CORPORATE CRIME AND IT’S

ROLE IN ECONOMIC DEPRESSION

A DISSERTATION SUBMITTED TO
IN PARTIAL FULFILMENT OF THE REQUIREMENT FOR THE AWARD
OF BACHELOR OF LAWS
B.A.LLB.
BACHELOR OF LAW 5 YEARS

Submitted to:
Submitted By:
Ms. Arpita Sehgal Saroo Sra
Assistant Professor BA.LLB. (X Sem)

40921503818

CHANDERPRABHU JAIN COLLEGE OF HIGHER STUDIES &

SCHOOL OF LAW
1
(AFFILIATED TO GURU GOBIND SINGH INDRAPARSTHA UNIVER-
SITY, DWARKA, NEW DELHI-110078)
(2022-2023)
DECLARATION

I Saroo Sra student of B.A.LLB. of CHANDERPRABHU JAIN COLLEGE OF HIGHER STUD-

IES & SCHOOL OF LAW with enrolment no. 40921503818, do hereby declare that this disserta-

tion paper is and original work of mine and is the result of my own intellectual efforts. I have

quoted titles of all original sources i.e original documents and name of the authors whose work has

helped me in writing this research paper have been placed at appropriate places. I have not infringed

copy of any other author.

Place: Delhi

Date:……………

Saroo Sra

2
 CERTIFICATE

This is to certify that the Dissertation entitled “Corporate Crimes and it’s role in Economic De-
pression” which is being submitted by SAROO SRA for the award of degree of B.A.LLB. is an in-
dependent and original research work carried out by her.

The dissertation is worthy of consideration for the award of B.A.LLB. Degree of Chanderprabhu
Jain College of Higher Studies & School of Law.

SAROO SRA has worked under my guidance and supervision to fulfil all requirements for the sub-
mission of this dissertation.

The conduct of research scholar emitted excellent during the period of research.

Place: Delhi

Date:………….
Ms. Arpita Sehgal

ACKNOWLEDGEMENT
3
This dissertation is the result of genuine quest to under Corporate crimes and it’s role in Economic
Depression and how it affects the legal system in India and across the globe. This work has benefit -
ted immensely from many sources institutional as well as personal. The people who helped me un -
dertake this journey are too many to be name personally.

I am deeply indebted to my mentor, Ms. Arpita Sehgal for her encouraging, inspirational and valu-
able guidance during the research and preparation of this dissertation. I am thankful to her for al-
lowing me to present my view point in a liberal manner. Also, my heartfelt gratitude to her, as she
undertook the role of supervisor, mentor, and guide for the successful development of my law ca-
reer.
My deepest gratitude, from the depth of my heart goes to my family, they have been a source of in-
spiration and sustained me with their unswerving support in pursuit of my academic goals., without
them, I would not be the person who I am.

Saroo Sra

PREFACE

4
Corporate crimes have become a highly widespread phenomenon in modern industrialized societies.
The aim of this paper is to offer criteria and elements to evaluate criminal liability of middle man-
agers of a highly hierarchical company for criminal acts committed by employees, which have been
adopted and conceived by top managers of the company. The term “Corporate Crime” can be de-
fined as organizational crime, it is a type of white-collar crime committed by individuals within
their legitimate occupations, for the benefit of their employing organization. The origin of corporate
crime can be traced back to the 19th century in United States. Deceptive advertisement, restrain of
trade, bank fraud, faulty manufacturing of dangerous products, patent violations etc were some
forms of corporate crimes. The first formal explanation for corporate crime was put forward by
criminologist Edwin Sutherland in 1939. The current Indian laws addressing the field are limited
but progressive which shows India’s approach towards Corporate crimes. I have analysed how In-
dian laws can be more reformative and efficient in addressing corporate crimes in India and how we
can learn from foreign countries and there jurisprudence on corporate criminal liability.

The subject research work has been divide into eight chapters and further divide into various sub
topics. The First Chapter which is named as Introduction consists of two sub topics- Aims and Ob-
jectives of this Study and Research Methodology.
The Second Chapter of this work attempts to understand the Concept of Corporate Crimes which in-
cludes its Origin and evolution,Theories, Growth and Causes of Corporate Crimes.
The Third chapter of this work deals with Nature of Corporate Crimes which includes Types and
Consequences of Corporate Crimes.
The Fourth Chapter talks about Corporate Criminal Liability in India and abroad including it’s de-
velopment and concept and the doctrines established.
The Fifth Chapter of this work deals with Case studies on Corporate Criminal Liability and the
Sixth Chapter deals with Corporate Crime and Global economy which consists of sub topics- Role
in Economic Depression and impact on Indian Economy.
The Seventh Chapter deals with Problems in Implementing Present law on Corporate Crimes in In-
dia.
The Eighth Chapter finally deals with Conclusion and Suggestions.

ABBREVIATIONS

ABBREVIATIONS FULL FORM

Anr. Another

5
CrPC Code of Criminal Procedure

CARO Act Companies (Auditor’s Report) Order Act

CBI Central Bureau of Investigation

FERA Foreign Exchange Regulation Act

KYC Know Your Customer

LTTE Liberation Tigers of Tamil Eelam

MNC’s Multinational Corporations

NDPS Act Narcotics and Drugs Psychotropic Substances

Act

OECD Organisation for Economic Co-operation and

Development

SEBI Securities Exchange Board of India

LIST OF CASES

CASES PAGE NO.

A. K. Khosla v. S. Venkatesa 36

Hari Krishnan and State of Haryana v. Sukhbir 111

Singh

6
 CASES PAGE NO.
Jaylalitha v. Union of India 55

M.C. Mehta v. Union of India 69

Nimmagadda Prasad v. C.B.I 55

New York Central and Hudson River Rail Road 28

Co. v. United States

New York Central & Hudson River Railroad 62

Company v U.S

Queen v. Great North of England Railways Co 28

Lord Denman

Ram Narayan Poply v. C.B.I. 55

Ranger vs. The great western railway company 50

[1859] 4 De G & J 74,

State of Gujarat vs. Mohanlal Jitamalji Porwal 55

and Anr.

Standard Chartered Bank & Others v. Direc- 12

torate of Enforcement

Subramanium Swamy v. Dr. Manmohan Singh 55

Sebastian Hongray v. Union of India 112

Tesco Supermarkets Ltd. v. Nattrass 60

The Rhone v. The Peter A.B. Widener 63

7
 TABLE OF CONTENT

DECLARATION 2

CERTIFICATE 3

ACKNOWLEDGMENT 4

PREFACE 5

ABBREVIATIONS 6

LIST OF CASES 7

Chapter- 1
INTRODUCTION 10-15

1.1 Introduction……………………………………………………………………
1.2 Aims and Objectives of this study ……………………………………………
1.3 Research Methodology………………………………………………………..

Chapter-2
CONCEPT OF CORPORATE CRIMES 16-33
2.1 Origin and Evolution…………………………………………………………
2.2 Conceptual Analysis of a Corporation………………………………………..
2.3 Theories of Corporate Crimes………………………………………………..
2.4 Growth of Corporate Crimes…………………………………………………
2.5 Causes of Corporate Crimes………………………………………………….

Chapter-3
NATURE AND TYPES OF CORPORATE CRIMES 34-42
3.1 Nature of Corporate Crimes………………………………………………..

8
 3.2 Types of Corporate Crimes…………………………………………………
3.3 Consequences of Corporate Crimes………………………………………..

Chapter-4 43-64
CORPORATE CRIMINAL LIABILITY
4.1 Development and Concept…………………………………………………….
4.2 Doctrines established in Corporate Criminal Liability………………………..
4.3 Corporate Criminal Liability in India…………………………………………
4.4 Corporate Criminal Liability in other countries………………………………

Chapter-5
CASE STUDIES ON CORPORATE CRIMINAL LIABILITY IN INDIA 65-
79

Chapter-6
CORPORATE CRIME & GLOBAL ECONOMY 80-85
6.1 Impact on Indian Economy………………………………………………….
6.2 Role in Economic Depression……………………………………………….

Chapter-7
PROBLEMS IN IMPLEMENTING PRESENT LAW OF CORPORATE
CRIMES IN INDIA 86-97

Chapter-8
CONCLUSION AND SUGGESTIONS 98-115
BIBLIOGRAPHY

9
CHAPTER 1
INTRODUCTION

10
CHAPTER 1 INTRODUCTION
1.1 INTRODUCTION

"Corporate crime is the conduct of a corporation or of its employees acting on behalf of the cor-
poration, which is prescribed and punished by law."- J. Braithwaite”

These days newspapers are filled on a daily basis with examples of financial manipulation, account-
ing fraud, cartels, bribery, corporate human rights violation, insider trading, etc. The day-to-day
routine activities which we conduct for our well being and livelihood are impacted by business ac-
tivities to a large extent. These companies create wealth for the economy, their shareholders and en-
sure that they do not harm or injure others in the society without justification. The problem of cor -
porate crime transcends the micro level of the individual ‘rotten apple’. In the 21st century, crimes
committed by corporate bodies are creating a more serious challenge for the criminal justice system.
Some vested interests which are controlling the affairs of corporate bodies misuse the corporate
body for a commission of criminal acts to maximise profit. Corporate crime is an exercise of dis-
honesty conducted to gain the advantage over others. Corporate crimes are the blot on the criminal
justice system. Corporate criminal activities badly affect the environment, health, safety and infra-
structure development. The origins of the concept of corporate crime can be traced to the larger
concept of white-collar crime, which was first introduced in the social sciences by American crimi-
nologist Edwin Sutherland in a 1939 presidential address to the American Sociological Association.
He defined white-collar crime as “a crime committed by a person of respectability and high social
status in the course of his occupation.”1 Later, criminologists Marshall B Clinard and Peter C. Yea-
ger in 1973 proposed a more reformed meaning of corporate crime as-

“A corporate crime is any act committed by corporations that are punished by the state, regardless
of whether it is punished under administrative, civil, or criminal law. This broadens the definition

1 https://www.britannica.com/topic/corporate-crime
11
of crime beyond the criminal law, which is the only governmental action for ordinary offenders. A
corporation cannot be jailed, although it may be fined, and thus the major penalty of imprisonment
used to control individual law violators is not available in case of corporations per se.”2

Clinard and Yeager in 1980 clarified that corporate crime included crimes committed by corporate
officials with the aim of benefitting the corporation. Typically, traditional criminological theories
ignore organizational factors and agree that traditional explanations may not apply to corporate
crime.

From a broader perspective, white collar crime includes occupational and organisational crime both.
Occupational crime term is used denote criminal acts committed by person of respectability in
course of his occupation, thereby, it refers to individual criminality committed in course of his oc -
cupation; in restricted sense white collar crime refers to such occupational crime. Organisational
crime is committed in collective, aggregate and organised manner for profit of incorporated body
The liability may be imposed on corporate body and doer of act or white collar crime for which lia-
bility may be imposed on doer of act only.

Economic offences committed by corporate bodies affect the whole economy of country and in
some cases even of whole world too. Corporate bodies participate in infra-structure development
and welfare activities, thereby, crimes committed by them affect the very life of common citizenry.
Financial condition of nation is challenged by commission of corruption, money laundering, tax
evasions, non-observance of business ethics, and scams committed by corporate bodies. A proper
and effective enforcement of corporate criminal liability is compelling need of modern criminal jus -
tice system. Those who study corporate crime generally conclude that corporate offending creates
far more harm than traditional offending.

