The word ‘penal’ connotes some form of punishment imposed against the individual by mandate of the State. In Halsbury’s law of England a penal statute has been described as one whose primary object is expressly enforceable by fine, imprisonment or other punishment.

Concise Law Dictionary : Penal means pertaining to punishment.

Oxford Dictionary : Penal means relating to the use of punishment as part of law.

A Penal Statute is one which imposes a pecuniary(monetary) penalty or other punishment for an offence.

Penalty : It is a punishment inflicted by a law for its violation. The word penalty is a word of wide significance. Penalty is a punishment imposed for breaking a law, rule, or contract. It is usually imposed on persons who violate the law. Penalty refers to a disciplinary measure that the law imposes for the performance of an act or for the failure to perform a certain act. Sometimes it means recovery of an amount as a penal measure even in civil proceedings.

Penalty is used in both civil as well as criminal law. It includes both monetary and physical forms of punishment. (Commonly penalty used in reference to financial punishment.)

Penalty and Fine : Both are not same in law. Fine when recovered, goes to the party suing. Fines are mostly used in context of criminal law wherein a court of law will punish a person convicted of a crime by imposing a fine. A fine can be considered as a monetary punishment imposed on a person convicted of committing a crime. Fines can be imposed in addition to imprisonment, or any other forms of punishment. A common example of a fine is money paid for violations of traffic laws.

Penalty and Forfeiture : A penalty is typically a punishment. To forfeit means to give up for not meeting the requirements.
eg., The penalty for bringing fruit through the airport is Rs. *$#!
If you bring unauthorized fruit to the airport you will forfeit the fruit and they will throw it away.

Penalty and Punishment : Penalty is synonymous with punishment in connection with crimes and is fixed by the law defining the criminal act. Both stem from wrongdoings or faults; however, punishments are typically consequences of misbehavior, while penalties stem from breach of a rule or law. There is a presumption, that penal and taxing statutes be construed strictly.

Strict Construction of Penal Statutes :

• Strict construction is a legal philosophy that applies a narrow, or strict interpretation to a legal text.
• Strict construction is a narrow construction as against the liberal construction which is wider.
• Crawford says, in strict construction the language of the statute must be given its exact and technical meaning. No extensions are to be made by implication.
• Strict construction means a construction by which nothing will be included within the scope of the statute that does not come clearly within the meaning of the language used by it.
• The rule of strict construction of penal statutes is said to be founded on the tenderness(softheartedness) of the law for the rights of individuals and on the plain principle that the power to define a crime and ordain(enact) its punishment is vested in the legislature and not in the judicial department. The courts do not have the power to punish a crime, even if it is a heinous crime not enumerated in the statute. It is not competent for a court to create an offence by interpretation.
• The rule that penal statutes must receive strict construction was originally evolved in England at a time when English law prescribed exceedingly harsh penalties for trivial offences.
• The purpose of strict construction was to mitigate(lessen) the rigour of such harsh sentences.
• While construing a provision in a penal statute if there appears to be a reasonable doubt or ambiguity, it shall be resolved in favour of the person who would be liable to the penalty.
• If there can be two reasonable constructions of a penal provision, the more lenient should be given effect to. Punishment can be given to a person only if he is clearly coming under its purview.
• No extension of meaning of words is permissible.
• Unless the words of a statute clearly made an act criminal, it shall not be construed as criminal. If there is any ambiguity in the words, making it doubtful whether such act or omission is an offence, the ambiguity will be resolved in favour of a person charged.
• There can be no presumption that, a crime has been constructively committed. At the same time, a penal statute must never be so construed as to narrow down its words to exclude such cases as would ordinarily be within its ambit.

