2008, 1901, 1643/2008, 5971, 5972,
5973, 5974/2008, 372/2007, 2146, 1823, 5975 and 5976/2008.
G . M. Chandrashekharan, A.S.G., S. Ganesh, S.S. Naganand,
Raghvendra S. Srivastava, P. Parmeswaran, Manish Pushkarna, -~
I

S. Sunil, Naveen Prakash, Rashmi Malhotra, Rahul Kaushik,
Shailendra Sahni, Vikas Sharma, Alka Sharma, Asha G. Nair,
B.K. Prasad,Aruna Gupta, B.V. Bairam Dass, MeenakshiArora,
H
UNION OF INDIA & ORS. v. MIS DHARAMENDRA 19
TEXTILE PROCESSORS & ORS.
-\ \
Amar Dave, Gaurav Goel, Mahesh Agarwal, E.C. Agrawala, A
Manish Kurrar, Ansar Ahmad Chaudhary, Anil Bhansali, Satya
Prakash, Promila Matta, E.M.S. Anam, Shantha Kr. Mahale,
Rajesh Maha le, Harish, P.C. Jain, Abhishek Jaju, Rajesh Kumar,
Atual Mishra, Sonu Bhatnagar, Ajay Aggarwal, Rajan Narain,
Janaranjan Das, Sandeep Narain, M.H. Patil, Shri Narain, (for B
M/s. S. Narain & Co.), K.L. Janjani, Subramonium Prasad, M/s.
I K.J. John & Co., Tarun Gulati, Praveen Kumar, Jaiveer Shergill,
Thushar Jarwal, Alok Yadav, M.P. Devanath, Ruby Singh Ahuja,
S. Ravi Shankar and Rupesh Kumar for the Appearing Parties.
The Judgment of the Court was delivered by c
DR. ARIJIT PASAYAT, J. 1. Leave granted in the special
leave petitions.
2. A Division Bench of this Court has referred the contra-
versy involved in these appeal$ to a larger Bench doubting the D
f correctness of the view expressed in Dilip N. Shroff v. Joint
Commissioner of Income Tax, Mumbai and Anr. (2007 (8)
SCALE 304). The question which arises for determination in all
these appeals is whether Section 11AC of the Central Excise
Act, 1944 (in short the 'Act') inserted by Finance Act, 1996 with E
the intention of imposing mandatory penalty on persons who
evaded payment of tax should be read to contain mens rea as
an essential ingredient and whether there is a scope for levying
penalty below the prescribed minimum. Before the Division
Bench, stand of the revenue was that said section should be F
read as penalty for statutory offence and the authority imposing
penalty has no discretion in the matter of imposition of penalty
and the adjudicating authority in such cases was duty bound to
impose penalty equal to the duties so determined. The asses-
see on the other hand referred to Section 271 (1 )(c) of the In-
G
come Tax Act, 1961 (in short the 'IT Act') taking the stand that
Section 11AC of the Act is identically worded and in a given
case it was open to the assessing officer not to impose any
penalty. The Division Bench made reference to Rule 96ZQ and
Rule 96ZO of the Central Excise Rules, 1944 (in short the 'Rules')
H
20 SUPREME COURT REPORTS [2008] 14 S.C.R.

A and a decision of this Court in Chairman, St=BI v. Shriram Mu-
tual Fund and Anr. (2006 (5) SCC 361) and was of the view
that the basic scheme for imposition of penalty under Section
271 (1)(c) of IT Act, Section 11AC of the Act and Rule 96ZQ(5)
of the Rules is common. According to the Division Bench the
B correct position in law was laid down in Chairman, SEBl's case
(supra) and not in Dilip Shroff's case (supra). Therefore, the
. matter was referred to a larger Bench.
3. It was noted that in some cases the assessee had chal-
lenged the vires of Rule 96ZQ(5) and the Gujarat High Court
C held that the said rule incorporated the requirement of mens
rea. The Division Bench clarified that if the larger bench takes a
view to say that the penalty leviable under the said clause is
mandatory, it is still open to the assessee to challenge the vires
of Rule 96ZQ(5).
D
4. During the co.urse of hearing, learned counsel for the
parties agreed that a similar issue is involved in respect of Rule
96ZO.
5. Mr. Chandrashekharan, Additional Solicitor General sub-
E mitted that in Rules 96ZQ and 96ZO there is no reference to
any mens rea as in Section 11 AC where mens rea is prescribed
statutorily. This is clear from the extended period of limitation
permissible under Section 11 A of the Act. It is in essence sub-
mitted that the penalty is for statutory offence. It is pointed out
F that the proviso to Section 11 A deals with the time for initiation /
of action. Section 11AC is only a mechanism for computation
and the quantum of penalty. It is stated that the consequences
of fraud etc. relate to the extended period of limitation and the
onus is on the revenue to establish that the extended period of
G limitation is applicable. Once that hurdle is crossed by the rev-
enue, the assessee is exposed to penalty and the quantum of
penalty is fixed. It is pointed out that even if in some. statutes -r
mens rea is specifically provided for, so is the limit or imposi-
tion of penalty, that is the maximum fixed or the quantum has to
be between two limits fixed. In the cases at hand, there is no
H
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 21
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PAS/WAT, J.]

variable and, therefore, no discretion. It is pointed out that prior A
to insertion of Section 11AC, Rule 1730 was in vogue in which
no mens rea was provided for. It only stated "which he knows or
has reason to believe". The said clause referred to wilful action.
According to learned counsel what was inferentially provided in
some respects in Rule 1730, now stands explicitly provided in B
Section 11AC. Where the outer limit of penalty is fixed and the
statute provides that it should not exceed a particular limit, that
itself indicates scope for discretion but that is not the case here.
6. It was pointed out that Rule 96ZO refers to manufac-
turer of ingots and billets while Rule 96ZO relates to indepen- C
dent processor of textile fabrics. They belong to the same cat-
egory and failure to pay duty attracts penal consequences. In
the other category in cases of fraud etc. penalty is for statutory
offence. It is pointed out that in Dilip Shroff's case (supra) the
question relating to discretion was not the basic issue. In fact, D
Section 271(1)(c) of the l.T. Act provides for some discretion
and, therefore, that decision has no relevance. So far as the
present dispute is concerned, whether discretion has been prop-
erly exercised is a question of fact. It is submitted that Chair-
man SE Bi's case (supra) has full application to the facts of the E
eresent case.
7. In reply, learned counsel for the respondent submitted
that the factual scenario in each case has to be examined. In
T cases relatable to Section 11 AC of the Act, the Appellate Tribu-
nal in some of the cases has come to a finding that there was F
no wilful disregard involved and the assessee's conduct was
bona fide. It is pointed out that Section 11A relates to the ex-
pression "assessee shall be liable" ·and, therefore, there is dis-
cretion to reduce the penalty. With reference to Sections 271 C
and 271 B of the l.T.Act, it is pointed out that in the case of former· G
it is "liable" while in the latter it is "shall pay". Reference is also
made to Sections 271 F and 272A of the said l.T. Act. Reliance
is placed on a decision of this Court in State of M.P. and Ors. v.
Bharat Heavy Electricals (1997 (7) sec 1) to contend that even
if this Court held that it appears to give the expression that the H
22 SUPREME COURT REPORTS [2008] 14 S.C.R.

