CORPORATE CRIMINAL LIABILITY-AN

ANALYSIS

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 SUPERVISOR CERTIFICATE

It gives me immense pleasure to certify that SAHIL SHARMA, student of

UILS PANJAB UNIVERSITY, has worked under my guidance and
supervision in the preparation of this research term paper titled
“CORPORATE CRIMINAL LIABILITY- AN ANALYSIS” which is
partial requirement for the fulfillment for the LLM course. This research
term paper is worthy of consideration.

Dr.Ajay Ranga
PANJAB UNIVERSITY, CHANDIGARH
UNIVERSITY INSTITUTE OF LEGAL STUDIES
(SUPERVISOR)

DATED: …………………….

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 ACKNOWLEDGMENT

This well could consume the number of pages defaced here. For nearly
everyone involved over the months spent researching and writing this term
paper has been helpful. Many have been extraordinarily generous with time,
information, and counsel. Some have assisted me in access to private
papers. All have given me moral support- not a negligible contribution as
the months passed by. With pleasure, I could dedicate a paragraph to each of
them. That would be a book in itself. But I shall hope that each of the
individuals and institutions named will appreciate the extent and the warmth
of my gratitude to them.

Institutions
University Institute of Legal Studies, Panjab University, Chandigarh.
Department of Laws, Panjab University, Chandigarh.
Lexis Nexis, Gurgaon.

Individuals
Dr. Ajay Ranga, Professor, University Institute of Legal Studies, Panjab
University, Chandigarh.
Dr. Rattan Singh, Professor, University Institute of Legal Studies, Panjab
University, Chandigarh.
Justice K. Kannan, Judge, Punjab & Haryana High Court.
Mr. Balasundaram, Ex-Chairman, CLB.

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 LIST OF CASES
1. Salomon v. Salomon & Co., 1897 AC 22: (1895-99) All ER Rep 9
(HL).
2. Bartonshill Coal Co. v. McGuire, (1853) 3 Macq 300.
3. State of Maharashtra v. M/s Syndicate Transport Co. (P) Ltd., AIR
1964 Bom 195.
4. Salomon v. Salomon & Co., 1897 AC 22 : (1895-99) All ER Rep 9
(HL).
5. DPP v. Kent & Sussex Contractors Ltd., (1944) 1 All E.R.119.
6. DPP v. Kent & Sussex Contractors Ltd., (1944) 1 All E.R. 691.
7. Moore v. Brisler, [1944] 2 All ER 515.
8. US v. Jorgensen, 144 F3d 550.
9. US v. Route 2, Box, 60 F3d 1523 (CA11 1995).
10. Tippecanoe Beverages, Inc. v. S.A. El Aguila Brewing Co., 833 F2d
633, (CA71987).
11. United States v. Basic Const. Co., 711 F2d 570 (CA4 1983).
12. M.V. Javali v. Mahajan Borewell & Co. and Others, (1997) 8 SCC
72.
13. Balaji Trading Company v. Kejriwal Paper Ltd. and Anr., 2005
CriLJ 3805.
14. State of M. P v. N. Singh, AIR 2005 SC 1254.
15. Zee Telefilms Ltd. v. Sahara India Co. Corp. Ltd. (2001) 3 Recent
Criminal Reports 292.
16. Lennard’s Carrying Co Ltd v. Asiatic Petroleum Co Ltd AC 705,
1915.
17. Assistant Commissioner, Assessment-II, Bangalore & Ors. v.
Velliappa Textiles, (2003) 11 SCC 405.
18. State of Maharashtra v. Syndicate Transport, AIR 1964 Bom 195.
19. Standard Chartered Bank and Ors. etc. v. Directorate of
Enforcement and Ors. etc., AIR 2005 SC 2622.
20. Iridium India Telecom Ltd. v. Motorola Inc., 2004 (1) Mh.L.J. 532.

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21. State of Madras v. C.V. Parekh & Anr., (1970) 3 SCC 491.
22. Iridium India Telecom Ltd. v. Motorola Incorporated and Ors,
2004(1) Mh.L.J. 532.
23. Sunil Bharti Mittal v. Central Bureau of Investigation (“CBI”) and
Others, Criminal Appeal No. 35 of 2015 (arising out of Special
Leave Petition (Crl.) No. 3161 of 2013).
24. Centre for Public Interest Litigation and Ors v. Union of India and
Ors., (2012) 3 SCC 1.
25. Supermarkets Limited v. Nattrass, [1972] AC 153.
26. Meridian Global Funds Management Asia Limited v. Securities
Commission, [1995] UKPC 5.
27. J.K Industries Limited and Others v. Chief Inspector of Factories
and Boilers and Others, (1996) 6 SCC 665.
28. P.C Agarwala v. Payment of Wages Inspector, M.P and Others,
(2005) 8 SCC 104.

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 TABLE OF CONTENTS

SUPERVISOR CERTIFICATE…………………………………………….2
ACKNOWLEDGEMENT…………………………………………………..3
LIST OF CASES……………………………………………………………4
CONTENTS………………………………………………………………...6
CHAPTER 1 – INTRODUCTION AND RESEARCH DESIGN

CHAPTER 1.1 – Introduction ……………………………………………..8

CHAPTER 1.2 – Historical Evolution ……………………………………10
CHAPTER 1.3 – Significance of Study ………………………………......10
CHAPTER 1.4 – Objectives ………………………………………………11
CHAPTER 1.5 – Hypothesis ……………………………………………...12
CHAPTER 1.6 – Research Questions …………………………………….12
CHAPTER 1.7 – Research Methodology …………………………………12
CHAPTER 2 – CORPORATE CRIMINAL LIABILITY-CONCEPT-13

CHAPTER 2.1 – Corporate Criminal Liability-Basis……………………..14

CHAPTER 2.1 – Twin model of Corporate Criminal Liability …………..15
CHAPTER 2.2 – Framework of Corporate Criminal Liability ……….......18
CHAPTER 2.3 – Deadlocks of Corporate Criminal Liability ……….........19
CHAPTER 3 – CORPORATE CRIMINAL LIABILITY IN INDIA- AN
INTRODUCTION- 22

CHAPTER 3.1 – Insight into concept of Corporate Criminal Liability in

present scenario …………………………………………………………...25
CHAPTER 3.2 –United Kingdom ………………………………………...25
CHAPTER 3.3 – United States of America ………………………………26
CHAPTER 3.4 – Canada ………………………………………………….28
CHAPTER 3.5 – Australia ………………………………………………..28
CHAPTER 3.6 – Civil Law Traditions …………………………………...29

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CHAPTER 3.7 – India ……………………………………………………30
CHAPTER 4 – AN ASSESSMENT OF APPLICABILITY OF
CONCEPT OF CORPORATE CRIMINAL LIABILITY-34

CHAPTER 4.1 – Corporations capable of forming mens rea ……………35

CHAPTER 4.2 – Corporations capable of forming actus rea ……………35
CHAPTER 4.3 – Corporate Punishment-Whether only fine is possible ...36
CHAPTER 4.4 – Determining liability in statutory offences ……………38
CHAPTER 4.5 –Where mandatory punishment prescribed is imprisonment
& fine …………………………………………………………………….40
CHAPTER 4.6 – Criminal Law ………………………………………….42
CHAPTER 4.7 – Civil Law ……………………………………………...43
CHAPTER 4.8 – Comparison of using criminal liability over civil
liability……………………………………………………………………43

CHAPTER 5 – CORPORATE CRIMINAL LIABILITY-PRINCIPLES

OF ATTRIBUTION AND VICARIOUS LIABILITY…………………44

CHAPTER 5.1 –Sunil Bharti Mittal v. CBI- Case Study …………………44

CHAPTER 5.2 – Background and Factual Matrix ………………………..44
CHAPTER 5.3 – Issues …………………………………………………...45
CHAPTER 5.4 – Judgment and Judicial Reasoning ……………………...46
CHAPTER 5.5 – Analysis ………………………………………………..47

CHAPTER 6 – LAW COMMISSION REPORT………………………48

CHAPTER 7 – MODEL PENAL CODE PROVISIONS FOR

CORPORATE CRIMINAL LIABILITY………………………………50

CHAPTER 8 – SUGGESTIONS AND CONCLUSION………………52

APPENDIX – Bibliography……………………………………………...53

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 1. INTRODUCTION

“Corporate bodies are more corrupt and profligate than individuals,

because they have more power to do mischief, and are less amenable to
disgrace or punishment. They neither feel shame, remorse, gratitude nor
goodwill.”
-Hazlitt1
Of all the scholars engaged in similar lines of work, it is perhaps John
Braithwaite who offers the simplest definition of corporate crime as the
“conduct of a corporation, or of employees acting on behalf of a
corporation, which is proscribed and punishable by law.” 2 There exist
certain obvious differences between the archetypal notion of crime and the
manner in which corporations can be subjected to the mechanisms of
criminal justice.

As Celia Wells puts it rather succinctly, “although when attention is turned

to the corporation as perpetrator, economic crime is the most obvious
example, what comes to the mind is rarely an offence of straightforward
dishonesty but some complex tax or price-fixing violation.”3 The reluctance
to perceive corporate harm as a type of criminal violence and the lack of
development of social vocabulary for corporate harms are other constraints
one has to face, with restrictive terms such as “accident” 4 reinforcing the
legal impediments to prosecutions for manslaughter following negligent
workplace deaths or others of its kind by corporate activity. What thus
seems to be the call of the day is a perception sufficiently intuitive to
acknowledge the ideological dimension separating corporate criminal
responsibility from conventional crime.

1
Celia Wells, Corporations and Criminal Responsibility, 1, (2001).
2
Sally Simpson, Corporate Crime, Law and Social Responsibility, 6 (2002)
3
Id.
4
The very usage of the term ‘accident’ for a death seeks to undermine its potentially
unlawful homicidal character.

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A corporation is nothing but an artificial person. It is creation of law i.e. in
other words a legal fiction, which can own property. Corporations are of
two kind (i) Corporation Aggregate (ii) Corporation Sole.

Corporation Aggregate is an incorporated body having membership of

several persons. It is formed by number of persons known as share holder
who pool their resources to create a fund known as capital to start with and
it works for common interest of all the share holder and prime being profit
making. The partnership must not be confused with corporations because
although it also coming together of more than one persons together but is
not an incorporated body. On other hand a corporate sole is series of
successive person and have only one at a time. Salmond clearly sates that
corporation sole is found only when the successive holders of some public
office are incorporated so as constitute a single, permanent, legal person.
The best example of corporation sole would be King. Hence leaving apart
the concept of corporation sole what is important for Corporation Aggregate
is incorporation and it is the nothing but a process of law through which this
legal fiction is created. This means that phenomenon of incorporation would
have been very important that’s why it has been so much of importance. The
main effect of this legal phenomenon is that it gives the corporations a
distinct legal personality having property of its own, limited liability (if the
corporation is limited), perpetual succession, common seal etc. and main
disadvantage would be that it imposes greater social responsibility and
because these corporations are the outcome of legal fiction hence they
cannot manage their own affairs and here the need of natural person arises
which can manage the affairs of corporations and in fact the group of
persons generally known as board of directors manage the affairs of
corporations and this the point from where the whole doubt of applicability
of liability principles of criminal law in strict sense to corporations is
floating in the mind of jurist and intellectuals.