Many factors can lead to corporate crime and one of main are the organisational factors like organi-
sational goals, organisational structure, and organisational environment are the factors that influ-
ence the commission of corporate crimes. The general perception is that white-collar crimes are
committed because of greed or economic instability. But these crimes are also committed because
of situational pressure or the inherent characteristic of getting more than others. However, there are
various reasons for white-collar crimes. They are caused due to the following reasons – greed, lack
of awareness among people, lack of strict rules and laws, lack of accountability, peer support, loop-
holes of legal structure, technological and industrial development, etc.

2 https://www.oxfordbibliographies.com/display/document/obo-9780195396607/obo-9780195396607-0185.xml
12
The ambit of corporate crimes is vast, some of the corporate crime reported are- credit card fraud,
embezzlement, fraud with insurance company, racketeering, bank fraud, bribery, cybercrime,
money laundering, forgery, tax evasion, counterfeiting.3

The idea of corporate criminal liability arose in response to these corporate crimes which became a
necessity later. Corporate criminal liability can be defined as a crime which has been committed by
individual or association of individuals who for pursuing a common purpose or make business gain
in course of their occupation commit such acts or omission which is forbidden by law and with
guilty mind where it is for the benefit of the corporation or any individual out of the association of
individuals. In layman’s terms, the doctrine of corporate criminal liability is essentially the doctrine
of respondent superior which has been imported into criminal law from tort law. This doctrine states
that a corporation can be made criminally liable and convicted for the unlawful acts of any of its
agents, provided those agents were acting within the scope of their actual or apparent authority. Ap-
parent authority is that authority which an agent can be inferred to have by an average reasonable
person, whereas actual authority is authority that a corporation knowingly entrusts to its agent or
employee. Earlier in many situations when the concept of holding a corporation liable was not intro-
duced there was not any corporation held liable for any criminal act as the it is an artificial legal
person, so it could not be imprisoned, and corporation not being natural person there was absence of
mens rea. The Supreme Court of India in Standard Chartered Bank & Others v. Directorate of En-
forcement, held that the person engaged in the affairs of the corporation shall be liable under crimi-
nal liability in case of offences relating to criminal in nature 4. The criminal liability by the corporate
being the offender is a very serious issue which need to be tested and amendments in existing laws
and or commencement of new corporate law is very much essential.

Industrialization and corporation is very much essential for growth of the economy of a country.
Economic development is indispensable for any country. With the advent of Globalization and In-
dustrialization taking place at a rapid pace the world over today, we are facing with Crimes of a na-
ture which is becoming institutionalized and hard to detect. Corporate Crimes is a major challenge
to the legal fraternity, the law makers, and the law enforcers 5. Corporate crimes in a globalise econ-
omy has no borders and can affect the economies of countries on a large scale and can cause huge
losses to Corporate houses and bring to halt the functioning of their businesses.

3 https://blog.ipleaders.in/white-collar-crimes/Mens_rea
4 AIR 2005 SC 2622
5 Available at www.davidondiekiaadvoctes.co.ke/cor.
13
Th corporate crimes have an intangible affect on the economy of a country or the global economy
and which in return have serious consequences on the reputation and susceptibility of the country.
When an economic system is in order, corporate crime is less common, and as long as the economy
is not so well-organized, especially when it is under the influence of specific circumstances corpo-
rate crime is far more common. Most experts agree that the economic impact of white-collar crime
is far more costly than ordinary crime. White-collar crime can endanger employees through unsafe
working conditions, injure consumers because of dangerous products, and cause pollution problems
for a community. Scams and frauds committed not only impacts the investors but also adversely af-
fects the capital markets, it deeply shakes the root of the economy along. In white collar crimes, old
aged people are the most common and easy target as they have a very minimal access to the liquid
assets and they have less cognitive ability than the young generations. The victims of these crimes
may suffer from various diseases such as depression, stress, anxiety, panic attacks, etc. Many a
times, people suffer from suicidal tendencies as the losses are huge and unbearable.

1.2 AIMS AND OBJECTIVES OF THIS STUDY

The research has the following objectives:

• Understanding the theories and development of corporate crimes.

• To note the concept of corporate crime and it’s nature, factors, causes
• To analyse the provisions of law on corporate criminal liability.
• To study the legislation regarding enforcement of law with regard to corporate criminal liability.
• Examining various case studies on corporate crimes in India and abroad.
• To study the impact of corporate crimes on the economy.
• And to suggest the measures and solutions to be adopted in order to curb corporate crimes.

1.3 RESEACRH METHODOLOGY

The research study employs a non-empirical method of research or doctrinal research. Therefore,
the study has used scholarly material such as text-books, journals, articles, law commission reports,
business magazines, articles of different scholar and academicians, High Courts and Supreme Court
judgment, newspapers, relevant information from various websites and other instruments. Conven-
tional legal sources are used in this doctrinal research. The primary source of collection of data is
through statutes or enactments, reports of committees, legal history, judgment etc. and the sec-

14
ondary source of collection of data is through text books, periodicals, commentaries, websites etc.
Emphasis has been put on the quality of authors of the materials used and the authenticity of the
sources of information, particularly, where journal articles are quoted and relied on. Emphasise is
also given to the research study is a qualitative desk study of legal imperatives on corporate crimes
in the criminal justice administration system in India.

15
CHAPTER 2
CONCEPT OF CORPORATE
CRIME

CHAPTER 2 CONCEPT OF CORPORATE CRIME

2.1 ORIGIN AND EVOLUTION

Criminality is a global phenomenon. With the advance meant of time and the development of
knowledge and technology, the complexities of life have multiplied. It provides opportunities for
criminals to organize themselves into criminal gangs. In this modem age of science and technology,
new techniques of crime are used by gangsters to accomplish criminal design. It is said that eco -
nomic life is fundamental and it has an influence on social and cultural values. This connotes that
economic factors influence the nature and form of all social patterns and control all other aspects of
human life. Thus, criminologists have tried to explain crime in terms of economic conditions. In the
16
words of Karl Marx (1818-83), economic conditions determine the general character of the social,
political, and spiritual processes of life and with the change of economic foundations; the entire su-
perstructure is also rapidly transformed. Those who supported this view concentrate on the eco-
nomic aspect of crime and analyze the impact of economic conditions on criminality. Their asser-
tion that economic forces have been interacting right from the inception of human society has a his-
torical background. It is well known that in early societies when economic resources were limited,
the struggle for existence and survival of the fittest was supposed to be the law of nature. There-
after, as the society advanced, an increase in production yielded surplus as a result of which the sys-
tem of barter and exchange originated. Gradually, money gained importance in human life so much
so that it has now become the sole determining factor of a person’s social status in modem society.
Legal philosophers of all ages have accepted that economic conditions have a direct bearing on
crime. Aristotle, the Greek philosopher commented that poverty endangers revolution and crimes
originate from poverty. He asserted that crimes are committed not merely for the sake of meeting
the necessities of life but also for acquiring superfluous things. Thus, the desire to possess articles
of luxury prompts him to commit criminal acts, if he cannot procure them by legitimate means. 6

The origins of the concept of corporate crime can be traced to the larger concept of white-collar
crime, which was first introduced in the social sciences by American criminologist Edwin Suther-
land in a 1939 presidential address to the American Sociological Association. He defined white-col-
lar crime as “a crime committed by a person of respectability and high social status in the course of
his occupation.” Focusing on the powerful as well as the downcast, such a concept represented a
radical reorientation in theoretical views of the nature of criminality. Sutherland later published a
book titled White Collar Crime (1949), which concentrated almost exclusively on corporate crime.
Using official records of regulatory agencies, courts, and commissions, he found that all 70 of the
corporations that he examined over 40 years had violated at least one law or had an adverse deci-
sion issued against it for false advertising, patent abuse, wartime trade violations, price-fixing,
fraud, or intended manufacturing and sale of faulty goods. Many were recidivists (repeaters) with an
average of eight negative decisions issued for each. Sutherland noted that while “crime in the
streets” captured the newspaper headlines, “crime in the suites” continued unnoticed. While white-
collar crime was far more costly than street crime, most cases were not even covered under criminal
law but were treated as civil or administrative violations.7

As observed by Bames and Tetters:

6 N.V Paranjape, “Criminology and Penology” 11th Edition 2004

7 https://www.britannica.com/topic/corporate-crime
17
“There has always been crime among businessmen. There have always been instances of violation
of trust. Most of us have read of chancery the central theme of the fiction of earlier times. But, the
American people seemed to believe that anyone who betrayed a trust or who mulcted the widow’s
mite in a shady but legal deal, would eventually suffer-if not here, surely in the hereafter. Existing
practices, however, were generally accepted as being within the canons of good business. Business,
therefore, was justified in pulling a shrewd deal. The victim either did not report what was done for
fear of being ridiculed or received little sympathy because he had been fleeced in a social, approved
and even legal deal. Caveat emptor-let the buyer beware expressed the prevalent attitude.”8

The corporation, an organizational form, was established in the 14th century. It was created and
granted only by the crown or by an act of the parliament. The crown attempted to build up the ideas
and it encouraged organizations to become legally authorized. During the 16th and 17th centuries,
the corporations were grown up as hospitals, universities and other similar associations which were
adapted to the corporate form. At the end of this period the corporation was budding as a joint stock
company. This joint stock company was most useful in the promotion of new industries. In the ini-
tial stage, corporations were created as not -for- profit but later in the 17th century, the corporations
became profit oriented. During the end of the 17th century, incorporated companies were formed on
a large scale, but most of companies were run for the benefits of the investors as well as the benefit
of the employee and most of them had a short span of life. Because the investors suffered losses in
the business as they were involved in the malpractices. However, the British parliament enacted
special acts for the business activities. The basic rule of criminal liability revolves round the basic
Latin maxim actus non facitreum, inconclusive mens sit re. It implies that to form one liable, it
should be shown that act or omission has been done that was impermissible by law and has been
done through with guilty mind. In India, the law of crime i.e. Indian Penal Code is prevailing to
punish the criminals. It was the common intent of the people that a corporation has no soul hence it
could not have actual “actual wicked intent”. During the first 20th century, the court began to carry
the companies reprehensively liable in varied areas within which the social control would be ob-
structed while not making companies liable. Indeed, courts were before long eager to carry that the
corporation was reprehensively chargeable for all wrongs except the crimes like rape, murder,
bigamy etc where the personal involvement of a particular person is needed to commit a crime. 9

As a general rule, common law did not impose criminal liability on corporations. This was based on
the belief that a corporation lacked moral blameworthiness or the requisite mens rea, which is an es-
sential element of a crime. Further, the thought that was prevalent was that a corporate has 'no soul

8 New Horizons in Criminology, 3rd Edn.,

9 ERPA International Journal of Multidisciplinary Research (IJMR)
18
to damn and no body to kick'. Exceptions were restricted to holding a company liable to provide
compensation to third parties for wrongful acts of its employees, but did not extend to liability for
crimes. It was from the early 20th century onwards that courts began to recognise the criminal lia-
bility of corporations. By the turn of the 19th century, the criminal courts accepted that a corpora-
tion could be liable for a wide range of criminal offences within the regulatory sphere. Despite the
lengthy gestation, there is no particular conceptual difficulty in the idea of a legal person selling or
constructing.