A imposition of penalty is mandatory, yet there was a scope for
;--
exercise of discretion ..
8. It is submitted that various degrees of culpability cannot
be placed on the same pedestal. Section 11AC can be con-
strued in a manner by reading into it the discretion. That would
B be the proper way to give effect to the statutory intention. The
relevant provisions i.e. Sec_tion 11AC, Rule 96ZQ and Rule 96ZO ~
read as follows:

"11 AC- Penalty for short levy or non levy of duty in certain
c cases- Where any duty of excise has not been levied or
paid or has been short levied or short paid or erroneously
refunded by reasons of fraud, collusion or any wilful mis-
statement or suppression of facts, or contravention of any
of the provisions of this Act or of the rules made thereuhder
with intent to evade payment of duty, the person who is
D
liable to pay duty as determined under sub-section (2) of
section 11A, shall also be liable to pay a penalty equal to
"'
the duty so determined.
Provided that where such duty as determined under sub-
E section (2) of section 11 A, and the interest payable thereon
under section 11AB, is paid within thirty days from the
date of communication of the order of the Central Excise
Officer determining such duty, the amount of penalty liable
' "'
to be paid by such person under this Section be twenty-
five per cent of the duty so determined: ~
F
Provided further that the benefit of reduced penalty under
the first proviso shall be available if the amount of penalty
so determined has also been paid within the period of
thirty days referred to in that proviso:
G
Provided also that where the duty determined to be payable
is reduced or increased by the Commissioner (Appeals), r
the Appellate Tribunal or, as the case may be, the court, then
for the purposes of this section, the duty, as reduced or
increased, as the case may be shall be taken into account:
H
UNION OF INDIA & ORS. v. MIS DHARAMENDRA 23
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]

-\ Provided also that in case where the duty determined to A
be payable is increased by the Commissioner (Appeals),
the Appellate Tribunal or, as the case may be, the court
then the benefit of reduced penalty under the first proviso
shall be available, if the amount of duty so increased, the
interest payable thereon and twenty five per cent, of the B
consequential increase of penalty have also been paid
I

I within thirty days of the communication of the order by
which such increase in the duty takes effect.
Explanation- For the removal of doubts, it is hereby
declared that- c
(1) the provisions of this section shall also apply to cases
in which the order determining the duty under sub-
section (2) of section 11A, relates to notices issued
prior to the date on which the Finance Act, 2000
D
receives the assent of the President;
(2) any amount paid to the credit of the Central
Government prior to the date of communication of the
-' order referred to in the first proviso or the fourth proviso
shall be adjusted against the total amount due from such E
person.
RULE 96ZO. Procedure to be followed by the
manufacturer of ingots and billets

'\ (1) A manufacturer of non-alloy steel ingots and billets F
falling under sub- heading Nos. 7206.90 and 7207 .90 of
the Schedule to the Central Excise Tariff Act, 1985 (5 of
1986), shall debit an amount calculated at the rate of Rs.
750 per metric tone at the time of clearance of ingots and
billets of non-alloy steel from his factory in the account-
G
current maintained by him under sub-rule (1) of rule 173G
-; of the Central Excise Rules, 1944; subject to the condition
that the total amount of duty liability shall be calculated
and paid in the following manner :-
I. Total amount of duty liability for the period from the 1st H
24 SUPREME COURT REPORTS [2008] 14 S.C.R.

A day of 1 September, 1997 to the 31st day of March, 1998 r J

(a) a manufacturer shall pay a total amount calculated at
the rate of Rs. 750 per metric tonne on capacity of
production of his factory for the period from 1st day of
September, 1997 to the 31 stday of March, 1998, as
B determined under the l.nduction Furnace Annual Capacity
Determination Rules, 1997. This amount shall be paid by
31st day of March, 1998; t--

(b) the amount of duty already paid, together with on- ...
c account amount paid by the manufacturer, if any, during
the period from 1st day of September,1997 to the 31st
day of March, 1998, shall be adjusted tqwards the total
amount of duty liability payable under clause (a);
(c) if a manufacturer fails to pay the total amount of duty
D payable under clause (a) by the 31st day of March, 1998,
he shall be liable to pay the outstanding amount (that is
the amount of duty which has not been (paid by the 31st
day of March, 1998) along with interest at the rate of
eighteen percent per annum on such outstanding amount
E calculated for the period from the 1st day of April, 1998 till
the date of actual payment of the outstanding amount :
Provided that if the manufacturer fails to pay the total
amount of duty payable under clause (a) by the 30tl:l day
of April, 1998, he shall also be liable to pay a penalty
F equal to the outstanding amount of duty as on 30th day of f

April, 1998 or five thousand rupees, whichever is greater.
II. Total amount of duty liability for a financial year
subsequent to 1997-98 (a) a manufacturer shall pay a
G total amount calculated at the rate of Rs. 750/- per metric
tonne on the annual capacity of production of his factory
as determined under the Induction Furnace Annual -r- . .,
Capacity Determination Rules, 1997. This amount shall
be paid by the 31st day of March of the financial year;
H (b) the amount of duty already paid, together with on-
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 25
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]

-\ account amount paid by the manufacturer, if any, during A
the financial year shall be adjusted towards the total amount
of duty liability;
(c) if a manufacturer fails to pay the total amount of duty
payable under clause (a) by the 31st day of March, of the
. relevant financial year, he shall be liable to, - B
(i) pay the outstanding amount of duty (that is the amount
of duty which has not been paid by the 31st day of March
of the relevant financial year) along with interest at the rate
of eighteen per cent. per annum on such outstanding
amount, calculated for the period from the 1st day of April c
of the immediately succeeding financial year till the date
of actual payment of the whole of outstanding amount; and
I

(ii) a penalty equal to such outstanding amount of duty or
five thousand rupees, whichever is greater.
D
·7 (IA) If any manufacturer removes any of the non-alloy steel
ingots and billets specified in sub-rule (I) without complying
with the requirements of the provisions of that sub-rule,
then all such goods shall be liable to confiscation and the
manufacturer shall be liable to a penalty not exceeding E
three times the value of such goods, or five thousand
rupees, whichever is greater
(2) Where a manufacturer does not produce the ingots
_and billets of non- alloy steel during any continuous period
. of not less than seven days and wishes to claim abatement F
under sub-section (3) of section 3A of the Central Excise
Act, 1944, the abatement will be allowed by an order
passed by the Commissioner of Central Excise of such
amount as may be specified in such order, subject to the
___,, fulfillment of the following conditions, namely-
G
....
(a) the manufacturer shall inform in writing about the closure
to the 1Assistant Commissioner of Central Excise or
Deputy Commissioner of Central Excise 1, with a copy to
the Superintendent of Central Excise, either prior to the
date of closure or on the date of closure; H
26 SUPREME COURT REPORTS [2008] 14 S.C.R.

