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May 2008

Limitation period for economic offences

By Anup P. Shah, Chartered Accountant
Reading Time 7 mins
Laws and Business

1. Introduction :


The Code of Criminal Procedure, 1973, (‘the Code’) provides
for the method and manner in which criminal cases, prosecutions, etc. would be
tried in the Courts. The Code also provides for the limitation period after
which the Courts would not entertain any prosecutions in respect of certain
offences (including economic offences) under various Acts. The Code also
provides for certain exceptions to these provisions, i.e., cases in which
the period of limitation does not apply. These provisions are very important,
especially, in light of the fact that recently, the Department of Company
Affairs, the SEBI, etc., have started launching prosecutions on a large scale.
This Article examines these provisions.


2. Limitation Period for certain Offences :


2.1 Under the provisions of Chapter XXXVI of the Code, the
period of limitation in respect of taking action under various enactments has
been provided. The object of enunciating a bar on prosecutions was explained by
the Apex Court in its decision in the case of State of Punjab v. Sarwan
Singh, AIR 1981 SC 722. The Supreme Court held that the object in putting a
time limitation on prosecution is clearly to prevent parties from filing of
vexatious and belated prosecutions.

2.2 Definitions :


2.2.1 S. 467 provides that the ‘period of limitation’
means the period specified in S. 468 for taking cognizance of an offence.

2.2.2 Although S. 190 provides that a Magistrate of the first
class would take cognizance of any offence on receipt of a complaint of facts or
a report from the Police, the Code does not define the term anywhere. The term
‘cognizance’ may be defined to mean the judicial recognition or the
judicial notice of any cause of action. According to the Supreme Court in the
case of Darshan Singh, cognizance takes place at a point when a
Magistrate first takes judicial notice of an offence.

2.3 Specified periods :


S. 468 provides the periods of limitation after the expiry of
which a Court shall not take cognizance of an offence. These periods are :

(a) 6 months, if the offence is punishable with fine only,
e.g., S. 299 of the Companies Act, specifies a fine of up to Rs.50,000.

(b) 1 year, if the offence is punishable with imprisonment
for a term not exceeding 1 year, e.g., S. 292A of the Companies Act
specifies a term of up to 1 year for failure to constitute an Audit Committee.

(c) 3 years, if the offence is punishable with imprisonment
for a term exceeding one year, but not exceeding 3 years, e.g., S. 77A
of the Companies Act specifies a term of up to 2 years for buying back of
securities otherwise than in the manner prescribed u/s.77A.


When two or more offences are tried together, the period of
limitation shall be determined with reference to offence for which punishment is
more severe or where the punishment is most severe. It may be noted that no
provision has been made in case of offences punishable with more than 3 years.
Thus, S. 468 would not apply to such cases of offences.

2.4 Inapplicability of S. 468 :


The above limitation period specified in S. 468 has been made
inapplicable to certain economic offences by the Economic Offences
(Inapplicability of Limitation) Act, 1974. Any offence under an Act or any
provisions thereof, specified in the Schedule to this Act is not affected by the
period of limitation specified in S. 468. Some of the important Acts specified
in the Schedule are as under :

(a) The Income-Tax Act, 1961

(b) The Interest Tax Act, 1974

(c) The Wealth-tax Act, 1957

(d) The Central Sales Tax Act, 1956

(e) The Central Excises and Salt Act, 1944 (now known as
the Central Excise Act, 1944)

(f) The Customs Act, 1962

(g) The Foreign Exchange Regulation Act, 1973 (it may be
noted that the Schedule has not been amended to include the Foreign Exchange
Management Act, 1999). S. 49(3) of the FEMA provided for a limitation period
of 2 years from the date of its commencement for any Court/officer to take
cognizance of an offence committed under FERA. This period expired on 1st May
2002.

(h) The Capital Issues (Control) Act, 1947 (it may be noted
that the Schedule has not been amended to include the Securities & Exchange
Board of India Act, 1992)

(i) The Indian Stamp Act, 1899

(j) The Industries (Development and Regulation) Act, 1951

2.5 Maharashtra State Amendments :


In addition, in the State of Maharashtra, by virtue of the
Maharashtra Taxation Laws Offences (Extension of Period of Limitation) Act,
1977, Chapter XXXVI of the Code has been made inapplicable to any offences
punishable under the following Acts :

(a) The Bombay Sales Tax Act, 1959

(b) The Maharashtra State Tax on Professions, Trades,
Callings and Employments Act, 1975

Further, by virtue of the Maharashtra Taxation Laws
Offences (Extension of Period of Limitation) Act, 1981, the period of
limitation in the State of Maharashtra, in respect of offences under certain
Acts has been extended to the time specified therein instead of the time
specified in S. 468 of the Code. The extended period of limitation for these
offences is as under :

(a) 3 years where the total amount of tax or duty involved
in the case of the said offence is Rs.25,000 or more; and

(b) 1 year in all other cases

An important Act to which this extended period applies is the
Bombay Stamp Act, 1958.

2.6 Computation of the period :


The period of limitation u/s.469 of the Code, commences :


(a) on the date of the offence; or

(b) where the commission of the offence was not known to the person aggrieved by the offence or to any police officer or the identity of the offender is unknown :

2.7 Continuing offence:

S. 472 provides that for a continuing offence, a fresh period of limitation begins to run at every moment of the time during which the offence continues. The term continuing offence has not been defined and thus, one must depend upon the language of the Act. In Maya Rani Punj v. CIT, 157 IT 330 (SC), the Supreme Court observed that if a duty continued from day to day, then its non-performance from day to day was a continuing wrong. The Madras High Court’s decision in the case of C. K. Ranganthan v. ROC, 45 SCL 500 (Mad.) has held that an offence u/s.211(7) of the Companies Act, 1956, i.e., relating to non-compliance of the balance sheet and profit loss account with the requirements of S. 211 and Schedule VI, is not a continuing offence. It is a one-time offence and there is a period of limitation which must be filed within one year as per S. 468(2)(b) of the Code. The Court further held that non-compliance of financial statements with the requirements of Schedule VI gives rise to a single default and to a single punishment. The provision does not contemplate that the obligation to secure compliance continues from day-to-day until the compliance is actually met, nor does it provide that continuance of business without securing compliance becomes a continuing offence. The Court also held, relying upon its earlier decision in the case of Asst. ROC v. H. C. Kothari, 75 Compo Cas. 688 (Mad), that the ROC was deemed to have knowledge of the offence when the statements were received by him. Hence, the period of limitation of one year would also commence from such date.

3. Auditor’s duty:

The Auditor can provide value added services to his clients by enlightening them about the periods of limitation in respect of any likely prosecutions against them or any suits which they have preferred against any person. He should enquire during the course of his audit as to whether any prosecution proceedings have been launched against the auditee or its officers and what would be the consequences. This becomes very important when dealing with offences under the Companies Act, Rent Act, Bombay Stamp Act, Registration Act, etc. It needs to be repeated and noted that the audit is basically under the relevant law applicable to an entity and an auditor is not an expert on all laws relevant to business operations of an entity. All that is required of him is exercise  of ‘due  care’.

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