2.2 CONCEPTUAL ANALYSIS OF A CORPORATION

Corporations are considered to be an integral part of the society. Besides the governmental agen-
cies, the corporations are deemed to be the effective agents of action in our society. But, corpora -
tions, as it is understood today, have not been same in the past. But over a period of time, the devel -
opment of society has had a direct influence on the structure and functions of the corporation. This
has led to an ever increasing demand for the law to recognize the change and suit its applications. 10
Over the last few decades, lot of complexities has evolved in the corporate sector because of global-
ization and privatisation of different kind of business entities all over the world. The word 'corpora-
tion' has no strictly technical or legal meaning. It may be described to imply an association of per-
sons for some common object. The purposes for which the people may associate themselves are
multifarious and includes economic and non-economic objectives. But in common parlance, the
word corporation is normally reserved for those associated for economic purposes i.e to carry on a
business for gain. A corporation is an artificial entity that the law treats as having its own legal per -
sonality, separate from and independent of the persons who make up the corporation. Corporation
has an independent existence which is separate from the shareholders constitution it. The corpora-
tions are run by natural persons and these people’s actions can be criminal in nature and can some-
times even result in great economical as well as human loss to the society.

A corporation may be defined as a body of persons (in the case of corporation aggregate) or an of-
fice (in the case of corporation sole) which is recognised by the law as having a personality which is
10 lex-warrier.in/2014/02/analysis-corporate-criminal-liability-india/
19
distinct from the separate personalities of the members of the body or the personality of the individ-
ual holder for the time being of the office in question. 11There are many associations and bodies
which are neither persons nor corporations. Some of these, such as registered friendly societies,
may be quasi-corporations, as they have some of the usual attributes of corporations, such as the
possession of a name in which they may sue or be sued, and the power (independently of any con-
tract between the members) to hold property for the purposes defined by their objects and constitu-
tions.

In common parlance, corporation means a group of individuals coming together to carry on a busi -
ness. It is a creation of law, a business organisation recognised by law or having the legal sanctity or
the right and duties entrusted through law. Though, Common law establishes the origin of Modem
Corporation in the 14th century or so, yet some authors are of the view that the origin of corporation
could be sought in the twelfth century or perhaps in the Roman law where, juristic person or person-
ality was said to have been recognized. Sir Henry Maine opined that a sort of corporate responsibil -
ity was at the very heart of the old legal system. Society was not what it is assumed to be at present,
a collection of individuals. In fact, and in view of the men who comprised it, it was an aggregation
of families. The law recognized this system of small Independent Corporation. Corporations are di-
vided into two parts, such as

(a) Corporation Aggregate, and

(b) Corporation Sole.

Corporation aggregate has been defined as a collection of individuals united into one body under a
special domination, having perpetual succession under an artificial form, and vested by the policy of
the law with the capacity of acting in several respects as an individual, particularly of taking and
granting property, of contracting obligations and of suing and being sued, of enjoying privileges and
immunities in common and exercising a variety of political rights, more or less extensive, according
to the design of its institution, or the powers conferred upon it, either at the time of its creation or at
any subsequent period of its existence.12

So, corporation is an incorporated body having membership of several persons. It is constituted by

number of persons known as share holder who pool their resources to create a fund known as capi-
tal to start with and it works for common interest of all the share holder and prime motive is profit
making. It was the industrial revolution of the seventeenth century and improvement in the trans-
portation system thereby, which brought about the previously unanticipated changes not only in the
11 www.naavi.org/geeta_narula/corporate_criminal_liabiIity_nov 12.html.
12 Narendra Kumar Jain and ors. v. Govt. of NCT of Delhi and others
20
size and structure of the corporations but also in the role and functions corporations play in the soci-
ety. Over the past century, the concept of a corporation has shifted from the notion of an enterprise
headed by one entrepreneur, who both owns and runs the going concern, to that of an organization
where stock ownership becomes separated from the control of the corporation’s affairs, the latter
being managed by a professional, hired and self-perpetuating bureaucracy. 13Further, the individual
shareholder’s role has changed from part-owner to investor, and its importance has diminished in
large corporations where the most significant shareholders are collective entities. The attachment of
the shareholder to the corporation is becoming secondary and indirect, reflecting the fact that corpo-
rations serve a variety of interests besides those of shareholders, including those of their employees,
customers and the community at large. And hence, it has been observed that “the corporation can no
longer be identified with a single homogeneous group of individuals. Its decisions and activities are
the resultant of and are responsive to a complicated set of interests and conflicting claims”. This is
the more significant change for the purposes of the criminal law and for imputing corporate crimi -
nal liability on the corporations.

A corporation sole is a body politic having perpetual succession, constituted in a single person who
in right of some office or function, has a capacity to take, purchase, hold and demise (and in some
particular instances, under qualifications and restrictions introduced by statute, power to alienate)
real property, and now, it would seem, also to take and hold personal property, to him and his suc-
cessors in such office for ever, the succession of being perpetual, but not always uninterruptedly
continuous; that is, there may be and often are, periods in the duration of a corporate sole, occurring
irregularly, in which there is a vacancy, or on one in existence in whom the corporation resides and
is visibly represented. Unlike corporation aggregate, a corporation sole has a double capacity,
namely, it’s corporate capacity and its natural or individual capacity so that a conveyance to a cor-
poration sole may be in either capacity.

A corporation sole appears now to be capable of taking personality in possession. The occupant of a
corporation sole is presumed to have been duly in possession of his office until the contrary is
proved. In today’s economic and social structure, a corporation possesses functional structures, it is
permanent, large, formal, complex and goal-oriented, and has decision-making structures. Although
not all corporations share the characteristic of being large-scale operations involving many individ-
ual participants, it should be noted that small corporations do not generally raise the same problems
for prosecutors as large ones. Moreover, the social importance of an organization’s policies and de-
cisions increase with the magnitude of its resources, reflecting the greater potential of large organi-
zations to cause substantial harm. It has also been observed that the large corporations tend to breed

13 www.naavi.org/geeta_narula/corporate_criminal_liability_nov12.html
21
the conditions for disaster. The larger the corporation, the greater the diffusion of responsibility, and
the greater the possibility for disaster, and for disaster of greater reach.

A corporation sole is a legal entity consisting of a single incorporated office, occupied by a single
person. A corporation sole is one of two types of corporation, the other being a corporation aggre-
gate. This allows corporations to pass without interval in time from one office holder to the next
successor-in office, giving the positions legal continuity with subsequent office holders having
identical powers to their predecessors.14

Most corporation sole are church-related but some political offices of the United Kingdom, Canada
and the United States are also corporation sole. In the United Kingdom, for example, many of the
Secretaries of State are corporation sole. In contrast to a corporation sole, a corporation aggregate
consists of two or more persons, typically run by a board of directors. Another difference is that
corporations aggregate may have owners or stockholders, neither of which are a feature of a corpo-
ration sole.

Since a Corporation has no physical body on which the pain of punishment could be inflicted, or a
mind which can be guilty of a criminal intent, traditional punishments prove ineffective, and new
and different punishments have to be devised. The real penalty of a corporation is the diminution of
respectability, that is, the stigma. It is now usual to insert provisions to the effect that the Director or
Manager who has acted for the corporation itself, should be punished. In the public mind, the of-
fence should be linked with the name of the corporation, not merely in the name of the Director or
Manager, who may be non-entity. Punishment of fine in substitution of imprisonment in the case of
a corporation could solve the problem in one aspect; but, at the same, it is necessary that there
should be some procedure, like a judgment of condemnation, available in the case of an anti-social
or economic offence committed by a corporation, this will be analogous to the punishment of public
censure proposed for individuals.15 Of course, confiscation and similar penalties will continue. Ac-
quisitive corporate crime, like acquisitive personal crime, will persist if the criminal is permitted to
retain the fruits of his illegal activity. The criminal law, therefore, generally does not tolerate such
retention. If acquisitive corporate crime is to be deterred, the corporation, like any other acquisitive
criminal should be deprived of all the fruits of its illegal activity. In many of the Acts relating to
economic offences, imprisonment is mandatory where the convicted person is a corporation, this
provision becomes unworkable, and it is desirable to provide that in such cases, it shall be compe-
tent 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.

14http://en.wikipedia.org/wiki/corporation_sole
15 Law Commission of India, 47th Report, 1972 on Trial and Punishment of Social and Economic Offence
22
2.3 THEORIES OF CORPORATE CRIMES

The concept of White-collar Crime was first conceived by Edward Alsworth (1907). But it was Ed-
win Sutherland, who first popularized the term, “White collar Crime” in 1939, defining such a
crime as one committed by a person of respectability and high social status in the course of his oc-
cupation.” Sutherland wanted to remove the wide spread prejudice about the assumption that crimi-
nal behaviour occurs only in lower classes. Crime and the causes of crime are multilayered and
complex. There are a number of various theories to explain criminal behaviour. On this account, it
is really difficult to classify criminological theories. One possible criterion for classification is the
fundamental assumption of the theory or the unit of measurement on which the theory focuses ei-
ther individual/micro-level or group/macro-level.

The biological Theories are considered to be the first scientific theories, having their roots in the
19th century. Cesare di Beccaria (1738-1794) and Cesare Lombroso (1835-1909) could be consid-
ered as “Pioneers of criminology”. Lombroso assumed that there is connection between genetic fac-
tors and crime. Further- more, he maintained the view that a criminal could be identified because of
his or her external features for example large hands and feeds. 6 There are other im- portant ap -
proaches for example, twin studies (Johannes Lange 1929, Friedrich Stumpl 1936) and adoption
studies (Mednick, Gabrielle, Hutchings 1982).

The Labelling Theory (Tannenbaum 1938, Becker 1963) assumes that criminal behaviour is not
produced by social failure of people. Being labeled as a “deviant”, leads a person to engage in de-
viant behaviour. The result of this is a criminal self-image, which causes in more delinquency.

Social conflict theory was developed by Karl Marx in the mid 1800's and expanded upon by many
sociologists. The underlying principle of social conflict is, that the lower class is competing for re-
sources against an upper class that controls the government, courts and industry. The four types of
social-conflict theory are radical criminology, based on class warfare; radical feminism, or discrimi-
nation against women; left realism, which believes that most crimes are acts against individuals and
not against the state; and peacemaking criminology, where protests against war becomes worse than
war itself.

23
The strain theories assume that crime is a result of lower-class frustration. They focus on culturally
defined goals of success and culturally prescribed means for obtaining success. One of the most im -
portant approaches is Merton´s anomie theory, which will be explained separately in later chapters.

The social learning theory assumes that people are born with no tendency toward or away from
committing crime. These approaches explain that most human behaviours are learned through the
process of observing others forms of how behaviours are performed and perceived, this in the future
serves as a guide for our own actions. Edwin H. Sutherland is regarded as the founder of social
learning theory. His Theory of Differential Association will be clarified in the subsequent Section.
Another approach is the technique of neutralization which suggests that delinquents develop a spe-
cial set of justifications for their behaviour when such behaviour violates social norms. Such tech -
niques allow delinquents to neutralise and temporarily suspend their commitment to societal values,
providing them with the freedom to commit delinquent acts. An important representative is James
Coleman (1926-1995). He discovered that white-collar criminals used techniques of neutralization
to justify their criminal acts.