According to Maxwell, the rule of strict construction of penal statute manifests(convey) itself in four ways.

i) Express language is necessary for creation of criminal offence, therefore no act is criminal unless it is clearly made so by the words of the statute concerned.

ii) The words setting out the elements of an offence are to be strictly construed. If there is any reasonable doubt or ambiguity, it will be resolved in favour of the person charged.

iii) Punishment can be imposed only if the circumstances of the case fall clearly within the words of the enactment.

iv) statutes dealing with jurisdiction and procedure are, if they relate to infliction (imposition) of penalties, strictly construed.

Sanjay Dutt v. State, Through CBI, Bombay : Section 5 of the Terrorist And Disruptive Activities (Prevention) Act, 1987 was construed. It required three ingredients to be proved for an offence falling under that section.

1. Possession of any of the specified arms and ammunitions
2. Unauthorisedly,
3. In a notified area. The section did not in terms provide that, the accusd could in anyway escape punishment if the aforesaid three ingredients were established. However it was held that, possession of unauthorised arms, etc in a notified area raised a presumption that the arms, etc were to be meant to be used for a terrorist or disruptive act which was in effect is third ingredient therefore, the accused was entitled to rebut (prove to be false or incorrect) this presumption and escape the punishment under section 5 by proving that, his unauthorised possession of arms etc was wholly unrelated to any terrorist or disruptive activity and the same was neither used nor available in that area for any such use.

Sarjoo Prasad v. State of Uttar Pradesh

The appellant who was an employee in a shop was convicted under the Prevention of Food Adulteration Act, 1954 for having sold adulterated food. He argued that, since he did not know that, the food sold by him was adulterated, he could not be convicted under section 16 of the Act because the enactment being a penal statute had to be strictly interpreted. Section 16 which penalises selling of adulterated food and section 19 which says that absence of guilty mind is not a defence were interpreted by the Court. The SC maintained the conviction and held that a penal statute has to be interpreted in favour of the subject only if there are two reasonable constructions possible. In the present case both the provisions are unambiguous and the guilty conduct falls under the letter of the law. There being no two interpretation possible, the conviction was good

M.V. Joshi v. M.U. Shimpi :

The appellant was convicted under section 16 of the Prevention of Food Adulteration Act, 1954 for selling adulterated butter. He contended that, it was not butter within the meaning of the rules made under the Act because butter means butter made from milk. Whereas he has sold butter made from curd. Further the Act being a penal statute the word butter has to be construed strictly in favour of the accused. The SC while rejecting the contention, held that, strict construction means that, the conduct of the accused for his conviction must fall within the plain words of the penal statute without straining their natural meaning and when there are two possible constructions that construction which is lenient to the accused must be accepted. In the present case the word butter is clear and there cannot be two meaning of it. The contention of the appellant that butter made from curd is not covered under the rules made under the Act does not stand because butter is butter whether made from milk or curd. The intention of the legislature is quite clear from the language it has used and there is no room for doubt.

Kedar Nath v. State of West Bengal :

An offence under an Act punishable with imprisonment or fine or both was committed by the appellant. The Act was amended and the punishment in the form of fine was enhanced to the tune of an amount equivalent to the amount procured by the offender through his offence. The SC held that this enhanced punishment could not be meted out to the offender in view of clear provisions of Article 20(1) of the Constitution.

Ranjit v. State of Maharashtra : The SC held that, when there are no two reasonable interpretations possible there is no question of giving effect to the principle of strict construction.

Strict Construction of Taxing Statutes

• A tax is imposed for raising general revenue of the State for public purposes. In contrast to tax, a fee is imposed for rendering services and bears a broad co-relatonship with the services rendered.
• Taxes are distributed between the Unions and States by various entries in List I and List II of the Constitution.
• A taxing statute means a statute or an Act making compulsory imposition whether of tax or fee. There are following three stages in the imposition of tax

1. Declaration of liability in respect of persons or property.
2. Assessment of tax that qualifies the sum which the person liable has to pay.
3. Methods of recovery if the person taxed does not voluntarily pay.