1.2 Historical Evolution

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This concept of corporation cannot be said to have its evolvement around
15th century but it can be traced back to 12th century or perhaps the roman
law where the juristic had been said to be recognized. Recognition of
corporation as a person provided the premises for establishing corporate
legal accountability. Subsequently with the development in law this
determination of liability of corporation shifted to responsibility of courts.
The quoted statement of Chief Justice Halt, “the corporation is not
indictable, but the particulars of it are”, is considered explaining the position
of law at that point of time. The latter judicial sentiments seemed to agree
that if a corporation’s act looked like a crime it was a crime and whatever
principles have allowed courts to establish liability of corporation for tort
could be applied in establishing their criminal liability. New administrative
structure was brought with improvement and development in the industry
basically industrial revolution as corporation became more complex the
position and function of individuals started becoming bleak. Master or
servant responsibility, municipal liability in public nuisance and the specific
statutory origin of the early railways companies all played an early role in
the development of liability, followed by particular judicial response to new
form of judicial responsibility, dubbed public welfare offences. The larger
earlier indictments against corporation involved cases of public nuisance.
We can say it is the judiciary not the legislature that has created the law with
regard to the corporate behavior.

1.3 Significance of Study

Offence relating to corporate crime has an intersection. Only the expressed
manner of corporate criminal liability is not an itself is a question to it. The
main question is the inherent character of corporate body as far as its
mention in criminal law is concerned. The problem is more intensified by
process of globalization and the growth of interdependency in economic,
social and environmental activities by the corporate entities requires greater
international cooperation between countries. At the same time, corporates

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commit various crimes of these kinds to promote their interest. One can find
that history of corporate criminal liability is full of problems and then
solutions to it. The most important question that arises is Can Corporation
may be made criminally liable along with the human beings associated with
it? Extent to which corporation itself can be made liable for crime
commission.

Initially the problem was with imposing criminal liability at to corporations

directly and indirectly but any way this problem came to end due to
phenomenon of public nuisances. Then critics expressed doubts about the
extension of vicarious corporate liability to crimes not requiring intent but
they eventually agreed that such liability served a useful purpose. Then
came the era in which critics contended that corporate criminal liability for
crimes of intent ran contrary to an aim of the criminal law because it relied
upon vicarious guilt rather than personal fault. Then came the era in which
when the culpable individual within the corporate hierarchy was or not
easily identifiable so in order to maintain optimal deterrence need was felt
for imposing liability on the corporation and same was done as well.
However till now development of law in area of corporate criminal liability
is generally based upon indirect holding of corporation for its criminal
wrongs. So the need was felt so as hold the corporations directly for their
criminal acts and debate started regarding direct liability of corporations in
the era of neo realism in which economy the prime might and giant MNC’s
are the main players. Hence this project is a noble attempt to enquire about
the viability of applying the principles of traditional criminal law to
corporations.

1.4 Objectives
The present paper enquires about historical background of the topic,
application in various countries including India, judicial trends and
applicability of traditional principles of criminal law on corporations while
determining their liability. Moreover much more emphasis has been given

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on understanding the concept of corporate criminal liability in historical
context and present day practice rather than by definitions.
1.5 Hypothesis
Corporate Criminal Liability is still a far cry since legislations enacted in
India do not specifically provide for civil and criminal liabilities for
offences committed by a corporate personality. There is no clear punishment
provided for any offence committed by a juristic personality.

1.6 Research Question

In order achieve the goal as stated above following research questions have
been formulated:

1. What are basic principles of Criminal Liability and Concept of

Corporation?
2. Whether corporations can be termed as independent responsible
actors.
3. Whether the doctrine of mens rea can be applied to it.
4. Whether it can fulfill the conditions of actus reus.

1.7 Research Methodology

Since the topic is theoretical in nature and the concept is largely based upon
judgments therefore doctrinal approach has been followed. This term paper
is mainly descriptive in nature. It is descriptive as it states the decisions of
the foreign Courts, Supreme Court and various other High Courts held time
to time in relation to the said issue. This study is also based on library study
and analysis of secondary data gathered from various sources such as books,
journals, law reporters.

2. CORPORATE CRIMINAL LIABILITY-CONCEPT

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A company can only act through human beings and a human being who
commits an offence on account of or for the benefit of a company will be
responsible for that offence himself. The importance of incorporation is that
it makes the company itself liable in certain circumstances, as well as the
human beings- Glanville Williams

Section 11 of Indian Penal Code, 1860 (the Code) defines “person”. It reads
“the word person includes any Company or Association or a body of
persons, whether incorporated or not.” Further section 2 of the Code
provides that “Every person shall be liable to punishment under this Code.”
Thus, section 2 of the Code without any exception to body corporate,
provides for punishment of every person which obviously includes a
Company. Therefore, by reading of these two provision concept of
corporate criminal liability can be derived, though it is not the sole
legislation which provides for the punishment of corporate body,
Companies Act, 2013, Income Tax Act, etc.

Corporations have now become an integral part of our society, and with
development of corporations they have become significant actor in our
economy, our society runs in the risk of getting victimized by these
corporation, and therefore they should be deterred too. Imposition of
punishment, upon offenders of any kind, can be understood by various
rationale of criminal law jurisprudence, but deterrence is the rationale that is
applicable to such economic entities as corporations.5 Corporations have
their own identity, they have separate legal personality and they are
different from their members6, and this is sufficient to makes it possible to
held them liable and censure them.7

5
John T. Byam, The Economic Inefficiency of Corporate Criminal Liability, (Vol. 2), 1982,
pp. 582-585.
6
Salomon v. Salomon & Co., 1897 AC 22: (1895-99) All ER Rep 9 (HL).
7
Supra note 1.

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Criminal liability is the quality or state of being legally obligated or
accountable; legally responsible to another or to society which is
enforceable by criminal punishment.8 And therefore, Corporate Criminal
Liability means the extent to which a Corporation as a legal person can be
held criminally liable for its acts and omissions and for those of the natural
persons employed by it. This paper is intended to examine various nuances
related to corporate criminal liability, and at the end to provide various
recommendations which should be incorporated in in legislations.

2.1 Basis of Criminal Liability

The Interpretation Act of 1889, defined person to include a body of persons
corporate or incorporate, unless the contrary appears. Criminal liability is
attached only those acts in which there is violation of Criminal Law where
there cannot be liability without a criminal law which prohibit certain acts
or omissions. The basic rule of criminal liability revolves around the basic
Latin Maxim actus non facit reum, nisi mens sit rea. It means that to make
one liable it must be shown that act or omission has been done which was
forbidden by law and has been done with guilty mind. Hence every crime
has two elements one physical one known as actus reus and other mental
one known as mens rea. The word actus reus connotes those result of
human conduct which is forbidden by law and hence constitutes of Human
action; result of conduct and act prohibited by law. One other hand mens
rea is generally taken as blame worthy mental condition, which constitutes
of intention and knowledge. The fact that the offence requires mens rea does
not reveal a contrary intention for the state of mind of the corporation’s
controlling officers as well as their acts may be attributed to the corporation.
Hence crime is said to be committed only when theses two elements are
there. This is the rule of criminal liability in technical sense but in general
the principle upon which responsibility is premised is autonomy of the
individual, which states that the imposition of responsibility upon an

8
Black’s Law Dictionary, (9th edition), p. 997.

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individual flows naturally from the freedom to make rational choices about
actions and behavior. Although the general rule as stated above is applicable
to all criminal cases but the criminal law jurisprudence has seen one
exception to the above said concept in form of doctrine of strict liability in
which one may be made liable in absence of any guilty state of mind.

 2.2 Twin Model of Corporate Criminal Liability

A.  Derivative Model
This model is individual centered model. It derives to attach the liability to
the corporation only because an individual connected to the corporation
incurred some liability for which the individual is to be punished, but since
it is connected to the corporation the liability is put on the corporation to
having that individual with it and letting it incurred some liability.9

Derivative model can be understood in two sub-categorises:

 Vicarious Liability
 Identification Doctrine.

 Vicarious Liability
The concept of vicarious liability is based on two latin maxims- first, qui
facit per alium facit per se, it means that he who acts through another shall
deemed to have acted on his own, and second, respondeat superior which
means “let the master answer”. In Bartonshill Coal Co. v. McGuire10, Lord
Chelmsford LC said: ‘every act which is done by an employee in the course
of his duty is regarded as done by his employer’s orders, and consequently
is the same as if it were his employer’s own act.’

Vicarious liability generally applies to civil liability but Massachusetts court

9
Sumit Baudh, Corporate Criminal Liability, The Student Advocate, (Vol. 10), 1988, pp.
45-46.
10
Bartonshill Coal Co. v. McGuire, (1853) 3 Macq 300.

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in Commonwealth v. Beneficial Finance Co.11, held three corporations
criminally liable for a conspiracy to bribe, the first company, for the acts of
its employee, the second, for the act of its Director, and the third, for the
acts of the Vice-President of a wholly owned subsidiary. The Court seemed
to believe that corporate criminal liability was necessary since, a corporation
is a legal fiction comprising only of individuals. US courts are not the only
courts which have incorporated the concept of vicarious liability in the cases
of criminal liability, but now this model has been rejected considering it to
be unjust to condemn one person for the wrongful conduct of another.12

 Identification Doctrine
This doctrine is an English law doctrine which tries to identify certain key
persons of a corporation who acts in its behalf, and whose conduct and state
of mind can be attributed to that of the corporation. In case of Salomon v.
Salomon & Co.,13 House of Lords held that corporate entity is separate from
the persons who acts on its behalf. The Courts in England had in various
judgments like DPP v. Kent & Sussex Contractors Ltd.,14 R v. ICR Haulage
Ltd.,15 ruled that the corporate entities could be subjected to criminal
liability and the companies were held liable for crimes requiring intent.
Judgment like these led to the promulgation of ‘identification doctrine’.

As to the liability of these key persons who act on behalf of company, it was
held in Moore v. Brisler,16 that the persons who are identified with the
corporations must be acting within the scope of their employment or
authority. The conduct must occur within an assigned area of operation even

11
Scoff Massachusetts, 1971 360 Mass 188,cfWR Lafare, Modem Criminal Law (West
Publishing Co., 775.
12
State of Maharashtra v. M/s Syndicate Transport Co. (P) Ltd., AIR 1964 Bom 195.
13
Salomon v. Salomon & Co., 1897 AC 22 : (1895-99) All ER Rep 9 (HL).
14
DPP v. Kent & Sussex Contractors Ltd., (1944) 1 All E.R.119.
15
DPP v. Kent & Sussex Contractors Ltd., (1944) 1 All E.R. 691.
16
Moore v. Brisler, [1944] 2 All ER 515.