The social control theory does not analyse why people commit crime, but rather explain why people
behave law-abiding. There are a great many of control theories. Control theorists believe that con-
formity to the rules society is produced socialization and maintained by ties to people and institu-
tions. The most well- known version of control theories is Travis Hirschi´s social bond theory
(1969). He assumes that a person will engage in delinquent behaviour when the social bond to soci -
ety is weakened.

The Subcultural theory of Corporate crime is encouraged and justified by workplace subcultures.
Criminal subcultures develop because the members share problems that require solutions not avail-
able or permitted by the law or general societal norms. Corporate executives have frequent and inti -
mate contact with other executives who hold definitions favourable to violating laws. Thus, corpo -
rate crime, like any other crime is learned –differential association.
The Structured action theory also deals with corporate crimes in which junior male executives also
learn executive conceptions of masculinity from their senior counterparts, one of which is to sacri-
fice personal principles to meet corporate goals, including the accumulation of profits through ille-
gal or unethical means.

24
According to the Anomie theory, environmental uncertainties cause some corporate executives to
experience strain, which often results in the use of innovative, illegitimate means to achieve their
companies’ goals.

Finally, Rational Choice Theory tries to explain why people commit crime. It follows the principle
of a cost and benefits analysis and will be exemplified separately in later Sections.

Edwin H. Sutherland (born August 13, 1883, Gibbon, Nebraska, U.S.- died October 11, 1950,
Bloomington, Indiana) was an American sociologist and criminologist, often called the “Dean of
Criminology” 10 because of his pioneering work in the area. Sutherland received his Ph.D. from the
University of Chicago in 1913 in sociology and political economy. After teaching at various other
universities, Sutherland took a position at Indiana University in 1935, where he remained until his
death. He is considered as one of the most important criminologists of the twentieth century. In ap-
preciation of his great influence for the understanding of crime, the most important annual award of
the American Society of Criminology is named after him.

2.3.1 THEORY OF DIFFERENTIAL ASSOCIATION

Sutherland´s Theory of Differential Association is said to be the first and serious effort for explain-
ing criminal behaviour and at the same time one of the most influential social learning theories of
crime.The theory went through different stages of development. Sutherland first evolved seven
statements in the 1939 edition of “Principles of Criminology” then develop these into the final form
of nine statements in the fourth edition in 1947.

Principles of Differential Association:

1. Criminal behaviour is learned.This assumption presents a considerable difference to the classi-

cal criminological theories. Lombroso for example defended the opinion that criminality is in-
herited, and someone is a “born criminal”.
2. Criminal behaviour is learned in interaction with other persons in a process of communication.
Sutherland postulated that communication is essential in learning criminal behaviour. The term
25
 “association” stands for the contacts with others respectively their behaviour, as an explanation
for the name of the theory.
3. The principal part of the learning of criminal behaviour occurs within intimate personal groups.
The most intimate social contacts as family, friends or peer have the greatest influence on de-
viant behaviour. Impersonal communication, such as movies or newspapers hardly play a role
in committing criminal behaviour.
4. When criminal behaviour is learned, the learning includes:
(a) Techniques of committing the crime, which are sometimes very complicated, sometimes
very simple
(b) The specific direction of motives, drives, rationalization, and attitudes.
5. The specific direction of motives and drives is learned from definitions of the legal codes as
favourable or unfavourable. Sutherland´s central statement is derived from the deliberation that
every person has both definitions favourable to violation of law and definitions unfavourable to
violation of law. This statement explains the term “differential” in the name of the theory.
6. A person becomes delinquent because of an excess of definitions favourable to violation of law
over definitions unfavourable to violation of law. The sixth statement embodies “the principle
of differential association”. People become criminal because of contacts with criminal patters
but also because of isolation from non-criminal patterns.
7. Differential association may vary in frequency, duration, priority, and intensity.Sutherland as-
sumed that all associations do not carry equal weight and that their quality influence whether a
person becomes criminal or not. Frequent contacts have greater effects then infrequent contacts.
Those of long duration have a greater influence than those of short duration. Priority refers to
the time that particular associations are initiated. Childhood experiences have a greater impact
than experiences in later life. Finally intensity explains the degree of identification with special
associations. For example, the influence of a close friend outweighs the impact of small ac-
quaintance.
8. The process of learning criminal behaviour by association with criminal and anti-criminal pat-
terns involves all of the mechanisms that are involved in any other learning. This statement em-
phasises that learning criminal behaviour do not vary from any other learning processes, such as
writing, painting or reading.
9. While criminal behaviour is an expression of general needs and values, it is not explained by
those general needs and values, since noncriminal behaviour is an expression of the same needs
and values.

2.4 GROWTH OF CORPORATE CRIMES

26
There are various stages through which the corporate crime has grown. It is not only based on the
issues involved in different disputes pertaining to activities of corporation but also the issues raised
by the judiciary. Different courts have while deciding cases relating to corporation and their liability
have decided the criminal liability. Let us discuss some of the concepts through which the corporate
crime has grown.

1. Public Nuisance

Public nuisance is a tort. It is a wrong committed by the wrongdoer for which damages can be
claimed. If we turn over the pages of history especially the status of corporate criminal liability we
find that Courts in U.K and U.S.A first imposed corporate criminal liability in cases involving non-
feasances of quasi-public corporations such as municipalities that resulted in public nuisances. Pub-
lic nuisance is an offence which causes inconvenience to the public by the corporation. It is irk-
some. It may be caused by emitting gas, leakage of gas, pollution of air etc. It is both a tort and a
crime.

2. Crimes without criminal intent

Guilty mind is an essential ingredient of a crime. Crime without criminal intent is not punishable.
But the applicability of this ingredient for corporation is something different. As far as the crime
and its essential elements are concerned, and on the growth of corporation and its importance is felt
necessary, courts extended corporate criminal liability from public nuisance to all offences that did
not require criminal intent. In the leading case of Queen v. Great North of England Railways Co
Lord Denman ruled that corporations could be criminally liable for misfeasance and American
courts also follow this trend. This development eventually encouraged courts to extend corporate
criminal liability to all crimes without criminal intent. As the corporation is having no soul, no
mind, no body, but penalty can be imposed through fine and the person who is responsible for car-
rying the business of the company can be imprisoned if any act which is prohibited is committed in
the course of his employment. It is noteworthy to mention here that Courts were slow to extend cor-
porate criminal liability to crimes of intent. However, in a case of New York Central and Hudson
River Rail Road Co. v. United States the United States Supreme Court clearly held a corporation is
liable for crimes of intent but there is need for effective enforcement of law against corporations. It
requires the application of corporation personality while dealing with the cases of corporate crimi-
nal liability.

2.5 CAUSES OF CORPORATE CRIMES

27
Corporate crime stems from business activities and although there were financial scandals in previ-
ous centuries, corporate crime was in full swing in the last two decades. Modern business has sig -
nificantly dematerialized and transformed into virtual reality, which on one hand represents a signif-
icant and transformed into virtual reality, which on one hand represents a significant breakthrough,
but on the other hand it opens a wide space and offers modalities for perpetrating crimes in the field
of finance. Nevertheless, regardless of the condition of modern business, the basic reason for corpo-
rate crime derives from human greed, namely, the wish to acquire resources which are limited by
nature.

The concept of corporate crime refers to acts committed to harm or benefit a company and includes
criminal acts ranging from different types of frauds, misuse of assets, corruption, money laundering,
tax evasion, forgeries, to fraudulent financial reporting. Corporate crime refers to acts perpetrated
by individuals or companies which enable them to obtain certain benefits which they would not be
able to obtain otherwise in regular business circumstances. Therefore, companies resort to different
types of corporate crime in order to reach their goals, or to enable individuals who are creators of
such acts and who are involved in them to reach their aims.

Corporate crime is an activity carried out “on behalf of and for the benefit of the company” by indi-
viduals who in that way promote their personal interests, so in that situation the company interests
and individual interests are integrated. However, when personal interests overpower the company
interests and when individuals strive to fulfil only their personal needs which may cause damage to
the company, so in that situation the company is seen as a victim and damaged party.Therefore, cor-
porate crime acts are a creation of an individual or a group of people who can use their professional
competencies to reach the goals of the company, hereby they appear as perpetrators and beneficia-
ries of the fraud. However, we should not neglect the fact that persons who are creators and perpe-
trators can equally harm the company for their personal benefits.

A corporate crime or fraud occurs when a company or an entity deliberately changes and conceals
sensitive information which then apparently makes it look healthier. Companies adopts various
Modus-operandi to commit such corporate frauds, which may include misrepresentation in prospec-
tus, manipulation of accounting records, debt hiding, etc.

Individuals have various degrees of tolerance toward conscientious and ethical behaviour. Aca-
demic research shows that environmental signals and cues can nudge individuals to behave differ-
ently when faced with ethical choices. Most corporate crime misbehaviours occur due to the per-

28
ceived ambiguity in the environmental signals and cues. Work environments can elicit good or bad
behaviour out of individuals. Greed, competition and lack of proper laws to prevent such crimes are
the major reasons behind the growth of corporate crimes in India.

1. Greed

The father of modern political philosophy, Machiavelli, strongly believed that men by nature are
greedy. He said that a man can sooner and easily forget the death of his father than the loss of his
inheritance. The same is true in the case of commission of white collar crimes. Easy, swift and pro-
long effect

The rapid growing technology, business, and political pressure has introduced the criminals to
newer ways of committing white collar crimes. Technology has also made it easier and swifter to
inflict harm or cause loss to the other person. Also, the cost of such crimes is much more than other
crimes like murder, robbery or burglary, and so the victim would take time to recover from it. This
would cut down the competition.

2. Competition

Herbert Spencer after reading ‘On the Origin of Species’ by Darwin, coined a phrase that evolution
means ‘survival of the fittest’. This implies that there will always be a competition between the
species, and the best person to adapt himself to the circumstances and conditions should survive.

3. Lack of stringent laws

Since most of these crimes are facilitated by the internet and digital methods of transfer payments,
laws seem reluctant to pursue these cases as investigating and tracking becomes a difficult and com-
plicated job. Why it becomes difficult to track it is because they are usually committed in the pri-
vacy of a home or office thereby providing no eyewitness for it.

4. Modern technology

With modern technology ease of business is one of its expectations, in a sense, it also applies to
white-collar crimes which have allowed them to reach out to a larger number of people and commit
29
large scale crimes without being noticed by the law. Many have fallen victim to different scams
such as the credit card scam, moreover, the pandemic opened up a new market for them by exploit-
ing the medical field and creating a black market for Covid medications such as “Remdesivir” and
over a hundred cases were lodged against the illegal sales and use of this medicine and in most
cases, the Doctors and Hospital staff were involved. The need and greed of people have driven them
to the extent of exploiting any possible field. It doesn’t stop there the development in technology is
so rapid that people can acquire nuclear weapons with a click of a button, this was the case in Mum-
bai when authorise seized two people acquiring 7kgs of natural uranium which is highly radioactive
and dangerous to human life. This makes us question the level of threat that these cartels and orga-
nizations impose on the nation and the level of sophistication these crimes have reached for the per-
sonal gains of their lives.