• Statutes imposing taxes or monetary burdens are to be strictly construed. The logic behind this principle is that imposition of tax is also a kind of imposition of penalty which can only be imposed if the language of the statute is clear.
• A person cannot be taxed unless the language of the statute unambiguously imposes the obligation without straining itself.
• Intention of the legislature must be gathered from the natural meaning of the words by which it has expressed itself.
• Any kind of presumption as to tax does not exist. Nothing can be drawn by implication & logical extensions are prohibited.
• If the person sought to be taxed comes within the letter of law, he must be taxed, however great the hardship may appear to the judicial mind.
• If the words of taxing statutes are clear, effect must be given to them irrespective of the consequences.
• The language of the taxing statutes neither can be so
• stretched as to do favour to the State nor can it be so narrowed as to benefit the person sought to be taxed.
• If the words in taxing enactment are capable of two reasonable interpretations without doing violence to the language used, the interpretation which favours the person sought to be taxed has to be accepted.
• In all cases of taxation the burden of proving the necessary ingredients laid down by law to justify the taxation, the burden of proof is upon the taxing authority.
• A taxing statute generally has no retrospective operation unless the language clearly makes it so.

Panzy Fernandes v. M.F. Queors : The Court should bear in mind three well-known canons of interpretation of fiscal statutes, namely, First, such statutes are to be construed strictly; Secondly, the subject not to be made liable for payment unless such a step is warranted by the clear provisions of the statute; Thirdly, where there is doubt in the matter, an interpretation favourable to the subject should be preferred.

Atlas Cycle Industries Ltd. v. State of Haryana :

Some new areas were included in a Municipality. A provision extended rules, by-laws, orders, directions and powers in these areas also. The question before the SC was whether a ‘notification’ impoing a tax was also deemed to be extended to these areas. It was held that, since a taxing provision has to be strictly interpreted, such an extension was not permissible automatically.

Motipur Zamindary Company Private ltd. v. State of Bihar : The question was whether sugarcane fell within the term ‘green vegetable’. The appellant sought the diligence of the Court to the dictionary meaning of the word as well as to the strict construction of taxing statute. The SC held that, the principle of strict construction of taxing statute means that an assessee cannot be taxed unless he falls within the letter of law and in case of a reasonable doubt or ambiguity in the meaning of an expression, the doubt has to be resolved in favour of assesse. In the present case there is no reasonable ambiguity in the meaning of the term ‘green vegetable’. The term means those vegetables which can be grown in a kitchen garden and used for the table, that is to say used for eating lunch or dinner and sugarcane does not fall under this category.

Collector, Central Excise v. Krishna Carbon Paper Company : The SC held that, where no definition is provided in the statute itself, for ascertaining the correct meaning of a fiscal entry, reference to the dictionary is not always safe. The correct is context & trade meaning.

Ramavtar v. Assistant Sales Tax Officer : The question was whether the betel leaves are vegetables and therefore exempt from imposition of sales tax. The Court was requested to apply the rule of strict interpretation with respect to the taxing statute. The SC in this case refused to apply any botanical or technical consideration. It was observed that, when the legislature uses a particular word of everyday use in a statute the presumption is that it has been used in its popular sense unless there are compelling reasons for the Court to think otherwise. Such eing not the case here, there is no doubt about the meaning of the term. Therefore, sale of betel leaves is subject to the sales tax law.

State of Uttar Pradesh v. Kores (India) Limited : The question was whether carbon paper was paper within the meaning of a notification issued by the appellant under U.P. Sales Tax Act, 1948. The SC held that, carbon paper was not paper within the meaning of the notification. The term paper should be understood in its popular sense. Its ordinary and natural meaning is that, it is used for writing, printing or packaging purposes. The context of the Act and notification issued thereunder do not indicate any other meaning. Carbon paper is exempted.