;-~
A (b) the manufacturer shall intimate the reading of-the
electricity meter to the Assistant Commissioner of Central
Excise or Deputy Commissioner of Central Excise1, with .,,.,,
a copy to the Superintendent of Central Excise,
immediately after the production in his factory is stopped
B along with the closing balance of stock of the ingots and
billets of non-alloy steel;
LI
(c) the manufacturer, when he starts production again, shall
inform in writing about the starting of production to the •
c
Assistant Commissioner of Central Excise or Deputy .
Commissioner of Central Excise1, with a copy to -the
.•
',

~

Superintendent of Central Excise, either prior to the date
of starting production or on the date of starting production; .,
~
(d) the manufacturer shall on start of production again
along with the closing balance of stock on restarting the ~

D
factory, intimate the reading of the electricity meter to the
'--c
'
Assistant Commissioner of Central Excise or Deputy ~
l

Commissioner of Central Excise.1, with a copy to the .
Superintendent of Central Excise;
I...
E (e) the manufacturer shall while sending intimation under
clause (c), .declare that his factory remained closed for a
continuous period starting from -hours on -(date) to -
. hours ori -(date).
'
"'
(3) Notwithstanding anything contained elsia\<yhere in these
F rules, if a manufacturer having a total furnace capacity of t
>
3 metric tonnes installed in his factory so desires, he may,
from the first day of September, 1997 to the 31st day of
March, 1998 or any other financial year, as the case may I--
be, pay a sum of rupees five lakhs per month _in two equal l
G installments, the first installment latest by the 15thday of ~.

each month, and the second installment latest by the last )._
__;

day of each month, and the amounts so paid shall be
deemed to be full and final discharge of his duty liability
for the period from the 1st day of September, 1997 to the
H 31st day of March, 1998, or any other financial year, as
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 27
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]

the case may be, subject to the condition that the A
manufacturer shall not avail of the benefit, if any, under
sub-section (4) of the section 3A of the Central Excise
Act, 1944 (1 of 1944) :
Provided that for the month of September, 1997 the
Commissioner may allow a manufacturer to pay the sum B
of rupees five lakhs by the 30th day of September, 1997:
Provided further that if the capacity of the furnaces installed
in a factory is more than or less than 3 metric tonnes, or
there is any change in the total capacity, the manufacturer c
shall pay the amount, calculated pro rata:
provided also that where a manufacturer fails to pay the
whole of the amount payable for any month by the 15th
day or the last day of such month, as the case may be, he
shall be liable to,- D
(i) pay the outstanding amount of duty along with interest
thereon at the rate of eighteen per cent per annum,
calculated for the period from the 16th day of such month
or the 1st day of next month, as the case may be, till the
date of actual payment of the outstanding amount; and E

(ii) a penalty equal to such outstanding amount of duty or
five thousand rupees, whichever is greater.
... Provided that if the manufacturer fails to pay the total
amount of the duty payable for each of the months from F
September, 1997 to March, 1998 by the 30th day of April,
1998, he shall also be liable to pay a penalty equal to the
outstanding amount of duty as on 30th day of April, 1998
or five thousand rupees, whichever is greater.
G
Explanation - For removal of doubts it is hereby clarified
that sub-rule (3) does not apply to an induction furnace
unit which ordinarily produces castings or stainless steel
products but may also incidentally produce non-alloy steel
ingots and billets.
H
28 SUPREME COURT REPORTS [2008] 14 S.C.R.

A (4) In case a manufacturer wishes to avail of discharging
his duty liability in terms of sub-rule (3), he shall inform the
Commissioner of Cenfral Excise, with a copy to the
Assistant Commissioner of Central Excise or Deputy
Commissioner of Central Excise, in the following proforma:
B "We (name of the factory), located at (address) hereby
wish to avail of the scheme described in sub-rule (3) of
rule 9620, for full and final discharge of our duty liability for
the manufacture of ingots and billets of non-aJloy steel
ur:ider~ection3A of the' Central Excise Act, 1944(Iof1944).
c Dated
Sd
Name and Designation
(With stamp)
D
RULE 96ZQ. Procedure to be followed by an Independent
processor of textile fabrics
(1) An independent processor of textile fabrics falling under
heading Nos. 52.07,52.08,52.09,54.06,54.07,
E 55.11,55.12,55.13 or 55.14, or processed textile· fabrics
of cotton or man-made fibers, falling under heading Nos.
or sub-heading Nos. 58.01, 58.02, 5806.10,. 5806.40.
6001.12, 6001.22, 6001.92, 6002.20, 6002.30, 6002.43
or 6002:93, of the First Schedule to Centr'al Excise Tariff
F Act, 1'985 (5 of 1986), shall debit an amount of duty of
Rs:2.0 lakhs per chamber per month, Rs.2.51akhs per
chamber per month, Rs.3.0 lakhs per chamber per month
or Rs.3.5 lakhs per chamber per month, as the case may
be, on the annual capacity of production as determined
under the Hot-air Stenter Independent Textile Processors
G
.
Annual Capacity Determination Rules, 1998. ·
(2) The amount of duty payable under sub-rule (1) shall be
debited by the independent processor in .the account
current maintained by him sub-rule (1) of rule 173G of the
H Central Excise Rules, 1944.
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 29
. TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]
-\
(3) Fifty per cent. of the amount of duty payable for a A
calendar month under sub-rule (1) shall be paid by the
15th of the month and the remaining amount shall be paid
by the end _of that month.
Provided that the amount of duty payable for the period
from 15th December, 1998 to 31st December, 1998 shall B
be deposited on or before the 31st day of December,
1998.
(4) The independent processor shall continue to maintain
records, and file returns, pertaining to production, c
clearance, manufacturing, storage, delivery or disposal of
1'
goods, including the materials received for or consumed
in the manufacture of excisable goods or other goods, the
goods and materials in stock with him and the duty paid
by him, as prescribed under the Central Excise Rules,
D
1944 and the notifications issued there under.

(5) If an independent processor fails to pay the amount 0£
duty or any part thereof by the date specified in sub-rule
(3), he shall be liable to, -
E
"" (i) pay the outstanding amount of duty along with interest
at the rate of twenty-four percent per annum calculated for
the outstanding period on the outstanding amount; and

\ (ii) a penalty equal to an amount of duty outstanding from
him at the end of such month or rupees five thousand, F
whichever is greater.
(6) If an independent processor, removes the processed
textile fabrics referred to in sub-rule (1) without complying
with any of the requirements contained in sub-rule (4),
G
then, all such goods shall be liable to confiscation and the
-'(
independent processor shall be liable to a penalty not
exceeding rupees ten thousand.

