Source: Supreme Court  

Why in News?

The Supreme Court has quashed a criminal case against HDFC Bank Ltd. for allegedly violating an Income Tax Department notice that prohibited the operation of bank accounts, fixed deposits, and lockers of an income tax assessee. The court set aside a High Court decision that had allowed the case to proceed, clarifying that the bank acted within the scope of the notice after the IT Department modified its restrictions. 

• Justices BR Gavai and KV Viswanathan held in the matter of HDFC Bank Ltd. v. The State of Bihar & Ors. 
• The court stated that the FIR must demonstrate fraudulent inducement and criminal intent (mens rea) from the crime, which was clearly lacking in the case involving HDFC Bank, as it is a juristic person. 

What was the Background of HDFC Bank Ltd. v. The State of Bihar &    Ors.? 

• The Income Tax Department conducted search operation in October 2021 at several locations in Patna, including properties belonging to Sunita Khemka and others. 
• During this search, the IT Department issued a notice to HDFC Bank under Section 132(3) of the Income Tax Act,1961 to stop operations of bank accounts, fixed deposits, and lockers of certain individuals, including Sunita Khemka. 
• On 1st November 2021, the IT Department issued another order allowing only the operation of bank accounts (not lockers) for some individuals including Sunita Khemka. 
• However, on 9th November 2021, HDFC Bank officials allowed Sunita Khemka to operate her bank locker, which was discovered during another IT Department search on 20th November 2021. 
• Bank officials claimed this was due to a misinterpretation of the November 1 order, where they mistakenly thought the permission extended to lockers as well as accounts. 
• The IT Department filed a criminal complaint, leading to an FIR against HDFC Bank officials for various offenses including criminal breach of trust, cheating, and criminal conspiracy. 
• HDFC Bank approached the Patna High Court to quash the FIR, but the High Court dismissed their petition. 
• The bank then appealed to the Supreme Court, arguing that:  
  • The FIR didn't show any criminal intent (mens rea) on part of the bank officials 
  • The case arose from a genuine misinterpretation of orders 
  • The allegations didn't constitute criminal offenses 

What were the Court’s Observations? 

• The Supreme Court held that for constituting an offense under Section 420 IPC (cheating), the FIR must establish fraudulent inducement and criminal intent (mens rea) at inception, which was conspicuously absent in the present matter concerning HDFC Bank, being a juristic person. 
• With respect to Sections 406 and 409 IPC,1860 (criminal breach of trust), the Court observed that the essential ingredient of entrustment of property and its subsequent misappropriation or conversion for one's own use was entirely missing from the allegations leveled against the appellant bank. 
• The Court determined that since offenses under Sections 206, 217, and 201 IPC,1860 necessitate the presence of mens rea, and the provisions under Sections 34, 37, and 120B IPC,1860 require common intention or intentional cooperation in commission of offenses, these charges were unsustainable against the appellant bank. 
• Applying the principles laid down in Bhajan Lal v. State of Haryana,1990 the Court found that the present case fell within categories 2 and 3 of the established guidelines, wherein the uncontroverted allegations in the FIR failed to disclose the commission of any cognizable offense. 
• The Court concluded that continuation of criminal proceedings against HDFC Bank would cause undue hardship, and consequently quashed the FIR registered at Gandhi Maidan Police Station, Patna, setting aside the High Court's order that had declined to quash the same. 

What is a Juristic Person? 