Dunlop India Limited v. UOI : The question was whether the commodity known as V.P. Latex comes within the meaning of rubber. The SC said that while using a word in taxing statute the legislature always keeps in mind the popular meaning of that word as understood in trade and commerce circles. So interpreted, there is no doubt that V.P. Latex is rubber. The natural and popular sense of the term has no ambiguity and the legislature while using the term had this meaning in mind.

Topman Exports v. CIT : In a taxing statute there is nothing like an implied power to tax by implication or necessary inference. The liability of a subject to tax and entitlement for exemption from tax will be according to strict language of the taxing statute. In other words provisions relating to fiscal statutes should be strictly constructed and there is no scope for looking to the unexpressed intendment (intention of law)

Distinction between Strict construction and Liberal construction :

Liberal Construction means interpretation of a document not only on the basis of actual words and phrases used in it but (unlike in literal construction) by also taking its deemed or stated purpose into account.

Strict Construction means each of the words in Statute should be interpreted by letter and no regard should be had to the spirit beyond the statute. Liberal or beneficial construction means the interpretation should be made liberally with intention to advance the purpose or object of the statute.

Thus, in case of strict interpretation Courts may prefer the literal rule while for liberal construction courts may prefer golden rule or mischief rule. Generally, taxing and penal statutes are to be strictly construed while beneficial legislation like ESI, Contract Labour Act or P.F. should be liberally construed.

Example : Provident Fund Act is a beneficial social welfare legislation to ensure benefits to the employees. These statutes are normally called remedial statutes or social welfare legislation. The normal canon of interpretation is that a remedial statute receives liberal construction

Rule of liberal construction will not apply

(a) When Court finds that by application of rule of liberal construction, it would be re-legislating a provision of Statute by substituting, adding or altering the words in Statute.

(b) When word used in Statute is capable of only one meaning. (However, if word is capable of more than one meaning, liberal construction can apply).

(c) If the provision of statute is plain, unambiguous and does not give rise to any doubt.

Remedial statutes are those statutes which have come to be enacted on demand of the permanent public policy generally receive a liberal interpretation. On constructing a remedial statute the courts ought to give it ‘the widest operation’ which the language of statute will permit. Courts exist only to see that a particular case is within the mischief to be remedied and whether it falls within the language of the enactment. There are various examples of remedial statutes like labour and social legislation, social benefit oriented legislation.

In the State of Jharkhand v. Ambay Cements (2005), it was held as follows,

(a) Provision of exemption should be strictly construed. It is not open to Court to ignore the conditions prescribed in the exemption notifi­cation.

(b) Mandatory rule must be strictly followed.

(c) Whenever the statute prescribed that a particular act is to be done in a particular manner and also lays down that failure to comply with the said requirement leads to severe consequences, such requirement is mandatory.

(d) It is the cardinal rule of the interpretation that where a statute provides that a particular thing should be done, it should be done in the manner prescribed and not in any other way.

(e) Where a statute is penal in character, it must be strictly construed and followed.

Om Prakash v. Reliance General Insurance (2017)  : Consumer Protection Act is a beneficial legislation to protect the interest of consumers. It deserves liberal interpretation.

Allahabad Bank v. All India Allahabad Bank Retired Employees Association (2010) : Remedial statutes like welfare, beneficent or social justice-oriented legisla­tion should always receive a liberal construction

In Madan Singh v. UOI (1999), it was observed – It is the duty of the court to interpret a provision, especially a beneficial provision, liberally so as to give a wider meaning rather than a restrictive meaning which would negate the very object of the rule’.

In Gujarat Industrial Development Corporation v. CIT (1997), it was observed that when the object is of development, an interpretation that would preserve the object should be accepted even if the provision is capable of more than one interpretation. This principle of interpretation is very much applicable to fiscal statutes also.

More Law Notes on Interpretation of Statutes –

• Interpretation of Statutes Notes – Presumption
• Interpretation of Statutes Notes – Mandatory and Directory Enactments
• Interpretation of Statutes Notes – Constitutional Doctrines
• Interpretation of Statutes Notes – Repeal of Statutes