(7) Where an independent processor does not produce
or manufacture the processed textile fabrics specified in H
30 SUPREME COURT REPORTS [2008) 14 S.C.R.

/-
A sub-rule (1) during any continuous period of not less than
fifteen days and wishes to claim abatement under sub-
section (3) of section 3A of the Act, the abatement shall be
,....
allowed by an order passed by the Joint Commissioner of
Central Excise of such amount as may be specified in
B such order, subject to fulfillment of the following conditions,
namely:.,
t-
(a) abatement shall be applicable only on the complete
closure of the hot air stenter containing the chambers and
not in case of closure of anyone or more chambers
c contained in such stenter;

(aa) the independent processor shall not clear any non- . ,,
stentered fabrics during t~e period for which abatement is '
claimed, and any clearance by him of non-stentered fabrics
during such period shall be liable to confiscation;
D
\'-
(b) the independent processor shall inform, in writing, about
such closure to the Deputy Commissioner of Central
Excise or the Assistant Com- missioner of Central Exdse, ~
as the case may be, with a copy to the Superintendent of
E Central Excise, at least three days prior to the date of
such closure, giving the following details, namely: - ""~~

(i) the name of the manufacturer of the stenter;
;
(ii) the date of purchase of the stenter;
f
F (iii) the number of chambers as determined under the
Hot-air Stenter Independent Textile Processors Annual
Capacity Determination Rules, 2000;
(iv) the serial number or identification no. of the stenter; (v)
G reason for closure of the stenter;
(vi) approximate number of days for which the stenter shall r-
remain closed;

(vii) date and time from which the closure is intended; (c)
the stenter or stenters shall be sealed in such manner as
H
'l
<

UNION OF INDIA & ORS. v. MIS DHARAMENDRA 31
~ TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]
,,
may be pre- scribed by the Commissioner of Central A
Excise;
(d) the independent processo.r, when he starts production
again, shall in- form in writing about the date of starting of
production to the Deputy Commissioner of Central Excise .
+ or the Assistant Commissioner of Central Excise, as the B
case may be, with a copy to the Superintendent of Central
Excise, at least three days prior to the date of starting
production, and get the seal opened in such manner as
may be specified by the Commissioner of Central Excise
~ before recommencing the production; c
---t
(e) When the claim for abatement by the independent
processor is for a period less than one month, he shall be
required to pay the duty, as applicable, for the entire period
of one month and may subsequently seek such claim after
D
payment of such duty;
(f) when the claim for abatement by the independent
•-•, processor is for a period of less than one month or more,
he shall not be required to pay the duty for that period in
advance; E
(g) If the claim for abatement by the independent processor
has been disallowed by the Joint Commissioner of Central
\ Excise, by a written order made in this regard, the
independent processor shall pay the duty , and interest if
any applicable, prior to getting the stenter or stenters F
sealed under condition (c) re-opened for resuming
production:
c

Provided that the Commissioner of Central Excise may
condone, for reasons to be recorded in writing, the delay G
'\ ~
, · in giving prior information under clause (b), if he is satisfied
that such delay in giving information was caused due to
unavoidable circumstances.
Explanation. -For the purposes of these rules, an
"independent processor" means a manufacturer who is H
I ,

32 SUPREME COURT REPORTS [2008] 14 S.C.R.

A engaged primarily in the processing of fabrics with the aid
of power and who also has the facility in his factory
(including plant and equipment) for carrying out heat-setting
or drying, with the aid of power or steam in a hot-air stenter
and who has no proprietary interest in any factory primarily
B and substantially engaged in the spinning of yarn or
weaving or knitting of fabrics, on or after the 10th
December, 1998.
It would also be necessary to take note of Section 271 (1 )(
c) and Section 271 C of the IT Act:
c
"Section 271-FAILURE TO FURNISH RETURNS,
COMPLY WITH NOTICES, CONCEALMENT OF
INCOME, ETC.
(1) If the Assessing Officer or the Commissioner (Appeals)
D in the course of any proceedings under this Act, is satisfied · •
that any person -
(a) Omitted
~b) Has failed to comply with a notice under sub-section
E ( : ) of section 142 or sub-section (2) of section 143 or fails
to comply with a direction issued unger sub-section (2A)
of section 142; or
(c) Has concealed the particulars of his income or furnished
inaccurate particulars of such income, he may direct that
F such person shall pay by way of penalty, -
(i) Omitted
(ii) In the cases referred to in clause (b), in addition to any
tax payable by him, a sum which shall not be less than one
G thousand rupees but which may extend to twenty-five
thousand rupees for each such failure; ·
(iii) In the cases referred to in clause (c), in addition to any
tax payable by him, a sum which shall not be less than but
which shall not exceed three times the amount of tax sought
H
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 33
---\ TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]

to be evaded by reason of the concealment of particulars A
of his income or the furnishing of inaccurate particulars of
such income :
Explanation 1 : Where in respect of any facts material to
the computation of the total income of any person under
this Act, - B

(A) Such person fails to offer an explanation or offers an
explanation which is found by the Assessing Officer or the
Commissioner (Appeals) to be false, or
(B) Such person offers an explanation which he is not able c
to substantiate and fails to prove that such explanation is
bona fide and that all the facts relating to the same and
material to the computation of his total income have been
disclosed by him, then, the amount added or disallowed
in computing the total income of such person as a result D
thereof shall, for the purposes of clause (c) of this sub-
section be deemed to represent the income in respect of
which particulars have been concealed.
Explanation 2 : Where the source of any receipt, deposit,
outgoing or investment in any assessment year is claimed E
by any person to be an amount which had been added in
computing the income or deducted in computing the loss
~ in the assessment of such person for any earlier
assessment year or years but in respect of which no penalty
under clause (iii) of this sub-section had been levied, that F
part of the amount so added or deducted in such earlier
assessment year immediately preceding the year in which
the receipt, deposit, outgoing or investment appears (such
earlier assessment year hereafter in this Explanation
,..( referred to as the first preceding year) which is sufficient G
' to cover the amount represented by such receipt, deposit
or outgoing or value of such investment (such amount or
value hereafter in this Explanation referred to as the utilised
amount) shall be treated as the income of the assessee,
particulars of which had been concealed or inaccurate H
34 SUPREME COURT REPORTS [2008) 14 S.C.R.