5. Lack of awareness

The nature of white collar crimes is different from the conventional nature of crimes. Most people
are not aware of it and fail to understand that they are the worst victims of crime. People who are
victims of these crimes fail to comprehend the notion of the crime and understand the exact offence
which has been committed and whom to approach or lodge a complaint against because most of the
time it involves a large corporation and there may be little or no evidence to essentially produce a
criminal and in certain crimes such as scam or fraud people may not even realise that they have
fallen victim to a crime such as a bank fraud where yearly there are over thousand cases registered.
And in a scam, such as a double-dip scam the victim may fall prey again because the information of
the victim is stored and passed on to another scammer. Especially in metropolitan cities these cases
are rising but we lack the awareness to become victims of such crimes, a wider reach is required
and awareness campaigns by the government may help people understand the severity of these
crimes and the loopholes these criminals use and may help reduce the rate of white-collar crimes in
future.

6. Competition

We live in a fast pace world where only the fittest can survive and it has grown to such an extent
that crimes are committed for survival especially belonging to the lower socio-economic classes
their work environment is poorly designed and they are often underpaid so in order to earn more
and make a decent living their moral and ethnic values may be compromised and just to move out
of poverty or to make more gains their behaviour cannot rationalised and is often out of greed that

30
they have no limits. Criminal organisations and cartels are also multiplying and advancing in their
methods due to this competition.

7. Necessity

People also commit white collar crimes to meet their own needs and the needs of their family. But
the most important thing that the people of high social status want to feed their ego.

8. Unethical behaviour perceived as harmless

Sometimes offender may think himself as omnipotent and he is invincible, untouchable, and hyper-
capable. Similarly, the offender thinks as it is victimless crime and hence it is harmless. Excessive
pride in success can lead to a feeling of invincibility and magnify the effects of decision-making bi-
ases.

9. Aggressive Goals / Motivational Blindness

Aggressive goals are special characteristics of present merit-based culture but sometimes without
any goal post. Sometimes the offenders are blinded by their motivation to achieve the goal and do
the wrong behaviour. They fail to acknowledge their failures.

The reasons behind corporate criminals going unpunished are:

• Legislators and the people implementing the laws belong to the same class to which these
occupational criminals belong.
• The police put in less effort in the investigation as they find the process exhausting and hard,
and often these baffling searches fail to promise favourable results.
• Laws are such that it only favours occupational criminals.
• The judiciary has always been criticised for its delayed judgement. Sometimes it so happens
that by the time court delivers the judgement, the accused has already expired. This makes
criminals loose in committing crimes. While white collar crimes are increasing at a faster
rate, the judiciary must increase its pace of delivering judgements.

31
CHAPTER 3

NATURE AND TYPES OF

CORPORATE CRIMES

32
CHAPTER 3 NATURE AND TYPES OF CORPORATE CRIME
3.1 NATURE OF CORPORATE CRIMES

Corporate crimes are considered to be general varieties of the White Collar Crime. Corporate
crimes are also known with reference to occupational crimes. The distinction between corporate
crime and occupational crime is that whereas corporate crime refers to situations in which corporate
managers commit a criminal act for the benefit of the corporation, the occupational crimes are com -
mitted by individual employees against the corporation itself or the customers or consumers of the
corporation, in the course of employment. When we deal with ‘corporate crime’ the first question
that emerges is whether the corporate actually commit crime. This question can be answered by
looking at the situations in which substantial harm is caused in the operation of the corporations
which is much more than the traditional crimes committed by individuals.

Looking the matter from criminological perspective, the criminal behaviour in corporate crimes it is
altogether different from the traditional crimes committed by the individuals. The criminological
theories have developed in different settings by placing the behaviour of the individual as an indi -
vidual in focus and not in the organisational structure. Still these are the acts and activities of indi -
viduals in the corporate crimes which are attributed to the corporation. As such there is no separate
branch of criminology dealing with corporates. The criminal behaviour of corporations is tried to be
understood by applying the existing theories applicable to individual delinquency. However, there is
a need to analyse the corporate crime and criminal behaviour in the new settings in which corpora-
tion operate. Another significant aspect of corporate crime is that while the response of the criminal
justice to the individual crime is prompt and aggressive it is lacking or mild to the corporate crime.
At the same time oblivious societal response also tends to minimize the seriousness of the corporate
crime.Therefore corporate crime has acquired a new meaning which is required to be understood
and addressed, if we are to control and combat this emerging form of criminality.

Corporate crime frequently presents itself in the sphere of economic activity, such as tax evasion,
embezzlement, money forging, bankruptcy abuse, bank fraud, fabricating business documents,
money laundering, and so on. Corporate crime is defined as deliberate criminal activity carried out
within a legitimate corporation with the goal of boosting profits through direct or indirect violations
of the law. Such conditions, which are expertly handled by responsible individuals in the corpora-

33
tion or management and lead to numerous criminal activities, cannot be subsumed under current
charges, as offenders use their standing to evade accountability. In reality, this sort of crime can be
classified as a one-time crime, because criminal conduct Corporation is not their primary business,
but rather businesses that, when given the chance, engage in a certain type of criminal activity that
can be classified as a corporative crime. It's critical to distinguish between concepts like crime,
white collar crime, fraud, and organised crime when defining the idea of corporate crime. Corporate
crime, like the aforementioned criminal phenomena, shares a lot of traits, but the most important
distinction is the issue of criminal liability. It is a legal entity in corporate crime, but it is purely an
individual, as an individual or group of individuals, in other criminal phenomena. In A. K. Khosla v.
16
S. Venkatesa, two corporations were charged with having committed fraud under the IPC. The
Magistrate issued process against the corporations. The Court during this case got wind that there 2
pre-requisites for the prosecution of company bodies, the primary being that of provision and also
the different being the mens rea and the other being the ability to impose the mandatory sentence of
imprisonment.

3.2 TYPES OF CORPORATE CRIMES

Corporate crimes divided into main types, which include conservative / traditional crimes such as
rape, battery, assault, robbery, and so on; whereas the behaviour in occupational or organisational
structural crimes is observed as completely different, with crimes committed involving people from
high societal backgrounds. Occupational crimes are defined as criminal behaviour in a legal setting
that is sometimes referred to as "white collar crime" since it is performed by people doing their
jobs. Occupational crimes are frequently crimes, unlawful or wrongdoings committed by persons in
a legal business to attain a desired objective by whatever means possible. When we talk of organisa-
tional wrongdoings, we usually mean those done by people in positions of great power and respon-
sibility.

Corporate crimes are widespread, and certain cases of commercial fraud cannot be avoided. These
offences would include any illegal corporate action that is punished by law. Corporate tax avoid-
ance, fraudulent advertising, consumer fraud, manufacturing bogus products, selling goods at in-
flated prices, commercial bribery, trading with illegal medicines, embezzlement of funds, stock
market manipulation, corporate manslaughter, and environmental destruction are all examples of
corporate crimes reported in the country's newspapers on a daily basis. A new example of corporate
crime has emerged, such as corporate manslaughter and the use of low-quality materials in erecting
structures that would eventually collapse, killing nearby inhabitants or worried workers.
16 AIR 1991 SCC 703
34
1. Fraudulent Marketing

Fraud is defined as obtaining something valuable through fraud. When a vendor sells things that are
either faulty or do not exist, this is known as marketing fraud. Because of technological advance-
ments, fraudulent business transactions and marketing across national lines are now increasingly
common. Consumers in both the domestic and international arenas are harmed by internet buying
methods that frequently provide substandard items with no legal recourse available. For millennia,
people have traded in dangerous substances and illegal goods. The internet has greatly aided the in-
ternational trade of such illicit narcotics and items.

2. Bribery

Bribery has been seen as a major problem in both developed and developing nations' economic and
corporate sectors. It refers to giving anything as a present in order to control the conduct of govern-
ment officials. Bribery can take the form of cash, products, property, privileges, or anything else of
value. Bribery is used in international trade to gain contracts or regulate local market competition.
Bribery is considered a state-corporate crime by some academics.

3. Corporate Manslaughter

Corporate Manslaughter is a relatively recent problem. There have been several incidents of work-
ers dying as a result of employer carelessness and failure to implement safety precautions. Con-
struction and mining employees, in particular, are exposed to hazards such as heights, machines,
cranes, heavy equipment, chemicals, and dust, all of which can result in tragic deaths. Apart from
that, corporate carelessness might result in significant damage or death to the general public as well
as foreign nationals. Many industrialised countries created laws against corporate killing in re-
sponse to public outcry about the lack of legislation to prosecute businesses for manslaughter while
the general people were harmed. Corporate crime includes indiscriminately failing to maintain oc-
cupational safety measures and failing to comply with international labour norms.

4. Laundering of Funds

Money laundering has become a worldwide corporate crime as communication technology has ad-
vanced. It refers to the methods used by wrongdoers to disguise the source of their ill-gotten gains
and turn filthy money into clean money. Money transfers across borders and the usage of foreign

35
credit cards have enabled quick monetary transactions in a number of nations. As a result, such a
complicated financial transaction is seen to be a point of entry for money laundering.

5. Environmental Pollution

Environmental pollution is defined as anything that has the potential to harm the environment or en-
dangers the safety of humans or wildlife. Both local and multinational corporations are frequently
accused of discharging poisonous compounds throughout the production process, which is harmful
to the global ecological balance to varying degrees. Toxic pollutants released during manufacturing
processes typically move by air or water and can cause severe harm downstream or downwind.
Many companies are located near coastal locations across the world, and they dump their hazardous
waste into the sea, contaminating both territorial and international seas.

6. Market Manipulation

Another type of corporate fraud is share market manipulation. Influential investors have cleverly
coerced ordinary individuals to spread false rumours and profit from the obvious momentum in the
majority of share trading by exploiting their online trade policies. Thus, market abuse is defined as a
deliberate attempt to obstruct the free and fair operation of the market by making artificial, false, or
misleading statements about the price of any commodity, asset, or currency.

7. Tax Avoidance
Tax evasion is an unlawful method of avoiding paying taxes. It is a common criticism levelled
against many multinational firms and MNCs that they use a variety of policies and loans to avoid
paying taxes to the government. Corporations, in partnership with auditors, attempt deceptive ac-
counting by declaring lower profits and monetary losses.

8. Fixing Prices

When two or more merchants agree to coordinate their product prices, this is known as price fixing.
This increases the product's market value by providing sellers an edge and forcing prospective pur-
chasers to lose money. Such a market downturn might occur on a national level or among producers
from different nations.

9. Industrial Espionage

36
Industrial espionage is a corporate misbehaviour committed in today's global economy to get sensi-
tive business policies of international or local competitors. National corporations may be interested
in stealing foreign trade secrets, and open-source data mining can provide valuable business insight.
However, both public and private investigative agencies may engage in illegal activity in order to
get proprietary information from their market competitors.

10. Insider trading

Insider trading in simple words means the use of private data of the company for their benefits. This
provides an unfair advantage over other traders. The person doing insider trading uses such infor-
mation that is not available to the general public. Through this information, they manipulate the
buying decision and affect the bonus price and share market. Generally, the person involved in in -
sider trading is the employee of the organisation or such member who has direct access to such in-
formation.