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though particulars may be unauthorised. It will be wise to infer that
identification doctrine is narrower in scope than the vicarious liability
doctrine, instead of holding corporation liable for act of any employee,
identification doctrine narrows it down to certain persons.17

B.  Organizational Model

Unlike derivative model which focuses on individual, organizational model
takes corporation into consideration. Offences require mental state (mens
rea) to commit a crime along with physical act (actus reus), but the problem
that arises while holding corporations criminally liable is how a corporation
which is juristic person could possess requisite mental state to commit a
crime.

Derivative model was one way to attribute mental state to corporation.

Other way could be by proving that there existed an environment in the
corporation which directed, tolerated, led-on, and even encouraged the non-
compliance of specific law which made it offence. 18 Moreover, physical act
that too is required to complete the requirement of commission of an
offence can be derived rather be proved from the act of its employees,
officers, directors, etc. Thus, culture of a corporation is to be seen while
determining its criminal liability.

Corporate culture may help for commission of an offence requiring mental

state by- firstly, providing the environment or necessary encouragement that
it was believed by the offender working in the corporation that it was
perfectly alright to commit that offence, or corporation has psychologically
supported the commission of offence; secondly, it is quite possible that the
corporation created an environment which led to commission of crime. Both

17
Smith and Hogan, Criminal Law, 178 (1992).
18
Criminal Law Officers Comm. [Code Committee] of the Standing Comm. of Attorneys-
General, Austl., Model Criminal Code: Chapter 2, General Principles of Criminal
Responsibility, Section 501 (1992).

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ways it was the corporation and its working culture that let the offence
committed.

2.3 Framework of Corporate Criminal Liability

With industrialization and globalization, corporations acquired the capacity
to influence societies for better or worse. Yet, corporations are not
traditional objects of criminal law. Justified by notions of personal moral
guilt, criminal norms have been judged inapplicable to fictional persons who
think and act through human beings. One of the unique features of the
Indian Constitution is that, notwithstanding the adoption of a federal system
and the existence of Central and State acts in their respective spheres, it has
generally provided for a single integrated system of courts to administer the
laws of both the Union and the States. The Supreme Court of India is at the
apex of the entire judicial system. Below it are the High Courts in each
State, below which lies a vast hierarchy of subordinate courts. Large
multinational corporations have come to dominate the national and global
economic scene.

Corporations are increasingly significant actors in our economy and, to the

extent their actions can victimize society, they too should be deterred. Two
major issues which were of dominance, during the phase of evolution of the
doctrine of Corporate Criminal Liability were:

One is the failure to identify or prove corporate intent. Traditionally, the

criminal law has been reserved for intentional violations of the law. Yet, our
prosecutions of corporations have been marked by floundering efforts to
identify the intent of intangible, fictional entities. A second issue is
regarding sanctions. In addition to proof of intent, a major distinguishing
characteristic of the criminal law has been the threat of imprisonment. It was
said that a corporation cannot be imprisoned; the criminal law is not an
appropriate vehicle for controlling corporate behavior. Current Supreme
Court’s decision have made the stand apparently clear in India that the

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Corporation can be prosecuted as a separate legal entity even in the offences
where the punishment is imprisonment. This paper explains the present
status of India on Corporate Criminal Liability and how judicial decision is
inconsistent with the legal provisions. It further provides the current
situation about the corporate criminal liability in the International scenario.
The apex court’s decision under various matters reflects the gravity of the
concerned problem i.e. being faced by the aggrieved parties. Although some
earlier cases took the position that a Corporation is not indictable, but the
particular members of it are liable, the rule is now well established that a
corporation may be held criminally liable. Generally, corporations may be
held criminally responsible for the illegal acts of its employees if such acts
are19 related to and committed within the course of employment, committed
in furtherance of the business of the corporation and its imbibed culture; for
example, if the corporate structure is so organized as to deprive senior
managers of the information they need to exercise such powers, this would
indicate a corporate culture that is designed to elude law enforcement. A
corporation is accountable for its employee’s conduct if it motivated, at least
in part, by desire to serve the Corporation but this need not be the sole
motivation. And even if, the employees were acting in their own interests
when they committed a crime, the corporation may still be criminally liable
for the failure of its supervisors to detect and stop the wrongdoing, either in
intentional disregard of the law or in plain indifference to its requirements.

2.4 Deadlocks of Corporate Criminal Liability

As has been discussed above that a company is recognized as a juristic
person, and being a person it has to face the punishment that has been

19
US v. Jorgensen, 144 F3d 550; US v. Route 2, Box, 60 F3d 1523 (CA11 1995);
Tippecanoe Beverages, Inc. v. S.A. El Aguila Brewing Co., 833 F2d 633 (CA7 1987); The
proper standard for jury instruction is that the corporation may be held criminally
responsible for antitrust violations committed by its employees if they were acting within
scope of their authority, or apparent authority, and for benefit of corporation. United States
v. Basic Const. Co., 711 F2d 570 (CA4 1983).

19
provided by the various acts. There are various provisions in Companies
Act, 2013 itself which hold a company liable for its wrongdoing. However,
there are provisions which provides mandatory imprisonment for a person
including company, such as Section 447 of Companies Act, 2013, Section
420 of The IPC, 276B of The Income Tax, etc.

The Courts found themselves in dead end in these kind of situations where a
company is charged under sections which provides for necessary
imprisonment, as the company being a legal person cannot be imprisoned
for its criminal acts, it can only be punished with fine and not otherwise.
The Supreme Court has to face similar difficulty in case of M.V. Javali v.
Mahajan Borewell & Co. and Others 20. The Company was found guilty
under Section 276B read with 278B of The Income Tax Act, which gives
mandatory punishment of at least 3 months, but the Court found itself in a
fix about how to imprison a company.  J. Mukhrjee said that, “Even though
in view of the above provisions of Section 278B, a company can be
prosecuted and punished for an offence committed under Section 276B the
sentence of imprisonment which has got to be imposed there under cannot
be imposed, it being a juristic person and we are of the opinion that the only
harmonious construction that can be given to Section 276B is that the
mandatory sentence of imprisonment and fine is to be imposed where it can
be imposed namely on persons coming under categories (ii) and (iii) above,
but where it cannot be imposed, namely on a company, fine will be the only
punishment.”

Therefore, the solution as of now if that a person is juristic person then

punishment relating to imprisonment would not apply to it instead he will be
liable for fine. The court can do one thing though, if it cannot imprison a
corporate body but it can charge greater amount of fine in such cases in
comparison to what it charges to the person who are capable of being

20
M.V. Javali v. Mahajan Borewell & Co. and Others, (1997) 8 SCC 72.

20
imprisoned for the same offence.

3. CORPORATE CRIMINAL LIABILITY IN INDIA- AN

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 INTRODUCTION

Just as India is seeking to battle the scourge of corruption in its governance,

it is being hit by a spate of large scale corporate corruption scandals, which
have brought into sharp focus the role of India’s corporate sector in the
problem of corruption in India. In this context, to fix liability for corruption
and bribery offences, it becomes relevant to examine criminal liability, not
just of individual directors or agents of a corporation, but also of the
company itself. The basic rule of criminal liability revolves around the basic
Latin maxim actus non facit reum, nisi mens sit rea. It means that to make
one liable it must be shown that act or omission has been done which was
forbidden by law and has been done with guilty mind. 21 The Indian Penal
Code, 1860, which, although not exhaustive, is the general substantive
criminal legislation of the land. It applies to all persons having a certain
territorial connection with India. Instances of Criminal liability of
Corporations can be found in Sections 45, 63, 68, 70(5), 203, etc. of the
Indian Companies Act wherein only the officials of the company are held
liable and not the company itself; it is also reflected through the Takeover
Code. The various sections of the IPC that direct compulsory imprisonment
does not take a corporate into account since such a sanction cannot work
against the corporation.

These are the major statutes in their respective field that are devoid of
necessary legal aspects. On the other hand, law has also developed to an
extent with regard to certain other statutes and their respective penal
provisions wherein a fine has been imposed on the corporations when they
are found to be guilty. Some such examples are:

 Section 141 of the Negotiable Instruments Act, 186222

21
Sowmya Suman, Corporate Criminal Liability-An Analysis, 5th Year, Faculty of Law,
Jamia Millia Islamia, New Delhi.
22
Balaji Trading Company v. Kejriwal Paper Ltd. and Anr., 2005 CriLJ 3805.

22
  Section 7, Essential Commodities Act, 195523
 Section 276-B of the Income Tax Act, 196124

Under statutory provisions of the Indian law, the liability prescribed, at least
for economic or strict liability offences committed by a company is
threefold, as per the express provisions of the statutes. Firstly, the person
who was in charge of and was responsible to the company for the conduct of
its business is held liable, unless he can prove that the offence was
committed without his knowledge or despite his exercising due diligence to
prevent the offence. Secondly, if it is proved that an offence under such
statutes has been committed with the consent or connivance of, or is
attributable to neglect on the part of a director, manager, secretary or other
officer of the company, such individual shall also be held liable. Lastly, the
company of course, is held liable, irrespective whether any individual is
pinned with liability too. The law on corporate criminal liability is however,
not confined to the general criminal law in the penal code but it is, in fact,
scattered over a plethora of statutes with specific provisions for the same.
Mens rea is an essential element for majority, if not all, of offenses that
would entail imprisonment or other penalty for its violation. Zee Telefilms
Ltd. v. Sahara India Co. Corp. Ltd.25, the court dismissed a complaint filed
against Zee under Section 500 of the IPC. The complaint alleged that Zee
had telecasted a program based on falsehood and thereby defamed Sahara
India. The court held that mens rea was one of the essential elements of the
offense of criminal defamation and that a company could not have the
requisite mens rea. Recently, the Supreme Court of India, through a
landmark judgment Iridium India Telecom Ltd v. Motorola Incorporated &
Ors. (2010), has added a new dimension to the jurisprudence relating to
corporate criminal liability in India with respect to offences requiring mens
rea or criminal intent, holding that despite being a legal fiction, a company

23
State of M. P v. N. Singh.
24
M. V. Javali v. Mahajan Borewell & Co. (1997) 8 SCC 72.
25
Zee Telefilms Ltd. v. Sahara India Co. Corp. Ltd. (2001) 3 Recent Criminal Reports 292.