A particulars of which had been furnished for the first
preceding year; and where the amount so added or
deducted in the first preceding year is not sufficient to
cover the utilised amount, that part of the amount so added
or deducted in the year immediately preceding the first
B preceding year which is sufficient to cover such part of the
utilised amount as is not so covered shall be treated to be
the income of the assessee, particulars of which had been
concealed or inaccurate particulars of which had been
furnished for the year immediately preceding the first
c preceding year and so on, until the entire utilised amount
is covered by the amounts so added or deducted in such
earlier assessment years.
Explanation 3 : Where any person who has not previously
.been assessed under this Act, fails, without reasor:iable
D cause, to furnish within the period specified in sub-section
(1) of section 153 a return of his income which. he is
required to furnish under section 139 in respect of any
assessment year commencing on or after the 1st day of
t.pril, 1989, and, until the expiry of the period aforesaid,
E no notice has been issued to him under clause (i) of sub-
section (1) of section 142 or section 148 and the
Assessing· Officer or the Commissioner (Appeals) is
satisfied that in respect of. such assessment year such
person has taxable incorne, then, such person shall, for
F the purposes of clause (c) of this sub-section, be deemed
to have concealed the particulars of his income in respect
of such assessment year, notwithstanding that such person
furnishes a return of his income at any time after the expiry
of the period aforesaid in pursuance of a notice under
section 148.
G
Explanation 4 : For the purpose of clause (iii) of this sub-
section, the expression "the amount of tax sought to be
evaded", - (a) In any case where the amount of income in
. respect of which particulars have been concealed or
H inaccurate particu!ars have been furnished exceeds the
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 35
-\ TEXTIL~ PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]
. total income assessed, means the tax that would have A
been chargeable on the income in respect of which
particulars have been concealed or inaccurate particulars
have been furnished had such income been the total
income;
(b) In any case to which Explanation 3 applies, means the B
tax on the total income assessed;
(c) In any other case, means the difference between the
tax on the total income assessed and the tax that would
have been chargeable had such total income been c
reduced by the amount of incom!!' in respect of which
particulars have been concealed or inaccurate particulars
have been furnished.
Explanation 5 : Where in the course of a search under
-1
section 132, the assessee is found to be the owner of any D
money, bullion, jewellery or other valuable article or thing
(hereafter in this Explanation referred to as assets} and
the assessee claims that such assets have been acquired
by him by utilising (wholly or in part} his income, - (a} For
any previous year which has ended before the date of the E
search, but the return of income for such year has not
been furnished before the said date, or, where such return
has been furnished before the said date, such income
'
' has not been declared therein; or (b) for any previous
year which is to end on or after the date of the search, F
then, notwithstanding that such income is declared by him
.. in any return of income furnished on or after the date of the
search, he shall, for the purposes of imposition of a penalty
under clause (c} of sub-section (1) of this section, be
deemed to have concealed the particulars of his income
~ G
or furnished inaccurate particulars of such income,

Unless, - (1) Such income is, or the transactions resulting
in such income are recorded, - (i) In a case falling under
clause (a), before the date of the search; and
H
36 SUPREME COURT REPORTS [2008] 14 S.C.R.

A (ii) In a case falling under clause (b), on or before such
date, in the books of account, if any, maintained by him for
any source of income or such income is otherwise disclosed
to the Chief Commissioner or Commissioner before the
said date; or
B (2) He, in the course of the search, makes a statement \-
under sub-section (4) of section 132 that any money,
bullion, jewellery or other valuable article or thing found in
his possession or under his control, has been acquired
out of his income which has not been disclosed so far in
c his return of incQUle to be furnished before the expiry of
time specified in sub-section (1) of section 139, and also
specifies in the statement the manner in which such income
has been derived and pays the tax together with interest,
if any, in respect of such income.
.,,_
D
Explanation 6 : Where any adjustment is made in the
income or loss declared in the return under the proviso to
clause (a) of sub-section (1) of section 143 and additional
tax charged under that section, the provisions of this sub-
section shall not apply in relation to the adjustment so
E made.
Section 271C
PENALTY FOR FAILURE TO DEDUCT TAX AT
SOURCE.
F
(1) If any person fails to - (a) Deduct the whole or any part
of the tax as required by or under the provisions of Chapter
XVll-B; or
(b) Pay the whole or any part of the tax as required by or
G under, - (i) Sub-section (2) of section 115-0; or ~
r-
(ii) Second proviso to section 1948, then, such person
shall be liable to pay, by way of penalty, a sum equal to the
amount of tax which such person failed to deduct or pay
as aforesaid.
H
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 37
-\ TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]
~
(2) Any penalty imposable under sub-section (1) shall be A
imposed by the Joint Commissioner.
9. It is to be noted that in Chairman SEBl's case (supra)
reference was made to the statutory scheme. It was noted that
the penalty was mandatory. It was pointed out that there was a
8
( scheme attracting imposition of penalty with reference to a stat-
ute relating to breach of civil obligation. Section 9 of the Act in
that case related to criminal proceedings.
10. In Chairman, SEBl's case (supra) it was noted as fol-
lows: c
14. Mr Rao advanced elaborate arguments and took us
through the pleadings, the reply received to the show-
cause notice, the orders of the adjudicating authority and
of the Appellate Tribunal. He drew our specific attention to
-t
Regulation 25(7)(a) of the Securities and Exchange Board D
of India (Mutual Funds) Regulations, 1996 and Sections
15-D(b), 15-E, 15-1, 15-J and 12-8 of the SEBI Act, 1992
which are extracted hereunder:
"25. Asset management company and its obligations.-
' (1 )-(6) * * E
*
7. (a) An asset management company shall not through
any broker associate~ with the sponsor, purchase or sell
~ securities, which is average of 5% or more of the
aggregate purchases and sale of securities made by the F
mutual fund in all its schemes:
Provided that for the purpose of this sub-regulation,
aggregate purchase and sale of security shall exclude
sale and distribution of units issued by the mutual fund:
~ -{ G
Provided further that the aforesaid limit of 5% shall apply
for a block of any three months."
"15-D. Penalty for certain defaults in case of mutual
funds.-lf any person, who is-
H
38 SUPREME COURT REPORTS [2008] 14 S.C.R.

A (a) * * *
(b) registered with the Board as a collective investment
scheme, including mutual funds, for sponsoring or carrying
on any investment scheme, fails to comply with the terms
and conditions of certificate of registration, he shall be
B liable to a penalty of one lakh rupees for each day during
which such failure continues or one crore rupees, whichever
is less;

* * *
c 15-E. Penalty for failure to observe rules and regulations
by an asset management company.-Where any asset
management company of a mutual fund registered under
this Act fails to comply with any of the regulations providing
for restrictions on the activities of the asset management
~
D companies, such asset management company shall be
liable to a penalty of one lakh rupees for each day during
which such failure continues or one crore rupees, whichever
is less.