11. Misuse of Trade Secret

Every organisation has a unique way of conducting its activities. Be it marketing strategy, manufac-
turing strategy, recruitment policy or the composition of the product, every such information is es-
sential for the smooth conduct of the business. Leakage or misuse of this information can bring a
huge loss to the organisation. The competitive firm always tries to get such information from the ri -
val firm to gain an advantage over it. They adopt various strategies to get such trade secrets such as
bribing the rival employee, engaging hackers etc.

12. Infringements of IP rights

Some corporate houses use a trademark or design of the rival organisation to sell their product.
They tried to manipulate the potential customer of the rival firm to purchase their product. This type
of activity causes huge loss to the rival firm resulting in the loss of customers also.

3.2.1 RELATION BETWEEN LAW AND CORPORATE CRIME

The influence of corporate activity on society in today's world is enormous. They not only have a
bad impact on people's lives in their daily activities, but they also engage in dangerous, irresponsi -
ble, and destructive acts that might be classified as criminal behaviour. For example, the Uphar Cin-
ema catastrophe, the oleum gas leak event, the Bhopal gas leak case, mine explosions, the Cher-
nobyl nuclear accident, and hundreds of other scandals may fall under this category. "Despite sev-

37
eral tragedies, the law has historically been unwilling to hold businesses criminally liable. This was
for primarily two reasons:

• Because corporations cannot have the mens-rea, or guilty mind, to commit an offence; and be -
cause corporations cannot be imprisoned, the only other remedy available is a fine, which combines
criminal and civil liability.
• Addressing corporate crimes in the court of law and determining sanctions and punishments has
always been difficult because it is never clear whether to pursue the case under the civil or criminal
law.
Civil actions entail:
1. immoral acts by one person against another;
2. reimbursement for the loss or harm caused.
3. Proof of evidence is required for processes and strategies.
Criminal actions involve:
1. An act of the state or one of its agencies against an individual;
2. The loss of life and liberty may be the only penalty.
3. To show the implications, a large amount of evidence and proof is necessary.

Criminal law jurisprudence has mostly failed to impose criminal liabilities on companies and to
reach a clear resolution on the question of whether corporations may commit crimes and thus be
held criminally accountable. The recent financial fraud at Satyam Computers in India, which in-
cluded a sum of Rs. 7000 crores, has damaged the faith of internal and external stakeholders, result-
ing in severe consequences for Indian businesses. Even four months after his open admission, the
court has unable to prove allegations against Ramalinga Raju, the founder and chairman of Satyam
Computers, the main culprit in the scheme. This demonstrates a crisis in corporate governance, law
enforcement, and audit system inefficiencies.

3.3 CONSEQUENCES OF CORPORATE CRIMES

These crimes cause instability in the economy of any nation. Corruption being the worst reason for
such an instability. Corruption costs are estimated to be more than 5% of global GDP at $2.6 trillion
(WEF) and more than $1 trillion paid in bribery each year (World Bank).On average, it raises the
cost of doing business by up to 10 percent. Business mechanisms such as fair competition are
skewed, transaction prices and uncertainty are increased, and domestic and foreign investment is

38
deterred, stifling growth, creativity and future opportunities for industry. Investment in corrupt
countries is 5% less than in relatively corruption-free nations.

International outrage at the payment of bribes to foreign public officials has led to the establish-
ment, within the scope of the OECD Convention on the Bribery of Foreign Public Officials, of a
comprehensive international agreement on the prohibition of bribery worldwide. The Convention
requires OECD Member States to commit criminal acts for the payment of bribery to public author-
ities by any of their citizens and companies, in any jurisdiction in which they are established or any-
where bribery is paid. This also brought an element of forced extraterritoriality to the constitution of
several nations. Except in the absence of the relevant host state rule, the rule of the home state ap -
plies to its citizens. However, by the majority agreement of the Convention, those jurisdictions to -
gether limit the aspirations of economic dominance of more powerful regimes and the fact that main
gains are being achieved by host nations, not by the home governments of companies expecting to
benefit from the payment of bribes.17

Commerce, competitiveness, innovation and global economic growth are threatened by cyber-
crime. If more government and business operations move online as more economies, companies and
people around the world connect to the Internet, the cost of cybercrime will continue to increase. In-
tellectual property theft loss will also escalate as acquirers escalate their ability to make use of it to
produce competing goods.The fast-growing class of intangible assets and their legitimacy are being
threatened by cybercrime. According to CSIS McAfee research of 2014, Cybercrime adds around
$475 billion annually to the global economy, ranging from a small level of $375 billion in losses to
a peak of $575 billion.

17 https://www.icaew.com/-/media/corporate/files/technical/ethics/business-and-economic-crime-in-an-international-
context.ashx
39
CHAPTER 4
40
CORPORATE CRIMINAL LIA-
BILITY

CHAPTER 4 CORPORATE CRIMINAL LIABILITY

4.1 DEVELOPMENT AND CONCEPT

Corporate criminal liability is not of recent origin. It has been prevailing since long. Criminal liabil-
ity is involved to those acts which violate criminal laws. The most fundamental rule of criminal lia-
bility is based on the Latin maxim “actus non facit reum, nisi mens sit rea” which means in order to
make a person or entity criminally liable, it is required to establish that an act or omission has been
committed which is forbidden by law and it has been done with guilty mind. So, every crime consti-
tutes two elements.

41
1. Actus reus: It connotes those result of human conduct which is forbidden by law and hence con-
stitutes of human action, result of conduct and act prohibited by law.
2. Mens rea: It connotes blame worthy mental condition.

Corporations play a significant role in creating and regulating the business activities and also in
managing the lives of the common people, as a result of which, the modem criminal law systems
overlooked the possibility of holding the corporations liable for the commission of a criminal of-
fence. The doctrine of corporate criminal liability turned from its infancy to almost a prevailing
rule. It is very difficult to define corporate criminal liability in the present day scenario as it covers
wide range of offences. However, for understanding its purpose it can be defined as an illegal act of
omission or commission, punishable by criminal sanction committed by an individual or group of
individuals in the course of their occupation. It can be even defined as socially injurious acts com-
mitted in course of occupations by people who are managing the affairs of the company to further
their business interest. Corporate criminal liability also represents a kind of instrumentalities
through the trust of the people continues to be betrayed by persons in position of responsibility, au-
thority and power in business sector. Corporate crime has been defined as 'the conduct of a corpora -
tion or of employees acting on behalf of a corporation, which is prescribed and punishable by law.
Hence, the concept of corporate criminal liability relates to the imposition of criminal liability on ei-
ther the corporation or its employees and agents and it is As far as the origin of corporate criminal
liability is concerned, during the early sixteenth and seventeenth centuries, the general notion was
that corporations could not be held criminally liable. In the early 1700s, corporate criminal liability
faced four hindrances;

1. The first hindrance was attributing acts to a juristic entity i.e the corporation. During 18th cen-
tury, courts and legal thinkers approached corporate liability with special reference to theories
of corporate personality. But, a pragmatic approach was not developed till the end of 20th cen -
tury.
2. The second obstacle speaks that legal thinkers did not believe corporations could possess the
moral blameworthiness necessary to commit crime with intention.
3. The third obstacle was the ultra vires doctrine, under which the courts would not hold corpora-
tions accountable for acts, such as crimes, that were not provided for in their charters.
4. The fourth obstacle was court's literal understanding of crime procedure; for e.g. the judges re-
quired the accused to be brought physically before the court.

42
In the modem era, the activities of the corporations has had a tremendous impact on the society and
it has also helped in the development of the society to a large extent but at times, the activities of
the corporation has also been proved disastrous to the society which then falls under the category of
corporate crimes. Despite those disastrous activities of the corporations, the law was not willing to
impose criminal liability upon corporations because:

a. Corporations cannot have the mens rea or the guilty mind to commit an offence.
b. Corporations cannot be imprisoned.

Even the common law did not impose criminal liability on corporations because it was based on the
belief that a corporation lacked moral blameworthiness and the requisite mens rea, which is an es-
sential element of a crime. Further, the thought that was prevalent was that a corporate has 'no soul
to damn and no body to kick'. But from the early 20th century onwards, the importance of the crimi-
nal liability of the corporation was recognized by various courts.

It is noteworthy to mention here that various historical developments in Western Europe and United
States contributed to the growth and expansion of corporate criminal liability. But, as far as the le -
gal system was prevailing at that time is concerned, there was some difficulties with regard to en-
forcement of criminal liability. So, more emphasis was given on the civil liability than criminal lia-
bility while enforcing. The reason is that public civil enforcers did not possess as much enforcement
power as criminal enforcers was given.
Indian judiciary plays prominent role in development of corporate criminal liability. With the ad-
vent of 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 admin-
ister the laws of both the Union and the States. The Supreme Court of India is at the apex of the en -
tire 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
victimise 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:

43
1. 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.

2. Second issue is regarding sanctions. In addition to proof of intent, a major distinguishing char-
acteristic 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
behaviour. Current Supreme Court’s decision have made the stand apparently clear in India that
the Corporation can be prosecuted as a separate legal entity even in the offences where the pun-
ishment is imprisonment. This article 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 employ-
ees if such acts are related to and committed within the course of employment, committed in fur-
therance 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 corpo-
ration 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.

However, the reasons behind Lord Holt’s decision are not clear because the case consists only of
this single sentence. General belief in the early 16th and 17th centuries was that corporations could
not be held criminally liable. Legal thinkers did not believe that corporations could possess the
moral blameworthiness necessary to commit crimes of intent. It was the common intent of the peo-
ple that a corporation has no soul, hence it cannot have "actual wicked intent”. It cannot, therefore,
be guilty of crimes requiring "malus animus”. Treason, felony, perjury, and violent crimes against
the person could be committed only by natural persons. Courts in England drew some distinctions,
however, between crimes requiring specific intent and those for which general intent would suffice.

44
In one sense the acts of the corporation are the acts of its officers, directors, and employees. During
the early 20th century courts began to hold corporations criminally liable in various areas in which
enforcement would be impeded without corporate liability. Indeed, courts were soon willing to hold
corporations criminally liable for almost all wrongs except rape, murder, bigamy, and other crimes
of malicious intent.

The old school of thought was that the corporate acts through its directors and officers, and should
not attract criminal liability. It has been argued that punishment for criminal offences such as im-
prisonment cannot be conferred on companies and, hence, there cannot be criminal liability on com-
panies. Major hurdles that faced the attribution of criminal liability on corporate were factors such
as artificial juristic personality and absence of mens rea on the part of the corporate. The Penal lia-
bilities are generally regulated under the IPC, 1860 in India. It is the statute which needs to be pon -
dered upon in case of criminal liability of corporation. Corporations play a significant role not only
in creating and managing business but also in common lives of people.
That is why most modem criminal law systems foresee the possibility to hold the corporation crimi-
nally liable for the perpetration of a criminal offence. The doctrine of corporate criminal liability
turned from its infancy to almost a prevailing rule.