23
can be said to possess mens rea required to commit a crime. Further in
India, confusion prevails as to whether a company can be convicted for an
offence where the punishment prescribed by the statute is imprisonment and
fine. However after few cases, the 41st Law Commission gave a report
suggesting amendment in the penal provisions and providing for substitution
of imprisonment with fine in case of offender being a body corporate. But
the authorities are, till date sitting on that report and no such changes have
been made to the penal legislation26. In Standard Chartered Bank & Others.
v. Directorate of Enforcement and Others, appellant filed a writ petition
before High Court of Bombay challenging various notices issued under
section 50 read with section 51 of Foreign Exchange Regulation Act, 1973
& contended that the appellant company was not liable to be prosecuted for
an offence under section 56 of FERA Act, 1973. Against the decision of
High Court, appellant filed a special leave before Supreme Court, contended
that no criminal proceeding can be initiated against appellant company
under section 56(1) of FERA Act, 1973, as the minimum punishment
prescribed under section 6(1) (i) is imprisonment for a term which shall not
be less than six months and with fine. The court held that the legislative
intent should be considered and all penal provisions should be construed
like all other statutes fairly to bring out the legislative intent expressed in the
enactment. The courts have followed this judgment and have denied any
blanket immunity to corporations from criminal liability. As Indian
companies set to expand globally, with increasing cross-border transactions
and foreign investments, there is a need for them to be aware of the
extraterritorial reach of foreign anti-corruption legislations, and to
implement adequate compliance measures. In light of the growing power
corporations in India today it has become necessary to regulate the moral
behavior of such corporations. As the influence of multinational
corporations increases, questions relating to their accountability are also
raised more frequently and hence accordingly law of Criminal liability of
Corporations and such other has been evolved by both judicial interpretation

26
KA Pandey, Corporate Criminal Liability: Rethinking the Law.

24
and legislation.

3.1 An insight of concept and nature of Corporate Criminal Liability in

present scenario:

3.2 United Kingdom

Earlier there used to be three crimes under common law that did not require
mens rea- public nuisance, criminal libel and contempt of court. An
category where mens rea was not required were regulatory offenses created
by statutes, and which were held to be absolute liability offenses. Now there
was need to shift focus on the corporate criminal liability. Despite of the
fact that U.K. was one of the pioneers in inventing corporate criminal
liability, till now the acts and state of mind of certain senior officers of the
corporation, the directing minds, are deemed to be the acts and state of mind
of the corporation. That means that the directing minds are identified as the
corporation, and thus the corporation is directly liable, rather than
vicariously liable i.e. now the doctrine of identification is followed.

Companies are considered as artificial creations of the law and are subjected
to the criminal law in the same way that natural persons are. 27 However, the
application of rules that make the companies liable in crime is complicated
due to the legal personality of the company, as well as the fact that
companies think, make decisions and act through natural persons. There
exist two basic theories which courts have employed to assess and
determine the corporate responsibility for crimes.

The Agency theory, known as vicarious liability, is based on the principle

that a company’s employees are its agents. Differently expressed, a
company is liable vicariously for those strict liability offences in which the

27
Wells Celia, The Reform of Corporate Criminal Liability, The Reform of UK Company
Law, Cavendish, London, 2002, p. 291.

25
actus reus committed by an employee can be attributed to the corporation.28
Determining the liability of the company according to this theory, there is
no difference between the acts or the omissions of the employees and those
of high management officers.

According to the Identification theory, known also as the ‘directing mind

and will’ or ‘alter ego’ doctrine, a company cannot be rendered liable for an
offence unless the individual in fact responsible can be identified with the
company. Such individual is described as the ‘alter ego’ of the company.
This theory determines that the company is directly liable for the
individual’s wrongful acts on the basis that its acts or omissions are also the
acts and omissions of the company. The fact whether the company can be
identified with a natural person, is whether the individual in question is for
the purposes of the transaction in question, the directing mind and will of
the company.29
The number of white collar prosecutions has fallen to a six-year low even
though the amount of economic crime in the UK has risen over the same
period, a development that could bolster arguments that a lack of resources
is hampering the fight against crime. Official statistics show there were
8,304 prosecutions for financial crime in 2016, a 12 per cent drop on 2015.
It also represents a 26 per cent fall since 2011, when there were 11,261
prosecutions, according to data gleaned from the Ministry of Justice through
a Freedom of Information request. But the number of reported fraud
offences has increased nearly fourfold in the same period. In 2011 the
number stood at 142,991 offences while last year it had risen to 641,539,
according to the Office for National Statistics. Cyber attacks and online
fraud were one of the factors contributing to the spike. More widely, there
are concerns that crime is rising as police are struggling on fewer resources.

28
Wells Celia, Corporate Liability for Crime: The Neglected Question, IGFL 14, p. 42.
29
The famous dictum of Viscount Haldane in Lennard’s Carrying Co Ltd v. Asiatic
Petroleum Co Ltd AC 705, 1915: ‘… who is really the directing mind and will of the
corporation, the very ego and centre of the personality of the corporation.’

26
Last week, official data showed crime recorded by the police in England and
Wales has increased 10 per cent, the largest annual rise in a decade. The
news comes as separate Home Office figures showed police officer numbers
dropping to their lowest level for more than three decades. In the white
collar arena, there are worries that the prosecuting agencies are not
adequately resourced for cases that typically require painstaking
investigation over several years. “More money and time needs to be spent
ensuring regulators, agencies and police forces can deal with new threats
effectively, and follow-up with any intelligence. There is clearly no shortage
of leads,” said Barry Vitou, head of global corporate crime at Pinsent
Masons, the law firm that made the FOI request. The Serious Fraud Office,
which investigates and prosecutes the most complex fraud and bribery
cases, is also suffering from continued uncertainty over its future. The
Cabinet Office launched an audit of the UK’s white collar crime-fighting
agencies, including the SFO, this year. Then the Conservative manifesto
included a pledge to incorporate the SFO into the National Crime Agency, a
bureau with a broader remit. The plan greeted with dismay by lawyers was
not followed up in the Queen’s Speech, leading to speculation that the SFO
had won a reprieve. Insiders still expect the agency’s future to be
determined by the Cabinet Office review, however. Its budget has been
slashed steadily over the years. In 2008 it stood at £52m, while last year it
was £35.7m. But it has been making use of special further funding from the
Treasury for “blockbuster” cases. “It is also time, once and for all, to lay to
rest the constant speculation about the future of the SFO and to guarantee its
future as a standalone agency,” Mr Vitou said.30

3.3 United States

The courts in united states had followed English courts at the beginning in
regard to the corporate liability but with the advancement they departed
down and till now they follow either the concept of vicarious liability or

30
https://www.ft.com/content/8751e754-6e3e-11e7-bfeb-33fe0c5b7eaa (16/5/2019 at
15.33)

27
Doctrine aggregation according to which for the purpose of calculating
corporate criminal liability, the conduct, states of mind, and culpability of
individual representatives of the corporation should be "aggregated."
A considerable number of criminal and corporate experts in the US have
been opposed to CCL, arguing that it should be eliminated or at least strictly
limited31. Moreover, experts argue that corporate criminal punishment is a
mistake.32 They also argue that corporate liability is inefficient and should
be scrapped in favour of civil liability for the entity or criminal liability for
individual corporate officers and agents.33 In other words, it is supported the
idea that CCL must be restricted.

The criticism in the US is relatively strong related to CCL. One of the

classic critiques argues that that the corporation is a mere fiction that cannot
be punished, and that it is innocent shareholders who are forced-wrongly-to
bear the direct burden of criminal sanctions, and there are innocent
employees, creditors, customers, and communities who must bear the
indirect burdens.34 However, this argument loses its target in several issues
which need to be considered.

Opposite to the latest, there are other arguments against the concept of the
corporation being a fictional creature. It is known that the creation of a
corporation is the creation of a legal entity that is separate from its
shareholders, as well as its employees, creditors and others. Each
corporation has its own assets, as well as its own liabilities.

31
Beale Sara Sun, Is Corporate Criminal Liability Unique?, American Criminal Law
Review 44, 2007, 1503-1504.
32
Alschuler Albert W, Two Ways to Think About the Punishment of Corporations,
American Criminal Law Review 46, 2009, 1359.
33
Arlen Jennifer and Kraakman Reinier, Controlling Corporate Misconduct: An Analysis
of Corporate Liability Regimes, New York University Law Review 72, 1997, 687-692.
34
Alschuler Albert W, Two Ways to Think About the Punishment of Corporations,
American Criminal Law Review 46, 2009, 1366-1367.

28
Perhaps the most cogent criticism of CCL is that the only real punishment
available against a corporation is a fine, which can be much more easily
calibrated to redress any harm through a civil proceeding that does not
require all the protections usually afforded in a criminal prosecution.

The perception that corporations are persons like any other individual has
been further emphasised by the Supreme Court’s decision in Citizens United
versus Federal Election Commission, which rejected the argument that the
political speech of corporations or other associations should be treated
differently under the First Amendment35 simply because such corporations
or associations are not natural persons36.

3.4 Canada
Equating it with England, Canada also selected to fall on doctrine of
directing mind concept according to which corporations will be caught hold
for acts of directing minds who have the capacity to exercise decision-
making authority on matters of corporate policy and this can be attributed to
high level of management.

3.5 Australia
There was concept of vicarious liability till 1995, the legislature of country
changed the criminal code to base corporate criminal liability on testing its
"corporate culture." This term is defined as " an attitude, policy, rule, course
of conduct or practice existing within the body corporate generally or in the
part of the body corporate in which the relevant activities take place." There
were 4 ways adopted by Australia in order to prove the fault by its corporate
culture. Among these a "corporate culture which directed, encouraged,
35
The First Amendment (Amendment I) to the United States Constitution is part of the Bill
of Rights. The amendment prohibits the making of any law respecting an establishment of
religion, impeding the free exercise of religion, abridging the freedom of speech, infringing
on the freedom of the press, interfering with the right to peaceably assemble or prohibiting
the petitioning for a governmental redress of grievances.
36
Citizens United versus Federal Election Commission.

29
tolerated or led to a noncompliance with the relevant provision;" or that the
corporation failed to created and maintain such a corporate culture. In order
to establish It was sufficient on the part of the board of directors
"intentionally, knowingly or recklessly carried out the relevant conduct, or
expressly, tacitly or impliedly authorized or permitted the commission of the
offence," or that a "high managerial agent knowingly or recklessly engaged
in relevant conduct, or expressly, tacitly or impliedly authorized or
permitted the commission of the offence."