* * *
E
15-1. Power to adjudicate.-(1) For the purpose of
adjudging under Sections 15-A, 15-B, 15-C, 15-D; 15-E,
15-F, 15-G and 15-H, the Board shall appoint any officer
i
not below the rank of a Division Chief to be an adjudicating
officer for holding an inquiry in the prescribed manner
after giving any person concerned a reasonable opportunity
of being heard for the purpose of imposing any penalty.
(2) While holding an inquiry the adjudicating officer shall
have power to summon and enforce the attendance of any
G person acquainted with the facts and circumstances of r- j
the case to give evidence or to produce any document
which in the opinion of the adjudicating officer, may be
useful for or relevant to the subject-matter of the inquiry
and if, on such inquiry, he is satisfied that the person has
H failed to comply with the provisions of any of the sections
UNION OF INDIA & ORS. v. MIS DHARAMENDRA 39
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]
I
-\
•. specified in sub-section (1), he may impose such penalty A
as he thinks fit in accordance with the provisions of any of
those sections.
15-J. Factors to be taken into account by the adjudicating
officer.-While adjudging the quantum of penalty under
Section 15-1, the adjudicating officer shall have due regard B
) to the following factors, namely-
(a) the amount of disproportionate gain or unfair
advantage, wherever quantifiable, made as a result of the
,
default; c
(b) the amount of loss caused to an investor or group of
investors as a result of the default;
(c) the repetitive nature of the default."
xxx xxx xxx D
1
19. The scheme of the SEBI Act of imposing penalty is
very clear. Chapter VI-A nowhere deals with criminal
offences. These defaults for failures are nothing but failure

.. '
or default of statutory civil obligations provided under the
Act and the Regulations made thereunder. It is pertinent to E
note that Section 24 of the SEBI Act deals with the criminal
offences under the Act and its punishment. Therefore, the
proceedings under Chapter VI-A are neither criminal nor
'>(
i
quasi-criminal. The penalty leviable under this chapter or
under these sections is penalty in cases of default or failure F
of statutory obligation or in other words breach of civil
obligation. In the provisions and scheme of penalty under
Chapter VI-A of the SEBI Act, there is no element of any
criminal offence or punishment as contemplated under
criminal proceedings. Therefore, there is no question of G
-I proof of intention or any mens rea by the appellants and
it is not an essential element for imposing penalty under
the SEBI Act and the Regulations.
xxx xxx xxx
H
40 SUPREME COURT REPORTS [2008] 14 S.C.R.

;-
A 33. This Court in a catena of decisions has held that mens
rea is not an essential element for imposing penalty for
breach of civil obligations:
. (a) Director of Enforcement v. MCTM Corpn. (P) Ltd.:
(SCC pp. 478 & 480-81, paras 8 & 12-13)
B
"8. It is thus the breach of a 'civil obligation' which attracts
\,.
'penalty' under Section 23(1 )(a), FERA, 1947 and a finding I

· that the delinquent has contravened the provisions of
Section 10, FERA, 1947 that would immediately attract
r
c the levy of 'penalty' under Section 23, irrespective of the
fact whether the contravention was made by the defaulter
with any 'guilty intention' or not. Therefore, unlike in a
criminal case, where it is essential for the 'prosecution' to
establish that the 'accused' had the necessary guilty
intention or in other words the requisite 'mens rea' to
D
commit the alleged offence with which he is charged before ~

recording his conviction, the obligation on the part of the
Directorate of Enforcement, in cases of contravention of
the provisions of Section 10 of FERA, would be discharged
where it is shown that the 'blameworthy conduct' of the
E delinquent had been established by wilful contravention
by him of the provisions of Section 10, FERA, 1947. It is \-
the delinquency of the defaulter itself which establishes
his 'blameworthy' conduct, attracting the provisions of
Section 23(1 )(a) of FERA, 1947 without any further proof (
F of the existence of 'mens rea'. Even after an adjudication
by the authorities and levy of penalty under Section 23(1 )(a)
of FERA, 1947, the defaulter can still be tried and punished
for the commission of an offence under the penal law.....

G
xx xx xx
12. In Corpus Juris Secundum, Vol. 85, at p. 580'
para 1023, it is stated thus:
'A penalty imposed for a tax delinquency is a civil obligation,
remedial and coercive in its nature, and is far different
H
UNION OF INDIA & ORS. v. MIS DHARAMENDRA 41
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]
--\\
....!, from the penalty for a crime or a fine or forfeiture provided A
as punishment for the violation of criminal or penal laws.'
13. We are in agreement with the aforesaid view and in
our opinion, what applies to 'tax delinquency' equally holds
good for the 'blameworthy' conduct for contravention of
the provisions of FERA, 1947. We, therefore, hold that B
' -r mens rea (as is understood in criminal law) is not an
essential ingredient for holding a delinquent liable to pay
penalty under Section 23(1 )(a) of FERA, 1947 for
contravention of the provisions of Section 10 of FERA,
1947 and that penalty is attracted under Section 23(1 )(a) c
as soon as contravention of the statutory obligation
-I contemplqted by Section 10(1 )(a) is established. The High
Court apparently fell in error in treating the 'blameworthy
conduct' under the Act as equivalent to the commission of
a 'criminal offence', overlooking the position that the D
-1
'blameworthy conduct' in the adjudicatory proceedings is
established by proof only of the breach of a civil obligation
· under the Act, for which the defaulter is obliged to make
amends by payment of the penalty imposed under Section
23(1 )(a) of the Act irrespective of the fact whether he E
committed the breach with or without any guilty intention."
(b) J.K Industries Ltd. v. Chief Inspector of Factories and
Boilers: (SCC p. 692, ·para 42)
~
I
"42. The offences under the Act are not a part of general F
penal law but arise from the breach of a duty provided in
a special beneficial social defence legislation, which
creates absolute or strict liability without proof of any mens
rea. The offences are strict statutory offences for which
establishment of mens rea is not an essential ingredient.
G
"!
The omission or commission of the statutory breach is
itself the offence. Similar type of offences based on the
principle of strict liability, which means liability without fault
or mens rea, exist in many statutes relating to economic
crimes as well as in laws concerning the industry, food
H
.
l
'

42 SUPREME COURT REPORTS [2008] 14 S.C.R.

A adulteration, prevention of pollution, etc. in India and
abroad. 'Absolute offences' are not criminal offences in
any real sense but acts which are prohibited in the interest
of welfare of the public and the prohibition is backed by
sanction of penalty."
B c) R.S. Joshi v. Ajit_ Mills Ltd.: (SCC p. 110, para 19)
"Even here we may reject the notion that a penalty or a
punishment cannot be cast in the form of an absolute or
no-fault liability but must be preceded by mens rea. The
c classical view that 'no mens rea, no crime' has long ago
been eroded and several laws in India and abroad,
especially regarding economic crimes and departmental
penalties, have created severe punishments even where
the; offences h;:ive been defined to exclude. mens rea.
Therefore, the contention that Section 37(1) fastens a ·
D
heavy liability regardless of fault has no force in depriving
the forfeiture of the character of penalty." .
(d) Gujarat Travancore Agency v. CIT: (SCC p. 5 5 ,
para 4)
E
"It is sufficient for us to refer to Section 271 (1)(a), which
provides that a penalty may be imposed if the Income Tax
Officer is satisfied that any person has without reasonable
cause failed to furnish the return of total income, and to