• About:  
  • A juristic person is an artificial entity recognized by law as having rights, duties, and obligations distinct from its members or creators. 
  • The Supreme Court in Shiromani Gurdwara Parbandhak Committee v. Som Nath Dass (2000) established that a juristic person is not a natural person, but an artificially created entity recognized by law. 
  • Juristic persons have the capacity to sue and be sued, own property, enter into contracts, and bear legal responsibilities. 
  • The concept encompasses both incorporated and unincorporated entities that are granted legal personality. 
  • Unlike natural persons, juristic persons act through representatives or agents appointed for conducting their affairs. 
• Nature of Juristic Person: 
  • A juristic person possesses a distinct legal personality separate from its constituent members or creators. 
  • The entity has perpetual succession, meaning its existence continues regardless of changes in membership. 
  • Juristic persons can own property, incur debts, and enter into legal relationships in their own name. 
  • They are subject to both rights and duties under the law, similar to natural persons. 
  • The legal personality is a creation of law and can be modified or terminated by law.
• Definition By Different Jurists: 
  • German Jurist Zielmana's Definition 
    • "Personality is the legal capacity of will" 
    • "The bodiliness of men for their personality is a wholly irrelevant attribute" 
    • Focuses on the capacity to exercise legal will rather than physical existence 
  • Salmond's Definition 
    • "A person is any being to whom the law regards as capable of rights and duties" 
    • "Any being that is so capable is a person whether human being or not" 
    • "Nothing that is not so capable is a person even though he be a man" 
    • Emphasizes capability over human nature 
    • Centers on legal capacity rather than physical existence 
  • Gray's Definition 
    • Defines a person as "entity to which rights and duties may be attributed" 
    • Any being capable of holding a right or duty is a person in law 
    • Applies regardless of whether it's a human being or not 
    • Recognizes that some persons may have duties but no rights (e.g., slaves historically) 
    • Focuses on the ability to bear legal rights and obligations 
  • G.W. Paton's Definition 
    • Legal personality is a medium through which units are created 
    • These units are vessels in whom rights can be vested 
    • Emphasizes the instrumental nature of legal personality 
    • Views legal personality as a mechanism rather than an inherent quality 
    • Focuses on the function of legal personality in rights allocation 
  • Austin's Definition 
    • Includes all physical and natural persons 
    • Encompasses every being which can be deemed human 
    • Considered incomplete in view of modern legal personality developments 
    • Limited to human beings 
    • Does not account for non-human legal persons 
  • Indian Penal Code Definition (Section 11) 
    • Includes natural human beings 
    • Encompasses any company or association 
    • Covers corporate bodies, whether incorporated or not 
    • Provides a broader definition than mere human personality 
    • Recognizes both natural and artificial persons 

Corporate Personality as a Juristic Person  

Corporations are recognized as independent legal entities distinct from their shareholders. 

• Corporate personality enables limited liability, protecting individual members from company debts. 
• Companies have perpetual succession and can own property in their own name. 
• The corporate veil can be lifted in cases of fraud or where public interest demands. 
• Companies can sue and be sued independently of their members. 
• Corporate personality is a creation of law, recognized in both English and Indian law, giving artificial persons the capacity to have rights, duties, and hold property distinct from their individual members. 
• For a corporation to have juristic personality, three conditions must exist:  
  • a group of persons associated for a purpose,  
  • organs through which it functions, and  
  • attribution of legal fiction. 
• A "Corporation Sole" is a legal concept where successive individuals hold a perpetual office (like the Crown of England or President of India), and the legal personality continues even after the natural person's death - exemplified by the maxim "The King is dead, long live the King." 
  • An artificial/legal person differs from natural persons in that it:  
  • Is not merely the sum of its members 
  • Has its own claims and liabilities separate from members 
  • Holds property independently of its members 
  • Has agents who don't directly represent individual members 
• A corporation aggregate is an association of individuals united for furthering certain interests, with companies being the primary example, where shareholders contribute capital for the company's advancement. 
• Legal personality extends beyond just companies to include banks, railways, universities, colleges, temples, hospitals, and other institutions, as recognized by Article 300 of the Constitution of India. 

Other Entities as Juristic Person  

• Religious Entities as Juristic Persons 
  • Deities in Hindu law are recognized as juristic persons capable of holding property. 
  • Temples, once consecrated, can have independent legal existence. 
  • Religious institutions can sue and be sued through their authorized representatives. 
  • Management of religious entities' property is conducted through trustees or shebaits. 
  • The status of juristic personality extends only to publicly consecrated idols. 
• State as Juristic Person 
  • The State is recognized as a juristic person under Article 300 of the Indian Constitution. 
  • State governments can sue and be sued in their own name. 
  • The state holds sovereign rights and duties distinct from its officers. 
  • Government departments function as extensions of state's juristic personality. 
  • The state's legal personality enables it to enter into contracts and international agreements. 
• Modern Extensions of Juristic Personality 
  • Environmental entities like rivers have been recognized as juristic persons in some jurisdictions. 
  • Artificial Intelligence entities are being considered for juristic personality in some legal systems. 
  • Animals have been granted limited juristic rights in certain jurisdictions. 
  • Non-profit organizations and trusts are recognized as juristic persons. 
  • International organizations possess juristic personality in international law.