3.6 Civil Law Traditions

The civil law jurisdictions have been more reluctant to recognise the
possibility of CCL in modern law. This was based on several ideas,
however, one of the ideas emphasises the fact that groups cannot act and be
morally blameworthy. Therefore, groups cannot be proper subjects of
criminal punishment.37 Despite of this, this approach became weaker, since
the 1970s38, as the result of the introduction of CCL schemes in various civil
law nations. Nevertheless, CCL forms in most European countries
developed after 1990s. For example we see the adoption of forms of CCL in

37
The principle of societas delinquere non potest is commonly described as encompassing
two assertions contrary to the principle of corporate criminal liability. First, the notion that
corporations have the capacity to act willfully or intentionally, as required by criminal law
is rejected. Second, corporations are not viewed as the proper subjects of criminal
punishment as only human beings are capable of making moral determinations in terms of
what is right and wrong. For further see: Weigend T., Societas Delinquere non Potest? A
German Perspective, Journal of International Criminal Justice 6, 2008, 927.
38
Robinson Allens Arthur, ‘Corporate Culture’ as a Basis for the Criminal Liability of
Corporations, 2008, 139.

30
Austria (2006)39, Belgium (1999)40, Denmark (1996)41, Finland(1995)42, the
Netherlands (1976)43, Norway (1991)44, Spain (2003),45 and Switzerland
(2003)46, although in some exceptional cases where prevails the position that
legal persons are not subject to criminal liability such as Germany47.

3.7 India
The issue of whether a company or a juristic person can be prosecuted for
an offence for which the mandatory punishment prescribed is both

39
The Law on the Responsibility of Associations was introduced in 2005 and came into
effect on 1st January 2006.
40
Corporate criminal liability was reintroduced after it had been removed in 1934. For
further see: Robinson A. A., ‘Corporate Culture’ as a Basis for the Criminal Liability of
Corporations, 2008.
41
Denmark first introduced corporate criminal liability for certain offences with the
passage of the Butter Act in 1926. The current scheme of corporate criminal liability was
introduced in 1996 and is governed by chapter 5 of the Danish Criminal Code. In 2002
corporate criminal liability was extended from specific crimes to all offences within the
general Criminal Code by section 306 of the Danish Criminal Code. See also: Beale Sara S.
and Safwat Adam G., What Developments in Western Europe Tell us about American
Critiques of Corporate Criminal Liability, Buffalo Criminal Law Review 89, 2004, 111-
112.
42
Beale Sara S. and Safwat Adam G., What Developments in Western Europe Tell us about
American Critiques of Corporate Criminal Liability, Buffalo Criminal Law Review 89,
2004, 113.
43
Ibid, pp. 110-111
44
Robinson Allens Arthur, ‘Corporate Culture’ as a Basis for the Criminal Liability of
Corporations, 2008, pp. 59-60.
45
At present, only very limited corporate criminal liability provisions have been introduced
in Spain in relation to specific bribery offences. These provisions allow for sanctions to be
imposed on a corporation when a relevant individual has been convicted of an offence and
are described by the OECD Working Group on Bribery as involving criminal liability.
46
Beale Sara S. and Safwat Adam G., What Developments in Western Europe Tell us about
American Critiques of Corporate Criminal Liability, Buffalo Criminal Law Review 89,
2004, pp. 113-115.
47
Chance Clifford, Corporate Liability in Europe, January 2012, 13.

31
imprisonment and fine has come up in several cases in India such as the
cases of The Assistant Commissioner, Assessment-II, Bangalore & Ors. v.
Velliappa Textiles48 and State of Maharashtra v. Syndicate Transport49
wherein a ruling was given stating that the court cannot impose only a fine
where the mandatory punishment laid down by the appropriate statute is
both imprisonment and fine. The majority view is that the court should not
deviate from the minimum prescribed punitive sanctions. If the court did
prosecute for such offences and found the defendants guilty, it ran a massive
risk of stultifying itself by not being able to impose an effective order by
way of sentence.

The doctrine of corporate criminal liability in India was made crystal clear
in the recent groundbreaking judgement in 2005 of the Apex Court in the
case of Standard Chartered Bank and Ors. etc. v. Directorate of
Enforcement and Ors. etc.50 that overruled all the previous views. This case
was related to the now defunct Foreign Exchange Regulation Act (1973),
otherwise known as FERA. The majority held that there is no immunity to
the companies from prosecution merely because the prosecution is in
respect of offences for which the punishment prescribed is mandatory
imprisonment. As the company cannot be sentenced to imprisonment, the
Court cannot impose that punishment, but when imprisonment and fine is
the prescribed punishment the Court can impose the punishment of fine
which could be enforced against the company. Such a discretion is to be
read into the Section viz., Section 56 of Foreign Exchange Regulation Act
(1973) (FERA) and Sections 276-C and 278-B of Income-tax Act (1961) so
far as the juristic person is concerned. Of course, the Court cannot exercise
the same discretion as regards a natural person. As regards company, the
Court can always impose a sentence of fine and the sentence of
48
Assistant Commissioner, Assessment-II, Bangalore & Ors. v. Velliappa Textiles, (2003)
11 SCC 405
49
State of Maharashtra v. Syndicate Transport, AIR 1964 Bom 195.
50
Standard Chartered Bank and Ors. etc. v. Directorate of Enforcement and Ors. etc., AIR
2005 SC 2622

32
imprisonment can be ignored as it is impossible to be carried out in respect
of a company. It cannot be said that, there is a blanket immunity for any
company from any prosecution for serious offences merely because the
prosecution would ultimately entail a sentence of mandatory imprisonment.
The bench by a majority of 3:2 held that a corporation can be punished and
is criminally liable for offences for which the mandatory punishment is both
imprisonment and fine. In case the company is found guilty, the sentence of
imprisonment cannot be imposed on the company and then the sentence of
fine is to be imposed and the court has got the judicial discretion to do so.
This course is open only in the case where the company is found guilty but
if a natural person is so found guilty, both sentence of imprisonment and
fine are to be imposed on such person. This particular judgment in has
further crystallized the Court’s interpretative power with regards to a penal
statute, by departing from the traditional view and endorsing that for the
punishment of the crime the court should go beyond the strict word, and not
let offences go unpunished due to application of too technical an
interpretation that is restrictive, strict and constricting to the very intent of
the statute.

If a corporate entity or juristic person is found to have breached the law, the
Courts, though bound to impose the sentence prescribed under law, now
have the discretion to impose the sentence of fine as a corporate entity
cannot be subjected to imprisonment. However, if a natural person is found
to have committed a crime, the sentence of imprisonment is still applicable.
There is no blanket immunity for corporations just because prosecution
would ultimately lead to the sentence of mandatory imprisonment.

The judgment of the Supreme Court in Iridium India Telecom Ltd. v.

Motorola Inc.51 on 20 October 2010 merely reiterated the principles laid
down previously in the Standard Chartered Bank case. This was a case in
which Iridium India Limited filed a criminal complaint against Motorola

51
Iridium India Telecom Ltd. v. Motorola Inc., 2004 (1) Mh.L.J. 532.

33
Inc. alleging offences under Section 420 (cheating) read with Section 120B
(conspiracy) of the Indian Penal Code (IPC). The complaint alleged that
Motorola Inc. had floated a private placement memorandum (PPM) to
obtain funds/investments to finance the ‘Iridium project’. The project was
represented as being “… the world’s first commercial system designed to
provide global digital hand held telephone data … and it was intended to be
a wireless communication system through a constellation of 66 satellites in
low orbit to provide digital service to mobile phones and other subscriber
equipment locally.” On the basis of the information contained in and
representations made through the PPM, several financial institutions
invested in the project. The project turned out to be unviable and resulted in
massive losses to the investors which was alleged by Iridium India Limited
to have been caused as a result of Motorola Inc.’s false representations in
the PPM.

M.J. Antony, while commenting on the case, said the following52:

The question of punishing a corporation came up recently in the Supreme
Court in a criminal case filed by Iridium India Telecom Ltd against
Motorola Incorporated. The allegations were cheating and criminal
conspiracy. The magistrate in Pune started proceedings against Motorola. It
moved the Bombay High Court against the prosecution. The high court
quashed the proceedings giving several reasons, one of them being that a
corporation was incapable of committing the offence of cheating as it has no
mind. According to the high court, although a company can be a victim of
deception, it cannot be the perpetrator of deception. Only a natural person is
capable of having a guilty mind to commit an offence.
However, the Supreme Court set aside the high court’s finding and asserted
that a corporate body can be prosecuted for cheating and conspiracy under
the Indian Penal Code. The offences for which companies can be criminally
prosecuted are not limited only to the specific provisions made in the
52
M J Antony: Dissecting Body and Mind, November 17, 2010, available at
http://www.business-standard.com/article/opinion/m-j-antony-dissecting-body-and-mind-
110111700038_1.html, last visited on 28/03/2016.

34
Income Tax Act, the Essential Commodities Act, and the Prevention of
Food Adulteration Act. Several other statutes also make a company liable
for prosecution, conviction and sentence.

The court allowed the prosecution to go on, stating that companies and
corporate houses can no longer claim immunity from criminal prosecution
on the ground that they are incapable of possessing the necessary mens rea
for the commission of criminal offences. The legal position in England and
the United States has now crystallised to leave no manner of doubt that a
corporation would be liable for crimes of intent. This is the position all over
the world where rule of law supreme.

4. AN ASSESSMENT OF APPLICABILITY OF CONCEPT OF

CRIMINAL LIABILITY

4.1 Corporations capable of forming mens rea:

Till now it has been established that at present day corporations must be
treated as responsible independent actors. In order to attribute the mens rea
to the corporations we must look in to corporate internal decision structure
because corporate internal decision structure is the means by which the
actions and intentions of individual human persons within the corporation
are transformed into a corporate decision. Moreover, it is through the rules
set out by corporate internal decision structure that it is possible to identify
whether or not a given action or decision has been made "for corporate
reasons" and two ways are: first, the corporate decision-making structure
indicates the procedure that must be followed in order for a decision to
become the corporation's; second, the decision must instantiate the basic
policy of the corporation. This approach of attributing the mental element
on part of Corporations is excellent because reasons for corporate action are
sought in procedural rules and corporate policies. The only feeble criticism
of this approach is that corporate policy simply reflects the views of the
current directors of a corporation but this is not the case with Big Giants

35
Corporations where the policies framed are generally long term goal
oriented and who are responsible for large amount of Corporate crime. So it
is appropriate to use the ability of a corporation to make decisions for
imposing corporate liability when and because a decision instantiates both
an organizational policy and an organizational decision-making process
chosen by the organization. The fairness of such a formulation is
demonstrated by the fact that it avoids finding liability of the corporation
where a decision is made by a rogue individual in defiance of corporate
policy.

However, this does not mean that the corporation cannot be held responsible
for the actions of individuals where the intention of the individuals is other
than to promote corporate goals and policies. Theoretically the above said
argument is sound enough but establishing intentionality through tacit
corporate policy presents serious evidentiary difficulties because the
Companies cannot have expressly illegal purposes, and culling out
unofficial policies might be difficult without the cooperation of some of the
agents of the corporation. So in these situation the most promising means of
establishing intention or knowledge on the part of a corporation would be
through the ratification of the illegal act of an agent, either by failure to
discipline the agent, or because the actions in question are the effect of
another corporate policy.