F
Section 276-C which provides that if a person wilfully fails ., ~
r
to furnish in due time the return of income required under r
Section 139(1 ), he shall be punishabie with rigorous
imprisonment for a term which may extend to one year or ~
with fine. It is clear that in the former case what is intended
is a civil obligation while in the latter what is imposed is t
G a criminal sentence. There can be no dispute that having
regard to the provisions of Section 276-C, which speaks ... '
of wilful failure on the part of the defaulter and taking into
consideration the nature of the penalty, which is punitive,
no sentence can be imposed under that provision unless
H the element of mens rea is established. In most cases of

lr
UNION OF INDIA & ORS. v. MIS DHARAMENDRA 43
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]
\ criminal liability, the intention of the legislature is that the A
penalty should serve as a deterrent. The creation of an
offence by statute proceeds on the assumption that society
suffers injury by the act or omission of the defaulter and

-· that a deterrent must be imposed to discourage the
repetition of the offence. In the case of a proceeding under B
Section 271 (1 )(a), however, it seems that the intention of
) the legislature is to emphasise the fact of loss of revenue
and to provide a remedy for such loss, although no doubt
an element of coercion· is present in the penalty. In this
connection the terms in which the penalty falls to be c
measured is significant. Unless there is something in the
language of the statute indicating the need to establish
the element of mens rea it is generally sufficient to prove
that a default in complying with the statute has occurred.
In our opinion, there is nothing in Section 271 (1 )(a) which
D
' requires that mens rea must be proved before penalty can
i
be levied under that provision
Swedish Match AB v. SEBI: (SCC p. 671, para 113)
"The provisions of Section 15-H of the Act mandate that
a penalty of rupees twenty-five crores may be imposed. E
The Board does not have any discretion in the matter and,
thus, the adjudication proceeding is a mere formality.
Imposition of penalty upon the appellant would, thus, t:>e a
forgone conclusion. Only in the criminal proceedings
·~
initiated against the appellants, existence of mens rea on · F
the part of the appellants will come up for considerat,ion."
(f) SEBI v. Cabot International Capital Corpn: (Comp Cas
pp. 862 & 864-65, paras 47, 52 & 54) j
"47. Thus, the following extracted principles are G
-f summarised: (;.:-

(A) Mens rea is an essential or sine qua non for criminal
offence.

(8) A straitjacket formula of mens rea cannot be blindly H
44 SUPREME COURT REPORTS [2008] 14 S.C.R.

A followed in each and every case. The scheme of a particular
statute may be diluted in a given case.
(C) If, from the scheme, object and words used in the

8
statute, it appears that the proceedings for imposition of
the penalty are adjudicatory in nature, in contradistinction
to ·criminal or quasi-criminal proceedings, the
...
determination is of the breach of the civil obligation by the
offender. The word 'penalty' by itself will not be determinative -,,
i
to conclude the nature of proceedings being criminal or I

quasi-criminal. The relevant considerations being the
c nature of the functions being discharged by the authority
and the determination of the liability of the contravener
and the delinquency.
(0) Mens rea is not essential element for imposing penalty
for breach of civil obligations or liabilities.
D
(There can be two distinct liabilities, civil and criminal under
the same Act.
xx xx xx
E 52. The SEBI Act and the Regulations, are intended to
regulate the securities market and the related aspects,
\ the imposition of penalty, in the given facts and
circumstances of the case, cannot be tested on the ground
of 'no mens rea, no penalty'. For breaches of provisions
F . of the S,EBI Act and Regulations, according to us, which
are ci.vil in nature, mens rea is not essential. On particular
. facts and c,ircumstances of the case, proper exercise of
juqicial discretion is a must, but not on foundation that
me.ns rea is essential to impose penalty in ,each and every
'brel;lch of provisions of the SEBI Act.
G
* * *
54. However, we are not in agreement with the Appellate
Authority in respect of the reasoning given in regard to the
necessity of mens rea being essential for imposing the
H
UNION OF INDIA & ORS. v. M/S OHARAMENDRA 45
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]

penalty. According to us, mens rea is not essential for A
imposing civil penalties under the SEBI Act and
Regulations." (emphasis in original)
11. The decision in Bharat Heavy Electricals's case (su-
pra) cannot be of any assistance to the assessee because the
same proceeded on the basis of concession. Even otherwise, B
)
it was not open to the Bench to read, into a statute which was
specific and clear, something which is not specifically provided
for in the statute.
12. The stand of learned counsel for the assessee is that c
the absence of specific reference to mens rea is a case of ca-
sus omissus. If the contention of learned counsel for the asses-
see is accepted that the use of the expression "assessee shall
be liable" proves the existence of discretion, it would lead to a
very absurd result. In fact in the same provision there is an ex-
0
. -;
I pression used i.e. "liability to pay duty". It can by no stretch of
imagination be said that the adjudicating authority has even a
discretion to levy duty less than what is legally and statutorily
leviable. Most of cases relied upon by learned counsel for the
assessee had their foundation on Bharat Heavy Electrica/'s
case (supra). As noted above, the same is based on conces- E
sion and in any event did not indicate the correct position in law.
13. It is a well-settled principle in law that the court cannot
read anything into a statutory provision or a stipulated condition
which is plain and unambiguous. A statute is an edict of the F
legislature. The language employed in a statute is the determi-
native factor of legislative intent. Similar is the position for con-
ditions stipulated in advertisements.
14. Words and phrases are symbols that stimulate mental
references to referents. The object of interpreting a statute is to G
ascertain the intention of the legislature enacting it. (See Insti-
tute of Chartered Accountants of India v. Price Waterhouse
1977 6 SCC 312). The intention of the legislature is primarily to
be gathered from the language used, which means that atten-
tion should be paid to what has been said as also to what has. H
46 SUPREME COURT REPORTS [2008] 14 S.C.R.