In India, the need for industrial development has led to the establishment of a number of plants and
factories by the domestic companies and under-takings as well as by Transnational Corporations.
Many of these industries are engaged in hazardous or inherently dangerous activities which pose
potential threat to life, health and safety of persons working in the factory, or residing in the sur-
rounding areas. Though working of such factories and plants is regulated by a 614 number of laws
of our country, there is no special legislation providing for compensation and damages to outsiders
who may suffer on account of any industrial accident.

India is hunting to curb the incessant pace of corruption in its governance, which is generally being
hit by a spate of large-scale corporate scandals. In this context, to fix liability or 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.

From the above discussions and deliberations pertaining to historical development of the corporate
criminal liability, it is very clear that the development is very slow and there is still a debate with re-
gard to increasing reliance on criminal liability to regulate corporate conduct. In addition to this, the
statutes in India are not in pace with these developments and the above analysis shows that they do

45
not make corporations criminally liable for punishments except for fines. The procedure to impose
punishment upon the corporation is also a stupendous task. It is a cumbersome process to determine
the criminal liability. Still, the development in Indian context is commendable not only through the
various legislations but also the recommendations of the Law Commission of India and the prevail-
ing position in other jurisdictions of the world.

Various theories have been developed to explain the corporate criminal liability. It is easy to explain
the criminal liability in traditional crime but in cases of corporate crime the application of criminal
liability is a difficult task. The profound writer and jurist Sutherland wrote in his book titled
“Crimes of Corporation ” which is as follows;
“It is very clear that the criminal behaviour of businessmen cannot be explained by poverty, in the
usual sense, or by bad housing or lack of recreational facilities or feeblemindedness or emotional in-
stability. Business leaders are capable, emotionally balanced, and in no sense pathological.”
It is pertinent to mention here the theory developed by the jurist Bonger which fits with the white-
collar offences and offenders. Especially, in a capitalistic society, acquisition of maximum material
resources by individuals of success is the quantum of money one is able to amass in the name of the
large-scale exploitation of the public by businessmen and professionals commit white-collar crimes
is provided by the overall system itself, various legislations and regulations to curb white-collar
criminality are bound to be ineffective to a great extent.
There are various theories which speaks regarding criminal liability of corporations which are dis-
cussed below in nutshell.

A. Theory of Vicarious Liability

It is pertinent to mention here that the doctrine of vicarious liability recognises that a person may be
bound to answer for the acts of another. Similarly, in the case of corporations, the company may be
liable for the acts of its employees, agents or any person for whom it is responsible. The traditional
theory of vicarious liability holds the master liable for the acts of the servant in the course of the
master's business without proof of any personal fault on the part of the other.

B. Identification Theory

According to this theory, the corporations are held criminally liable for true crimes and regulatory
offences. This theory recognises that the acts and state of mind of certain senior officers in a corpo -
ration are the directing mind of the corporation and thus deemed to be the acts and state of mind of
the corporation itself. The corporation is considered to be directly liable under this category.

46
C. Aggregation Theory

As per the aggregation theory, the corporation aggregates the composite knowledge of different of-
ficers in order to determine liability. The company aggregates all the acts and mental elements of
the important or relevant persons within the company to establish whether into they would amount
to a crime if they had all been committed by one person. According to Celia Wells, aggregation of
employees knowledge means that corporate culpability does not have to be contingent on one indi-
vidual employees satisfying the relevant culpability criterion.

D. Sanctioning Theory

This theory requires the Imposition of fine on the company with respect to criminal liability. How-
ever, the imposition of fine creates problems, mainly because it can be difficult to identify which
amount for the fine would be fair while punishing a corporate for criminal liabilities. The monetary
sanctions are widely used for imposing penalties on the corporations.

4.2 DOCTRINES ESTABLISHED IN CORPORATE CRIMINAL LIABILITY

1. Doctrine of Vicarious liability

In Vicarious liability, the accused is blamed for the offence of another. This doctrine is based on the
principle of Respondeat Superior which means “let the master answer”. This doctrine is applicable
in criminal as well wherein corporate may be held liable and punishment can be fine and seizure of
property. Similarly, in the case of Ranger vs. The great western railway company [1859] 4 De G &
J 74, it was held that the company is held vicariously liable for the acts committed by its employee
if it is done in the course of its employment. For vicarious liability, the act and intent of the em -
ployee must be imputed to the company and the employee should act within the course of employ -
ment.

For vicarious liability, the act and intent of the employee must be imputed to the company and the
employee should act within the course of employment. The Supreme Court, referring to Section 145
of the Negotiable instruments act, held that the person who is responsible for the conduct of the
business of the company and is in charge of the company can be held liable for vicarious liability.

2. Doctrine of Identification

47
It requires that corporations should take responsibility for the persons having decision making au-
thority for the policy of the corporation rather than the persons implementing such policies. The
doctrine focuses on the fact that the intention and action of the company are the results of the em -
ployees of the company. The underlying principle of this doctrine is the detection of the guilty
mind. Lord Denning has identified that a company is linked to a human body and it had a brain
which controls what it does. The directors of the company control the will and the mind of the com -
pany. However, the theory has been criticized for its limited application.

3. Doctrine of Collective Blindness

Under the doctrine of Collective Blindness, courts have held that corporations will be held liable
even if single individual was not at fault and considered sum total knowledge of all employees in
order to make a corporation liable.

4. Doctrine of Wilful Blindness

Under such doctrine if any illegal or criminal act is committed and the corporate agent does not take
action or measures to prevent happening of such activities then doctrine of wilful blindness is appli-
cable.

5. Doctrine of Attribution

Under the doctrine of Attribution, as in case of sentencing or imprisonment in event of act or omis-
sion leading to violation of criminal law, the mens rea i.e. the guilty mind is attributed towards the
directing mind and will of the corporations. This doctrine is being used in India however this doc -
trine was developed in United Kingdom.

6. Doctrine of Alter Ego

Under this doctrine of Alter Ego, it is described as someone's personality which is not seen by oth-
ers. The owners and persons who manage the company are considered as the Alter Ego of the com-
pany. The directors and other persons who manage the affairs of the company can be held liable for
the acts committed by or on the behalf of the company under this doctrine since the corporation has
no mind, body or soul so the people are the directing mind and will.

7. The Doctrine of Direct Liability

This doctrine is also called as theory of corporate organs. It was developed for the purpose of im-
posing liability on corporations. The direct doctrine relies on the notion of personification of the le-
gal body. It identifies actions and thought patterns of certain individuals within the corporation

48
called corporate organs who act within the scope of their authority and on behalf of the corporate
body, as the behaviour of the legal body itself. But, the procedure to prove corporations criminally
liable is, prima facie, rather complex. If intention, knowledge or recklessness is an essential ingredi-
ent of the offence, these fault elements must be attributed to the body corporate if it expressly, tac -
itly or impliedly authorised or permitted the commission of the offence. Let us discuss in detail
which are as follows:

a. The corporation's fault will be established (vicarious liability) if the body corporate's board of di -
rectors intentionally, knowingly or recklessly carried out the wrongful conduct, or expressly or by
necessary implication authorised or permitted the
to commission of the offence.

b. The corporation's fault may be established by evidence that a high managerial agent of the com-
pany intentionally, knowingly or recklessly engaged in the relevant conduct or expressly, tacitly or
impliedly authorised or permitted the commission of the offence. In this second case, however, the
corporation will not be liable if it proves that it exercised due diligence to prevent the conduct.

The corporation's fault may be established by proof that a corporate culture existed within the body
corporate that encouraged, tolerated or led to non- compliance with the relevant provision. Fourth,
the corporation's fault may be established by proving that it failed to create and maintain a corporate
culture that required compliance with the relevant provision.

4.3 CORPORATE CRIMINAL LIABILITY IN INDIA

The advent of the concept of corporate criminal liability was much slower in India. Since it is a
common law country, the initial emphasis remained on the requirement of mens rea. The concept of
corporate criminal liability can be easily traced not only from various case laws but also statutes.
Section 11 of the Indian Penal Code, 1860 defines a person to include any company or association
or body of persons. It also includes body corporates, incorporated or not. This enables the courts to
prosecute corporations under the provisions of IPC. The Companies Act, 2013 also recognizes cor-
porate criminal liability. For instance, Section 53 provides for punishment in case of contravention
of the provisions laid down by this Section. It states that the officer in default may be punished with
imprisonment or fine or both. Other statutes including the Negotiable Instruments Act, Essential
Commodities Act, and the Environment Protection Act among others also recognize the corporate
criminal liability.

49
Like any other country, India is equally in the grip of white-collar criminality. The reason for the
enormous increase in corporate crime in recent decades is to be found in the fast-developing econ-
omy and industrial growth of this developing country. The Santhanam Committee Report in its
findings gave a lucid picture of corporate crimes committed by persons belonging to higher social
strata. It includes businesspersons, industrialists, contractors, suppliers, as well as corrupt public of-
ficials.

The Reports of the Vivien Bose Commission of Inquiry which looked into the affairs of the Dalmia
Jain group of companies (1963) highlighted that how industrialists indulge themselves in white-col-
lar crimes such as forgery, fraud, falsification of accounts, tampering with records for personal
gains and tax evasion, etc. 18 Similar observations were made by Mr. Justice M.C Chagla while deal-
ing with the case of business tycoon Mundhra who wanted to build up an industrial empire by dubi-
ous means. There were as many as 124 prosecutions against the business magnate and companies
owned or controlled by him between 1958 to 1960 and as many as 113 of them resulted in convic-
tion.19

The 2010-2011 corruption and fraud cases in India 2G Spectrum scam, Adarsh Society scam,
CWG fraud, various land scams etc. have negatively impacted India's reputation internationally.
The infringements are of various kinds, with bribery and corruption making up 83% of cases. A
large part of the frauds also relates to cybercrime (71%) and diversion of assets (65%). The sectors
most affected are financial services (33%) and information and entertainment (17%), according to
the survey.20

The Satyam Scam: In perhaps one of Corporate India's worst unfolding chapters, Mr. B. Ramalinga
Raju, Founder-Chairman of the $2-billion Satyam Computer Services dramatically stepped down
after admitting of faking financial figures of the company to the tune of Rs 7,136 crore, including
Rs 5,040 crore of non-existent cash and bank balances.

The startling disclosure by Mr. Raju, considered one of the poster boys of Indian IT, jolted the cor -
porate world, investor community, Government and a large pool of young professionals, pushing
the fourth largest Indian IT company into a crisis, exposing it to acquisitions and leaving the future
of 53,000 employees in balance. Mr Raju in his revelation to the BSE admitted that the balance
sheet for September 30, 2008, comprised faked and exaggerated figures of revenue, profit, interest

18 N.V.Paranjape, Criminology & Penology with Victimology,147(Central Law Publications, 16th edition, 2015)
19 4th Annual Report:Working of Indian Companies Act, 1956, Government of India (1960)
20 International journal of legal development and allied issues, Vol. 4 issue 3, may 2018
50
and debt. The list includes Rs 5,040 crore of fictional cash and bank balances, non-existent accrued
interest, discreet liability of Rs 1,230 crore on account of funds raised by Mr Raju and overstated
debtors position of Rs 490 crore (as against Rs 2,651 crore).What started as a marginal gap between
actual operating profit and the one reflected in the books continued to grow over the years.It has at-
tained unmanageable proportions as the size of the company's operations grew over the years, Mr
Raju explained.21

The PNB bank case: Nirav Modi and Mehul Choksi, in connivance of several senior as well as ju-
nior officials, defrauded PNB of several thousand crore of rupees. These PNB officials fraudulently
issued LoUs and LoCs on behalf of several companies belonging to the duo for availing buyers'
credit from overseas branches of Indian banks. None of the transactions were routed through the
CBS (Core Banking Solution) system, thus avoiding early detection of fraudulent activity, which
was going on since 2011.22

In the scam now pegged to be around Rs 13,700 crore, over Rs 450 crore was diverted to around six
beneficiaries companies based in Hong Kong and Sharjah (UAE) in just one month July 2014. The
amount of money, issued as loans through the LoUs (Letters of Undertaking) or LoCs (Letters of
Credit) by Punjab National Bank, was later routed to the shell companies linked to Nirav Modi and
Mehul Choksi in Hong Kong and Sharjah. These companies include Sunshine Gems (Hong Kong),
Sino Traders (Hong Kong), Tri Colour Gems (Sharjah), Diagem (Sharjah), and Auragem (Hong
Kong).