4.2 Corporate Actus Reus:

For imposing liability under Criminal law as matter of convenience has
divided the act requirements into four parts: the notion of an act,
voluntaries, causation and justifications. Among the above stated
requirements the most difficult question is the determination of positive
corporate action and this become more problematic in the light of concept of
corporations that corporations can only act through their agents.

As a result, there is a tendency to reduce the acts of the corporation into the

36
acts of its agents who physically and mentally participated in the act but
theoretically this is not a serious problem if we recall as what has been
discussed earlier that all those actions which embody corporate policy and
are decided pursuant to corporate rules of procedure which are corporate
acts and hence under this model of responsibility person who act in
accordance with corporate policy for what ever reason it may be still act for
the corporation. So a corporate act must always attract liability because it
cannot occur without the existence of a rational decision to act on the part of
the corporation. Moreover once this model is accepted one will find that the
problem of voluntariness is taken care of by the existence of corporate
action. The next important task after founding of existence of corporate act
& its voluntariness principles of causation which is one the basic of criminal
law according to which one is said to have cause actus reus of crime if that
actus would have not occurred without one’s participation. Now at this
instance it is to be noted that the traditional approach to causation must not
be applied to corporations which seeks a human actor causally connected to
the event because it limit the inquiry into the range of potentially
blameworthy actors in a sense that corporate action is often an
amalgamation of factors the traditional criminal law will tend to overlook
this multiplicity of causes and concentrate on identifying human actors. In
the corporate context, the causation principles must be applied taking in the
view notion of corporations in present day world as described above i.e.
doctrine of causal connections must be based upon collective activities or
multiple factors, without the need to identify the individual causal
connections of each constituent element of the collective act. Moreover this
view of applying causal connection will strengthen the above mentioned
argument that a corporate actor has an existence which transcends that of its
individual members and thus that events may be causally connected to it
directly, as a separate entity and it also avoids the problematic attribution of
blame for collective acts upon individuals who may constitute only a partial
or indirect factual cause of the event. Coming to the point of justification
one will find that justifications are there only for thinking of society the

37
citizen's conduct as right on that occasion and allow a person to inflict harm
to prevent a greater harm from materializing. It is clear that such
considerations do not apply to corporations, as they cannot be subjected to
such serious acts as loss of life or grievous bodily harm. Hence in this way
direct actus reus on the part of corporations can be established.

4.3 The Corporate Punishment – Whether only fine is possible?

The punishments that can be imposed upon the convict and as per Section
53 of the code include death, life imprisonment, rigorous and simple
imprisonment, forfeiture of property and fine. In liability of corporation, the
Courts in India have recognized that a corporation can have a guilty mind
but still were reluctant to punish them since the criminal law in India does
not allow this action. This difficulty that arise out of the above situation was
noticed by the Law Commission and in its 41st Report, the Law
Commission suggested amendment to Section 62 of the Indian Penal Code
by adding the following lines:

"In every case in which the offence is only punishable with imprisonment or
with imprisonment and fine and the offender is a company or other body
corporate or an association of individuals, it shall be competent to the court
to sentence such offender to fine only."

With contempriority under the present Indian law it is difficult to impose

fine in lieu of imprisonment though the definition of 'person' in the Indian
Penal Code Includes 'company'. The Parliament has also considered this
problem and proposed to amend code in this regard by including fine as an
alternate to imprisonment where corporations are involved in 1972. Court
has come with decision that as the company cannot be sentenced to
imprisonment, the court cannot impose that punishment, but when
imprisonment and fine is the prescribed punishment the court can impose
the punishment of fine which could be enforced against the company. This
discretion must be read into the Section so far as the juristic person is

38
concerned. Then the court would not be passing the sentence in accordance
with law. As to the company, the court can always impose a sentence of fine
and the sentence of imprisonment can be ignored as it is impossible to be
carried out in respect of a company.

The maxim 'judicis est just dicere, non dare' expounds the role of the court.
It means to interpret the law, not to make it. This when read with the
Doctrine of Separation of Powers has bound the Court’s hands in imposing
various kinds of punishments and all that it is left with is to impose fines. In
order to avoid compelling the Courts to go out of the statute and interpret
and therefore define the law which is essentially the task of the legislature it
is advised that the legislature amends the various penal statutes in a way so
as to bring in various forms of punishments for the corporations as well,
thereby maintaining the separation of powers regime and hence the rule of
law.

4.4. Determining liability of corporation in cases of statutory offences:

CORPORATE FRAUDS UNDER COMPANIES ACT, 2013
The Companies Act, 2013, is the legislation which focusses on issues
related to corporate frauds. Fraud in relation to affairs of a company or any
corporate body as defined in section 447 of the Companies Act 2013,
includes any act, omission, concealment of any fact or abuse of position
committed by any person or any other person with the connivance in any
manner, with intent to deceive, to gain undue advantage from, or to injure
the interests of the company or its shareholders or its creditors or any other
person, whether or not there is any wrongful gain or wrongful loss.

In order to amount to Fraud, an act must be confined to acts committed by a

party to contract with an intention to deceive another party or his agent or to
induce him to enter into a contract. Fraud, which vitiates the contract, must
have a nexus with the acts of the parties entering into the contract. This
definition highlights the precondition to prove the intention of the person

39
who has committed fraud. If that person has willingly committed a fraud,
then he will be punished. Here the person means himself or his agent. The
acts which include fraud are wrong suggestions or concealment of facts or
false promises or any fraudulent act to deceive others.

PUNISHMENT FOR FRAUD (SECTION 447)

Any person who is found guilty of fraud shall be punishable with
imprisonment for a term which shall not be less than six (06) months but
which may extend to ten (10) years and shall also be liable to fine which
shall not be less than the amount involved in the fraud, but which may
extend to three (03) times the amount involved in the fraud. Where the fraud
in question involves public interest, the term of imprisonment shall not be
less than three (03) years.

PUNISHMENT FOR FALSE STATEMENT (SECTION 448)

If in any return, report, certificate, financial statement, prospectus, statement
or other document required by, or for the purposes of any of the provisions
of this Act or the rules made thereunder, any person makes a statement —
 which is false in any material particulars, knowing it to be false; or
 which omits any material fact, knowing it to be material

PUNISHMENT FOR FALSE EVIDENCE (SECTION 449)

If any person intentionally gives false evidence –
 upon any examination on oath or solemn affirmation; or
 in any affidavit, deposition or solemn affirmation in or about
winding up of any company under this Act, or otherwise in or about
any matter arising under this Act,
 he shall be punishable with imprisonment for a term which shall not
be less than three (03) years but which may extend to seven years
(07) and with fine which may extend to ten lakh rupees (Rs. 10
Lacs).

40
PUNISHMENT WHERE NO SPECIFIC PENALTY OR
PUNISHMENT IS PROVIDED (SECTION 450)
If a company or any officer of a company or any other person contravenes
any of the provisions of this Act, or the rules made thereunder and for which
no penalty or punishment is provided elsewhere in the Act, they shall be
punishable with fine which may extend to ten thousand rupees (Rs. 10,000)
and where the contravention is continuing one, with a further fine which
may extend to one thousand rupees (Rs. 1,000) for every day after the first
during which the contravention continues.

PUNISHMENT IN CASE OF REPEATED DEFAULT (SECTION 451)

If a company or an officer of a company commits an offence punishable
either with fine or with imprisonment and where the same offence is
committed for the second or subsequent occasions within a period of three
(03) years, then, that company and every officer thereof who is in default
shall be punishable with twice the amount of fine for such offence in
addition to any imprisonment provided for that offence. This section is not
applicable to the offence repeated after a period of three (03) years from the
commitment of first offence.

ADJUDICATION OF PENALTIES (SECTION 454)

The Central Government, may by an order published in the official gazette
appoint adjudicating officers for adjudicating penalty under this Act. The
Central Government shall also specify their jurisdiction. The adjudicating
officer may, by an order, impose penalties on the company and the officer
who is in default, stating any non – compliance of default under the relevant
provision of the Act. Any person aggrieved by an order made by the
adjudicating officer may prefer an appeal to the regional director having
jurisdiction in the matter.

OFFENCE OF FRAUD NON-COMPOUNDABLE

As the punishment for fraud is both imprisonment and fine, it is considered

41
a non-compoundable offence. It shows that, the commission of fraud has
become a serious offence in the eyes of law. The Act has provided
punishment for fraud under section 447 and about 20 sections of the Act talk
about fraud committed by the directors, key managerial personnel, auditors
and/or officers of company. Thus, the new Act goes beyond professional
liability for fraud and extends it to personal liability, if a company
contravenes such provisions. Here, the contravention of the provisions of
the Act with an intention to deceive are also considered as fraud; to name a
few acts amounting to fraud:

Section Fraud Defaulter

7(5) Furnishing false information or suppressing Any person who does
material information so
8 Affairs of the company conducted Every officer in
fraudulently default
34 Mis-statements in prospectus Every person who
authorizes the issue
of prospectus
36 Fraudulently inducing persons to invest Any person who does
money so
38 Personation for acquisition, etc. of Any person who does
securities so
46(5) Issuance of duplicate certificate of shares Every officer who
defaults
75(1) Company fails to repay deposits/ interests Every officer of the
company
206 Business  being carried out for fraudulent Every officer who
or unlawful purpose defaults
229 Person required to provide an explanation Person who was
or make a statement during an investigation required to provide
furnishes false statement or destroys the explanation or
documents make the statement

42
251 Application is made for removal of name Persons in charge of
from register with the object of evading management of the
liabilities or deceiving or defrauding the company
creditors
266 If Tribunal concludes that an employee Any person who is
during the period of his employment with a found so guilty
company was guilty of any misfeasance,
malfeasance or non-feasance in relation to
the sick company
448 A person who makes a false statement or Person who makes
omits a material fact in any return, report, such statement
certificate,   financial statement, prospectus
CONCLUSION
There are certain mechanisms that have been cited by the Government by
which the frauds can be prevented under the Companies Act 2013.
Section 211 empowers the Central Government to establish an office called
Serious Fraud Investigation Office (SFIO) to investigate frauds relating to
companies. No other investigating agency shall proceed with investigation
in a case in respect of any offence under the Act, once the case has been
assigned to SFIO. The SFIO has power to arrest individuals if it has reason
to believe that he is guilty based on the material in possession. SFIO shall
submit a report to the Central Government on conclusion of investigation.
Central Government may direct SFIO to initiate prosecution against the
company. SFIO shall share information they possess regarding a case being
investigated by the latter and vice versa.
Auditors shall report material fraud to the Central Government within 30
days. Immaterial fraud shall be reported to the board or the auditor of the
company. Audit committee is required to monitor that every listed company
shall establish a vigilance mechanism for directors and employees to report
genuine concerns. The vigilance mechanism shall provide for adequate
safeguards against victimization of persons who use such mechanism. It
shall make provision for direct access to the Chairperson of the Audit

43
Committee in appropriate cases.

Independent directors shall report concerns about actual or suspected fraud.