/-
A not been said. As a consequence, a construction which requires
for its support, addition or substitution of words or which results
in rejection of words as meaning.less has to be avoided. As
observed in Crawford v. ·spooner (1846) 6'MOO PC1, the courts
cannot aid the legislature's defective .phrasing of an Act, they
B cannot add or mend, and by construction make up deficiencies
which are left there. (See State of Gujarat v. Dilipbhai Nathjibhai
Patel 1998 (3) SCC 234). It is contrary to all rules of construc-
tion to read words into anAct unless it is absolutely necessary
to do so. [See Stock v. Frank Jones (Tipton) Ltd 1978 (1) ALL
C ER 948.] Rules of interpretation do not permit the courts to do
so, unless the provision as it stands is meaningless or of doubt-
ful meaning. The courts are not entitled to read:words into an
Act of Parliam~nt unless clear reason for it is to be found within
the four corners of th~ Act itself. (Per Lord Loreburn, LC. in
Vickers Sons'?
0
15. The question is not what may be supposed and has
been intended but what has been said. "Statute~· should be con-
strued not as theorems of Euclid", Judge Learned Hand said,
"but words must be construed with some imagination of the
E purposes which lie behind them". (See Lenigh Valley Coal Co.
v. Yensavage 218 FR 547) The view was reiterated in Union of
lndiq v. Filip Tiago De Gama of Vedem Vasco De Gama (1990)
1 sec 277 (SCC p. 284, para 16).
16: In D.R. Venkatachalamv. Dy. TransportCommr. (1977)
F 2 SCC 273, it was observed that the c9urts must avoid the dan-
ger of a priori determination of the meaning of a provision based
on their own preconceived notions of ideological structure or
scheme into which the provision to be interpreted is somewhat
fitted: They are not entitled to usurp legislative function under
G the disguise of interpretation.
17. While interpreting a provision the court only interprets
the law and cannot legislate it. If a provision of law is misused
and subjected to the abuse of process of law, it is for the legis-
H lature to amend, modify or repeal it, if deemed necessary. (See
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 47
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]
- -\ CST v. Popular Trading Co. (2000) 5 SCC 511) The legislative A
casus omissus cannot be supplied by judicial interpretative pro-
cess.
18. Two principles of construction - one relating to casus
omissus and the other in regard to reading the statute as a
whole, appear to be well settled. Under the first principle a ca- B
sus omissus cannot be supplied by the court except in the case
)
of clear necessity and when reason for it is found in the four
corners of the statute itself but at the same time a casus om is-
•' sus should not be readily inferred and for that purpose all the
parts of a statute or section must be construed together and c
every clause of a section should be construed with reference to
the context and other clauses thereof so that the construction to
be put on a particular provision makes a consistent enactment
of the whole statute. This would be more so if literal construe-
tion of a particular clause leads to manifestly absurd or anoma- D
lous results which could not have been intended by the legisla-
tu re. "An intention to produce an unreasonable result", said
Danckwerts, L.J. in Artemiou v. Procopiou (1965) 3 ALL ER
539 (All ER p. 544 I) "is not to be imputed to a statute if there is
some other construction available". Where to apply words liter- E
ally would "defeat the obvious intention of the legislation and
produce a wholly unreasonable result", we must "do some vio-
lence to the words" and so achieve that obvious intention and
produce a rational construction. [Per Lord Reid in Luke v. /RC
\ (1963) AC 557 where at AC p. 577 he also observed: (All ER F
p.664 I) ''This is not a new problem, though our standard of draft-
ing is such.

19. It is then true that:

"When the words of a law extend not to an inconvenience
G
rarely happening, but due to those which often happen, it
is good reason not to strain the words further than they
reach, by saying it is casus omissus, and that the law
intended quae frequentius accidunt."

"But", on the other hand, H
48 SUPREME COURT REPORTS [2008] 14 S.C.R.

A "it is no reason, when the words of a law do enough extend
to an inconvenience seldom happening, that they should
not extend to it as well as if it happened more frequently, r-
1
because it happens but seldom". (See Fenton v. Hampton
(1858) 11 Moo PC "47).
B 20. A casus omissus ought not to be created by interpre-
tation, save in some case of strong necessity. Where, however,
\--- /
a casus omissus does really occur, either through the inadvert-
\,
ence of the legislature, or on the principle quad enim semel aut
bis existit praetereunt legislatores, the rule is that the particular
C case, thus ·left unprovided for, must be disposed of according
to the law as it existed before such statute.- casus omissus et
oblivioni datus dispositioni communis juris relinquitur; "a casus
omissus", observed Buller, J. in Jones v. Smart 1785 (1) TR
44:99 ER 963 (ER p. 967) "can in no case be supplied by a
D court of law, for that would be to make laws". The principles
were examined in detail in Maulavi Hussein Haji Abraham
v:
Umarji State of Gujarat (2004 (6) SCC 672).
21. The golden rule for construing all written instruments
has been thus stated:
E
'The grammatical and ordinary sense of the words is to
be adhered to unless that would lead to some absurdity or
some repugnance or inconsistency with the rest of the
instrument, in which case the grammatical and ordinary
F sense of the words may be modified, so as to avoid that y
I

absurdity and inconsistency, but no further." (See Grey v.
Pearson.)
22. The latter part of this "golden rule" must, however, be
applied with much caution. "If', remarked Jervis, C.J.,
G
"the precise words used are plain and unambiguous, in
our judgment, we are bound to construe them in their
ordinary sense, even though it do lead, in our view of the
case, to an absurdity or manifest injustice. Words may be
modified or varied, where their import is doubtful or
H
UNION OF INDIA & ORS. v. M/S DHARAMENDRA 49
TEXTILE PROCESSORS & ORS. [DR. ARIJIT PASAYAT, J.]

-\ obscure. But we assume the functions of legislators when A
we depart from the ordinary meaning of the precise words
used, merely, because we see, or fancy we see, an
'i1 absurdity or manifest injustice from an adherence to their
literal meaning". (See Abley v. Dale, ER p.525)
23. The above position was highlighted in Sangeeta Singh B
v. Union of India and Ors. (2005 (7) SCC 484).
)
24. It is of significance to not~ that the conceptual and con-
textual difference between Section 271 (1) (c) and Section 276C
of the IT Act was lost sight of in Dilip Shroff's case (supra). c
25. The Explanations appended to Section 272(1)(c) of
the IT Act entirely indicates the element of strict liability on the
assessee for concealment or for giving inaccurate particulars
while filing return. The judgment in Dilp N. Shroof's case (su-
pra) has not considered the effect and relevance of Section 276C D
of the l.T. Act. Object behind enactment of Section 271(1)(e)
read with Explanations indicate that the said section has been
enacted to provide for a remedy for loss of revenue. The pen-
alty under that provision is a civil liability. Wilful concealment is
not an essential ingredient for attracting civil liability as is the E
case in the matter of prosecution under Section 276C of the l.T.
Act.
26. In Union Budget of 1996-97, Section 11AC of the Act
was introduced. It has made the position clear that there is no
~ scope for any discretion. In para 136 of the Union Budget refer- F
ence has been made to the provision stating that the levy of
penalty is a mandatory penalty. In the Notes on Clauses also
the similar indication has been given.
27. Above being the position, the plea that the Rules 96ZQ
G
and 9620 have a concept of discretion inbuilt cannot be sus-
-i tained. Dilip Shroff's case (supra) was not correctly decided
but Chairman, SEBl's case (supra) has analysed the legal po-
sition in the correct perspectives. The reference is answered.
The mater shall now be placed before the Division Bench to
H
50 SUPREME COURT REPORTS [2008] 14 S.C.R.

A deal with the matter in the light of what has been stated above,
/ -
only so far as' the cases where challenge to vi res of Rule
9670(5). In all other cases the orders of the High Court or the
Tribunal, as the case may be, are quashed and the matter re-
r
mitted to it for disposal in the light of present judgments. Ap-
8 peals except Civil Appeal Nos. 3388 of 2006, 3397 of 2003,
3398-99 of 2003, 4096 of 2004, 4316 of 2007, 4317 of 2007,
5277 of 2006, 675 of 2007, 1420 of 2007 and appeal relating
to SLP (C ) No.21751 of 2007 are allowed and the excepted
appeals shall now be placed before the Division Bench for dis-
c posal.
R.P. Appeals disposed of.

_.,__

y .