They must also ascertain and ensure that the company has an adequate and
functional vigilance mechanism and to ensure that the interests of a person
who uses such mechanism are not prejudicially affected on account of such
use.

Central Government can order investigation into the affairs of a company on

the receipt of a report of the Registrar or inspector; on intimation of a
special resolution passed by a company that the affairs of the company
ought to be investigated; or in public interest.

Section 11 of the Indian Penal Code defined the word person thus-
This word includes any company or association or body of person, whether
incorporate or not.

Courts find its controversy in situations when statute prescribes mandatory

imprisonment with fine as a punishment for an offence. In M.C.D. v. J.B.
Bolting Company Ltd., the court was faced a very interesting question:
whether a company can be awarded a punishment of fine when the
mandatory punishment is both imprisonment and fine. Here The company
had been found guilty of committing an offence under Prevention of Food
Adulteration Act of 1954. The Court held the company guilty of the offence
under the said act, declared that it could be punished with fine only. Later in
2003 Supreme Court in Assistant Commissioner, Assessment-ll, Banglore &
Ors. v. Velliappa Textiles Ltd & Anr 53 viewed that since an artificial person
like a company could not be physically punished to a term of imprisonment,
such a section, which makes it mandatory to impose minimum term of
imprisonment, cannot apply to the case of artificial person. The majority

53
Assistant Commissioner, Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd &
Anr., (2003) 11 SCC 405.

44
was of the opinion that the legislative mandate is to prohibit the courts from
deviating from the minimum mandatory punishment prescribed by the
Statute and that while interpreting a penal statute, if more than one view is
possible, the court is obliged to lean in favour of the construction which
exempts a citizen from penalty than the one which imposes the penalty.
Here in this case JJ. B.N. Srikrishna and G.P. Mathur held that a company
can be attributed with mens rea on the basis that those who work or are
working for it have committed a crime and can be convicted in a criminal
case, the judges also held that the corporations are liable even where the
offence requires a criminal intent. Another question found in this case was, "
whether a company is liable for punishment of fine if the provision of law
contemplates punishment by way of imprisonment only or a minimum
period of punishment by imprisonment plus fine whether fine alone can be
imposed?", here J. Mathur was of the view that the courts would be avoiding
their responsibility of imparting justice by holding that prosecution of a
company is unsustainable merely on the ground that being a juristic person
it cannot be sent to jail to undergo the sentence, few judges agree, in holding
that corporate criminal liability cannot be imposed without making
corresponding legislative changes. Which means to include the imposition
of fines on corporate bodies, to bring such a fundamental change in criminal
jurisprudence the legislative function would have to be applied and the
parliament would have to step in However, Supreme Court in 2005 in
Standard Charted Bank v. Directorate of Enforcement 54 in majority decision
of 3:2 expressly overruled the Velliapa Textiles case on this issue. K.J
Balkrishanan J. in majority opinion held:

"We hold that there is no immunity to the companies from prosecution

merely because the prosecution is in respect of offences for which
punishment prescribed is mandatory imprisonment. We overrule the views
expressed by the majority in Velliappa Textiles on this point. The question
for consideration before court was:

54
Standard Charted Bank v. Directorate of Enforcement, AIR 2005 SC 2622.

45
4.5 Whether a company or a corporation being a juristic person, can be
prosecuted for an offence for which mandatory punishment prescribed
is imprisonment & fine.

Prosecution is required for inflicting any punishment. This has to be

accepted that when no punishment can be inflicted, no prosecution can be
launched. Hence it is clear from Standard Charted case that prosecution can
be initiated and fine can be imposed even when imprisonment is given as
mandatory punishment with fine, the sentence of imprisonment can be
ignored as it is impossible to be carried out in respect of the company, this
can be construed as the true intention of the legislature. Apex court in this
case referred to the decision of the United States Supreme Court, United
States v. Union Supply where, a corporation was prosecuted for willfully
violating a statute that required the wholesale dealers in oleomargarine to
keep certain books and make certain returns. Any concerned person who
willfully violated this provision was liable to be punished with a fine of not
less than fifty dollars and not exceeding five hundred dollars and
imprisonment for not less than 30 days and not more than six months. The
important thing noted here was that for the offense under Section 5 of the
statute at issue, the Court had discretionary power to punish by either fine or
imprisonment, whereas under Section 6 of the statute (section that was
actually violated in Union Supply), both types of punishment were to be
imposed in all cases. The corporation moved to quash the charge, and the
District Court quashed it on the grounds that Section 6 of said statute was
not applicable to the corporations. However the United States Supreme
Court reversed the District Court's judgment. Where Justice Holmes held:

It seems to us that a reasonable interpretation of the words used does not

lead to such a result. If we compare Section 5, the application of one of the
penalties rather than of both is made to depend, not on the character of the
defendant, but on the discretion of the Judge; yet, there, corporations are
mentioned in terms. And if we free our minds from the notion that criminal

46
statutes must be construed by some artificial and conventional rule, the
natural inference, when a statute prescribes two independent penalties, is
that it means to inflict them so far as it can, and that, if one of them is
impossible, it does not mean, on that account, to let the defendant escape.

There is a maxim lex non cogit ad impossibilia which only tells that law
does not contemplate something, which cannot be done. This maxim is used
by majority and minority in Standard Chartered case. The courts have
followed this judgment and have denied any blind immunity to corporations
from criminal liability. This course is open only in the case where the
company is found guilty but if a natural person is so found guilty, both
sentence of imprisonment and fine are to be imposed on such person.

As far as the liability of director is concerned in Aneeta Hada v. M/S

Godfather Travels & Tours and Avnish Bajaj v. State & Anr., the main issue
involved in this group of appeal is whether Directors of a Company alone
can be prosecuted without making the Company as one of the accused.
However, the Supreme Court in the case of State of Madras v. C.V. Parekh
& Anr.55 has held that without suing the Company its Directors cannot be
prosecuted. Conflicting judgments have been passed from time to time and
the issue was once again raised in the present batch of appeals. After
considering numerous judgments and making an elaborate analysis in this
respect, the Supreme Court of India had restated the law on this aspect. That
If the offence is by a Company, arraigning of a company as an accused is
imperative, the company can have criminal liability and further, if a group
of persons that guide the business of the companies have the criminal intent,
that would be imputed to the body corporate. In this backdrop, Section 141
of the NI Act clearly stipulates that when a person which is a company
commits an offence, then certain categories of persons in charge as well as
the company would be deemed to be liable for the offences under Section
138. Thus, the statutory intendment is absolutely plain. As is perceptible, the

55
State of Madras v. C.V. Parekh & Anr., (1970) 3 SCC 491.

47
provision makes the functionaries and the companies liable. There is no
immunity to companies from prosecution merely because the prosecution is
in respect of offences for which punishment prescribed is mandatory
imprisonment. In Iridium India Telecom Ltd. v. Motorola Incorporated and
Ors56 the apex court held that a corporation is virtually in the same position
as any individual and may be convicted under common law as well as
statutory offences including those requiring mens rea. The criminal liability
of a corporation would arise when an offence is committed in relation to the
business of the corporation by a person or body of persons in control of its
affairs and relied on the ratio in Standard Chartered Bank case. In Iridium,
the Supreme Court held:

"The criminal liability of a corporation would arise when an offence is

committed in relation to the business of the corporation by a person or body
of persons in control of its affairs. In such circumstances, it would be
necessary to ascertain that the degree and control of the person or body of
persons is so intense that a corporation may be said to think and act through
the person or the body of persons. The apex court in this case held that
corporations can no longer claim immunity from criminal prosecution on
the grounds that they are incapable of possessing the necessary mens rea for
the commission of criminal offences. The notion that a corporation cannot
be held liable for the commission of a crime had been rejected by adopting
the doctrine of attribution and imputation.

4.6 Criminal law

The general social norms codifies under the criminal law has not been
properly implemented which cause hue and cry. Powers of police to
investigate can be more effective, but the availability of relevant expertise
may be limited. If successful, prosecution reinforces social values and
shows the state's willingness to uphold those values in a trial likely to attract
more publicity when previously respected business leaders are called to

56
Iridium India Telecom Ltd. v. Motorola Incorporated and Ors, 2004(1) Mh.L.J. 532

48
account. It accepts more severe penalties because it is necessary to
overcome the higher burden of proof to establish criminal liability. The high
burden means that it is more difficult to secure a judgment than in the civil
courts, and many corporations are cash-rich and so can pay apparently
immense fines without difficulty. Further, if the corporation knows that the
fine is going to be severe, it may seek bankruptcy protection before
sentencing.
4.7 Civil law
As it has lower burden of proof and better tools for management of case,
civil liability is easier to prove then criminal liability, and offers more
flexible remedies which can be preventative as well as punitive. But there is
little moral condemnation and no real deterrent effect so the general
management response may be to see civil actions as a routine cost of
business which is tax deductible.

4.8 Comparison of using criminal liability over civil liability

Many states use criminal and civil systems in parallel, making the political
judgment on how infrequently to use the criminal law to maximize the
publicity of those cases that are prosecuted. Some states enact specific
legislation covering health and safety, and product safety issues which lay
down general protections for the public and for the employees. The
difficulty of proving a mens rea is avoided in the less serious offences by
imposing absolute, strict liability, or vicarious liability which does not
require proof that the accused knew or could reasonably have known that its
act was wrong, and which does not recognize any excuse of honest and
reasonable mistake. But, most legislatures require some element of fault,
either by way of an intention to commit the offence or recklessness resulting
in the offence, or some knowledge of the relevant circumstances. Thus,
companies are held liable when the acts and omissions, and the knowledge
of the employees can be attributed to the corporation. This is usually filtered
through identification, directing mind or alter ego test which proves that the
employee has sufficient status to be considered the company when acting.

49
 5. CORPORATE CRIMINAL LIABILITY: PRINCIPLES OF
ATTRIBUTION AND VICARIOUS LIABILITY

5.1. Sunil Bharti Mittal v. Central Bureau of Investigation (“CBI”) and

Others.
The Supreme Court recently in Sunil Bharti Mittal v. Central Bureau of
Investigation (“CBI”) and Others57 has held that the principle of alter ego
can only be applied to make the company liable for an act committed by a
person or group of persons who control the affairs of the company as they
represent the alter ego of the company; however it cannot be applied in
reverse direction to make the directors of the company liable for an offence
committed by the company. The Supreme Court has clarified that the
application of the principle of vicarious liability to make the directors of the
company liable for an offence committed by the company can only be done
if the statute provides for it. While doing so, the Court has set aside the
order of the Special Court wherein the Special Court had issued summons to
the directors of the companies by stating that they represent the alter ego of
the companies.

5.2. Background and factual matrix

As per the directions of the Supreme Court in Centre for Public Interest
Litigation and Ors v. Union of India and Ors 58 dated December 16, 2010,
CBI conducted investigation into various irregularities in grant of licenses
and allocation of spectrum in the 2G band and filed a charge-sheet before
the Special Judge. CBI named Mr. Shyamal Ghosh and three companies
namely M/s Bharti Cellular Limited, M/s Hutchison Max Telecom (P)
Limited and M/s Sterling Cellular Limited as the accused persons in respect
of offences under Section 13 (2) read with Section 13 (1) (d) of the

57
Sunil Bharti Mittal v. Central Bureau of Investigation (“CBI”) and Others, Criminal
Appeal No. 35 of 2015 (arising out of Special Leave Petition (Crl.) No. 3161 of 2013).
58
Centre for Public Interest Litigation and Ors v. Union of India and Ors., (2012) 3 SCC
1.

50
Prevention of Corruption Act, 1988 and allied offences.
The Special Judge vide an order dated March 19, 2013 directed that the
summons be issued to the three companies. At the same time, the Special
Judge also directed that the summons be issued to (i) Mr. Sunil Bharti Mittal
(Chairman cum Managing Director of Bharti Cellular Limited), (ii) Mr.
Asim Ghosh (Managing Director of Hutchison Max Telecom (P) Limited)
and (iii) Mr. Ravi Ruia (Director – Chairman of Sterling Cellular Ltd.). The
Special Judge held that in light of the capacity in which these directors
acted, they can be considered as the persons controlling the affairs of the
company and the directing mind and will of the respective companies. The
learned Special Judge observed that these persons can be considered to be
the alter ego of their respective companies and the acts of the companies are
to be attributed and imputed to them. This order for issuance of summons
passed by the learned Special Judge was challenged in the Supreme Court.

5.3. Issues
1 Whether the principle of attribution/alter ego can be applied to make the
directors of the company liable for an offence committed by the
company?
2 When can a director/person in charge of the affairs of the company be
prosecuted for an offence committed by the company?
5.4. Judgment and Judicial Reasoning

The three judge bench of the Supreme Court speaking though AK Sikri J.
struck down the summons issued by of the Special Court and held that the
Special Court had erroneously applied the doctrine of alter ego to implicate
the directors of the companies for offences committed by the companies.

The Supreme Court relied on its decision in Iridium India Telecom v.

Motorola Incorporated and Others (“Iridium”)59 wherein the court had
dealt with the question of whether a company could be prosecuted for an

59
Iridium India Telecom v. Motorola Incorporated and Others, (2011) 1 SCC 74.

51
offence which requires mens rea i.e. guilty mind. In the Iridium case, it was
held that the companies and corporate houses can no longer claim immunity
from criminal prosecution on the ground that they are incapable of
possessing the mens rea for the commission of criminal offences. The
criminal intent of the alter ego of the company/body corporate i.e. the
persons or group of persons in control of the affairs of the company or who
guide the business of the company, would be imputed to the corporation. 60
However, the Court noted here that the principal is applied to impute
criminal intention to the company on account of criminal intention of its
alter ego and not the other way round. The Court thus held that the principle
of attribution cannot be applied in the reverse scenario to make the directors
liable for offences committed by the company.

The Court thereafter observes that in the following circumstances a

director/person in charge of the affairs of the company can also be
prosecuted, along with the company as an accused:

1 If there is sufficient evidence of his active role coupled with criminal

intent;
2 Where the statute specifically imposes liability.

On the first aspect, the court held that the Special Judge has not satisfied
himself that sufficient incriminating material was present on record to
proceed against the directors. The Court however left it open for the Special
Judge to examine the material on record to ascertain if sufficient
incriminating material exists to proceed against the directors.

With reference to the second aspect, the court notes that it is a cardinal
principle of criminal jurisprudence that there is no vicarious liability unless
the statute specifically provides for it. Therefore, when the company is the
offender, vicarious liability of the directors cannot be imputed automatically

60
Ibid, para 59.

52
in the absence of any statutory provision to that effect.
5.5. Analysis
The Court relied upon the decision of the House of Lords in Tesco
Supermarkets Limited v. Nattrass61 (“Tesco”), wherein it was held that the
person whose mens rea is to be attributed must be the directing mind and
will of the company. Interestingly, the Privy Council in a subsequent
judgment in Meridian Global Funds Management Asia Limited v. Securities
Commission62 (“Meridian”) has expanded the rule laid down in Tesco by
holding that, “the company builds upon the primary rules of attribution by
using general rules of which are equally available to all natural persons,
namely, the principles of agency” thereby making the rules of attribution a
more flexible one to be decided on a case to case basis.

The decision of Tesco has been referred by the earlier division bench
decisions of the Supreme Court in J.K Industries Limited and Others v.
Chief Inspector of Factories and Boilers and Others63 and P.C Agarwala v.
Payment of Wages Inspector, M.P and Others64 wherein it has been held that
in the context of vicarious liability under strict liability statutes, a person in
charge would be deemed to be responsible for the acts of the company.
Thus, the decision of the three judge bench of the Supreme Court has clearly
brought some clarity on the principles of attribution and vicarious liability in
the context of corporate criminal liability vis-à-vis strict liability under a
statute.

Also, it will be interesting to see whether the government can sustain the
complaint only against the three companies, in the absence of the offence
being made out against a person or body of persons in control of its affairs,
61
Supermarkets Limited v. Nattrass, [1972] AC 153.
62
Meridian Global Funds Management Asia Limited v. Securities Commission, [1995]
UKPC 5.
63
J.K Industries Limited and Others v. Chief Inspector of Factories and Boilers and
Others, (1996) 6 SCC 665.
64
P.C Agarwala v. Payment of Wages Inspector, M.P and Others, (2005) 8 SCC 104.

53
more particularly when such offence requires mens rea.

6. LAW COMMISSION REPORT

Law Commission in its 41st report suggested amendment to Section 62 of

the Indian penal code by adding the following lines:

In every case in which the offence is only punishable with imprisonment or

imprisonment and fine and the offender is the company or other body
corporate or an association of individuals, it shall be competent to the court
to sentence such offender to fine only.

This recommendation got no response from the parliament and again in the
47th report, the law commission in paragraph 8(3) made the following
recommendation:

In many of the acts relating to economic offences, imprisonment is

mandatory. Where the convicted person is corporation, this provision
becomes unworkable and it is desirable to provide that in such cases, it shall
be competent to the court to impose a fine. This difficulty can arise under
the penal code also, but it is likely to arise more frequently in the case of
economic laws. We, therefore, recommended that the following provision
should be inserted in the penal code as, say, Section 62:

(1) In every case in which the offence is punishable with imprisonment only
or with imprisonment and fine, and the offender is the corporation, it shall
be competent to the court to sentence such offender to fine only.

(2) In every case in which the offence is punishable with imprisonment and
any other punishment not being fine and the offender is a corporation, it
shall be competent to the court to sentence such offender to fine.

54
(3) In this section, corporation means an incorporated company or other
body corporate, and includes a firm and other association of individuals.
But this bill prepared on the basis of the recommendations of the law
commission lapsed and it did not become law. However few of these
recommendations were accepted by parliament and by suitable amendment
some of the provisions in the taxation statutes were amended. The Law
Commission has tried consistently to find a formula which would solve the
problem of fixing appropriate punishment for the Corporations which
commit offences; this has been done with a view to punish a corporation
where mandatory minimum punishment is both punishment and fine, in
such a case it needs to be fixed as to how the law courts would advance if
this question comes up before them.

55
 7. MODEL PENAL CODE PROVISIONS FOR CORPORATE
CRIMINAL LIABILITY

The Model Penal Code provides that a corporation may be convicted of an

offence if:

1. the offence is a violation or defined by a statute other than the Code in

which a legislative purpose to impose liability on corporations plainly
appears and the conduct is performed by an agent of the corporation acting
in behalf of the corporation within the scope of his office or employment.65

2. the offence consists of an omission to discharge a specific duty of

affirmative performance imposed on a corporation by law, or

3. the commission of the offence was authorized, requested, commanded,

performed or recklessly tolerated by the board of directors or a high
managerial agent acting in behalf of the corporation within the scope of his
office or employment.66 A corporation duly dissolved under the laws of the
state of its incorporation may thereafter be subjected to criminal prosecution
under a dissolution provision of the state authorizing any action, suit or
proceeding against the corporation within a specified period after the
dissolution and the words action and proceeding as used in a statute
continuing corporate existence include criminal proceedings. The company
can prove that it has established corporate policies in an effort to reduce
crime, but this does not prevent a court from finding it criminally liable. The
existence of an effective compliance policy will not provide an absolute
defence from criminal liability,67 Corporations can be held criminally
65
Dharm Veer Singh, Corporate Criminal Liability: A Jurisprudential and Comparative
Approach.
66
Richard S. Gruner, Corporate Criminal Liability And Prevention.
67
Dan K. Webb et al., Understanding and Avoiding Corporate and Executive Criminal
Liability, (1994) 49 Bus Law 617 at 624 cited in Matthew E. Beck & Matthew E.
O™Brien, Corporate Criminal Liability (annual white collar crime survey), American Law

56
responsible for a wide variety of crimes:

 Contempt in disobeying decrees and other court orders, directed to

it.
 Conspiracy.
 Bribery or conspiracy to bribe public officials.
 The illegal practice of medicine.
 Maintaining public nuisance.
 Violations of licensing and regulatory statutes.
 Violations of consumer protection laws.
 Antitrust law violations.

8. CONCLUSION & SUGGESTIONS

Review, (2000), pp. 261, 268, n.37.

57
It can safely be concluded that laws relating to corporate criminal liability in
India are vastly insufficient. The legislature needs to be active in this regard
and form certain concrete laws which would ensure that the corporations do
not go unpunished and a better social order is established. Certain
Provisions relating to procedural law also need to be created and modified
so that the corporations can be adequately dealt with.

Further, the above discussion has clearly given the view that it is possible to
have a direct and separate notion of corporate blameworthiness and would
constitute an invaluable addition to current theories of corporate criminal
responsibility. The above said discussion has given a model with proper and
sound argument that can be used for determining the mens rea and actus
reus in the acts of corporations and that to with in ambit of traditional
principle of criminal liability. The need for treating the corporations directly
for its criminal acts is to ensure the liability in more concrete sense. The
presented model corporate liability has greater advantage as compare to
existing model of corporate liability as in sense its ability to capture a wider
spectrum of corporate action within the structure of a criminal offence, thus
rooting responsibility in a more complete understanding of corporate
blameworthiness. It can safely be concluded that laws relating to corporate
criminal liability in India are vastly insufficient. What all is required that
legislature should come forward and make some strong statutes which
would check that the corporations must get punished and a better social
order is established. There should be some few provisions relating to
procedural law to be incorporated and they should be modified so as to deal
with the corporation.

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63