4.3.1Judicial Interpretation

The Prohibition of Corruption Act, 1986 and the Code of Criminal Procedure, 1973, both provide
special impunity by Section 19 and Section 197, respectively. The sanction contemplated in Section
197 of the Code concerns a public servant who is accused of any offence alleged to have been com -
mitted by him while acting or purporting to act in the discharge of his official duty.

To restrict the unnecessary harassment of public servant, these Sections provide that no court shall
take cognizance without prior sanction for prosecution from the appropriate authority.

The Supreme Court reiterated this approach in Subramanium Swamy v. Dr. Manmohan Singh,and
reaffirmed that the 3 months time limit imposed on the grant of governmental sanction under Sec-

21 White Collar Crimes With Special Emphasis On Corporate And Cyber Crimes
22 https://www.businesstoday.in/sectors/banks/pnb-fraud-companies-owned-by-nirav-modi-mehulchoksi-received-rs-
427-crore-in-july-2014/story/272700.html
51
tion 19 of Prevention of Corruption Act, 1988 for the prosecution of public servant for corruption
must be strictly adhered to.

In the case of Jaylalitha v. Union of India, the Supreme Court admitted that corruption is rampant
among the public servants. Court further stated that corruption corrodes the moral fabric of the soci -
ety and is harmful to the national economy. Corruption by persons occupying high posts in govern-
ment, by misusing their powers can cause considerable damage to the national economy, national
interest and image of the country.

In Ram Narayan Poply v. C.B.I.,the Apex Court expressed concern for adverse effect of white collar
crimes and held that economic offenders should not be allowed to ruin the economy of the country
and they should be sternly dealt with.

The Supreme Court in State of Gujarat vs. Mohanlal Jitamalji Porwal and Anr. has differentiated
between the general crimes and white collar crimes. In the above-mentioned judgement, Justice
Thakker had stated that murder can be committed in the heat of moment but these economic of-
fences are committed with a cool calculation and planned strategy to gain personal profits.

In case of Nimmagadda Prasad v. C.B.I, the appellant along with Jagan Mohan Reddy, enriched
himself for more than 40,000 crores of rupees by the influence of Jagan Mohan's father Dr. Y.S. Ra-
jasekharan Reddy who was the then Chief Minister of Andhra Pradesh. The Chief Minister, Late
Dr. Reddy extended many undue favours to the appellant by abusing his official position and
thereby allotting 18879 acres of land to the appellant and in return, he paid illegal gratifications
amounting to 854.5 crores rupees to Y.S. Jagan Mohan Reddy and his group of companies.

Illegal gratifications were paid in the guise of investments/share application money to give them
corporate colour in order to escape criminal charges. The appellant's prayer for bail was dismissed
by the Supreme Court in the view of the fact that he was involved in a grave economic offence of
alienating prime lands to selected private companies/individuals under the garb of development us-
ing deceptive means resulting in wrong ownership and control of material resources detrimental to
common good. The Court notes that the appellant was a person of means and as such, he could in -
fluence witnesses, therefore, it would not be proper to release him on bail.

4.3.2 Regulatory Legislations

Some Anti-Fraud regulations, legislations, or guidance regarding corporate fraud is as follows:

52
Indian Contract Act (Section-17): Fraud means and includes any of the following acts committed by
a party to a contract, or with his connivance, or by his agent, with intent to deceive another party
thereto of his agent, or to induce him to enter into the contract- the suggestion, as a fact, of that
which is not true, by one who does not believe it to be true; the active concealment of a fact by one
having knowledge or belief of the fact; a promise made without any intention of performing it;

any other act fitted to deceive; any such act or omission as the law specially declares to be fraudu-
lent.

Explanation: Mere silence as to facts likely to affect the willingness of a person to enter into a con-
tract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is
the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to
speech.

1. Indian Penal Code (Section-25): A person is said to do a thing fraudulently if he does that thing
with intent to defraud but not otherwise.
2. Prevention of Corruption Act
3. Prevention of Money Laundering Act
4. The Companies Act
5. Clause 49 of Listing Agreement
6. Securities and Exchange Board of India Act
7. CARO Act
8. Essential Commodities Act (Section-6)
9. Information Technologies Act (Section 43-44)

1. Prevention of Corruption Act, 1988

The issue of corruption is very dangerous to nation. The Sanathan Committee Report, 1964 defines
the problem of corruption as a complex problem having its roots and ramification in the society it-
self as a whole. This Act consolidated the provision of IPC, CrPC and Criminal Act, 1952. This act
has provided the definition of 'Public Duty', 'Public Authority' and 'Public Servant'. These definition
are sufficient to determine the criminal liability of Public Officer.

2. Prevention of Money Laundering Act, 2002

In India, money laundering is being practiced in large scale from past few decades. Due to which
the socio-economic crimes being increasing rapidly. The process of conversion of black money into

53
white money or the process of conversion of tainted money into untainted money is called money
Laundering. Thus, the main purpose and the objective of this act is to prevent Money Laundering.

The concept of Money Laundering is an International concept and menace and for the same reason,
United Nations adopted a political declaration in June 1998 and asked its members to enact the na-
tional legislations for the prevention of Money Laundering.

3. Companies Act, 2013

The Companies Act, 2013 is the legislation which Focuses on issues related to Corporate Fraud.
Fraud in relation to company or corporate body is defined under Section 447 of this Act.
The corporate criminal liability is recognized under the following Sections of the Companies Act,
2013 -

1. Section 53 - Prohibition on an issue of shares on discount - The company will be fined for the
amount not less than one lakh but which may extend up to five lakhs. Further, the officer in de-
fault may be imprisoned for up to six months or fine of minimum one lakh which may extend to
five lakhs or both.
2. Section 118(12) - Minutes of proceedings of general meeting, meeting of Board of Directors
and other meeting and resolutions passed by postal ballot- If a person is found tampering with
the minutes of meeting then such an officer in default may be imprisoned for the term which
may extend to 2 years or with fine of not less than twenty-five thousand but may extend to one
lakh.

3. Section 128(6) - Books of account, etc., to be kept by Company- Officer in default- Maximum
imprisonment of 1 year or Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with
both.

4. Section 129(7) - Financial statement - Officer in default- Maximum imprisonment of 1 year or

Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.

5. Section 134 - Financial statement, Board’s report, etc- Company-Fine- Not less than Rs. 50,000
and may extend to Rs.25 lakhs and Officer in default- Maximum imprisonment of 3 years or
Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.

54
6. Section 188(5) - Related party transactions- In case of unlisted Company, be punishable with
fine which shall not be less than 25,000 rupees but which may extend to 5 lakh rupees.

7. Section 57 - Punishment for personation of shareholder- Such person in default- Minimum 1

year to Maximum 3 years imprisonment or Fine- Not less than Rs. 1 lakh and may extend to
Rs. 5 lakhs.

8. Section 58(6) - Refusal of registration and appeal against refusal- Such person in default- Mini-
mum 1 year to Maximum 3 years imprisonment or Fine- Not less than Rs. 1 lakh and may ex-
tend to Rs. 5 lakhs.

9. Section 182(4) - Prohibitions and restrictions regarding political contributions.- Company-Fine-

5 times of the amount of contribution in contravention and Officer in default- Maximum impris-
onment of 6 months and Fine- 5 times of the amount of contribution in contravention.

10. Section 184(4)- Disclosure of interest by the director - Such person in default- Minimum 1-year
imprisonment or Fine- Not less than Rs. 50,000 and may extend to Rs. 1 lakh or both.

11. Section 187(4)- Investments of Company to be held in its own name - Company-Fine- Not less
than Rs.25,000 and may extend to Rs.25 lakhs and Officer in default- Maximum imprisonment
of 6 months or Fine- Not less than Rs. 25,000 and may extend to Rs. 1 lakh or with both.

12. Section 212- Investigation into the affairs of the Company by Serious Fraud Investigation Of-
fice.

13. Section 447- Punishment for Fraud.

14. Section 448- Punishment for False Statement.

15. Section 449- Punishment for False Evidence.

16. Section 450- Punishment where no specific Penalty or Punishment is provided.

17. Section 451- Punishment in case of Repeated Defaults.

4.4 CORPORATE CRIMINAL LIABILITY IN OTHER COUNTRIES

55
Corporate criminal liability is a global phenomenon. The incidence of corporate crime is alarming
and not confined to national boundary. It scatters to international jurisdictions. The horizon of cor-
porate crime is ever expanding. It is not confined to a national boundary. It is having huge impact
on the economical development of a country. Due to alarming increase of corporate crime the de -
velopment of whole world is disturbed. Either it is developed country or developing country does
not matter. The world economy seems to be affected very much. International cooperation is also
affected. There is necessity of interdependence in economic, social and environmental activities by
corporate entities and for that international cooperation is indispensable. It is pertinent to mention
here that the amount of economic and white-collar-crime has grown substantially. One of the most
pressing global issues is the predominance of national and multinational corporations in economic
transactions and their accountability. In this context, the development of corporate criminal liability
has become a problem. In the common law world, following standing principles in tort law, English
courts began sentencing corporations in the middle of the last century for statutory offences. On the
other hand, a large number of European continental law countries have not been able to or not been
willing to incorporate the concept of corporal criminal liability into their legal systems.

1. United Kingdom (U.K)

As far as U.K. is concerned, the U.K. legislature has made an endeavour to find a solution to the
problem regarding to personal appearance of the corporation in a particular case to determine the
criminal liability. The concern of corporate criminal liability has hindered the advance of legal solu-
tion and at the same time was not given due attention However, the problems of assignment of
guilty intention and the form of punishment ensuing from conviction have together played a pivotal
role in moulding the pattern of corporate criminal liability to its present form. Historically, a corpo -
ration could be convicted for three kinds of offences. A corporation was first convicted in 1842 in
the United Kingdom for failing to perform a statutory duty. This represents one of those instances
where a duty is imposed specifically on the corporation as a legal person, separate from its owners
or managers, and is a form of vicarious criminal liability. Second, a corporation could be prosecuted
for offences including public nuisance, criminal libel and contempt of court, since these were of -
fences where mens rea was not a prerequisite. Thirdly, by deduction from the above, a corporation
could thus attract criminal sanction for other statutory strict liability offences as well.

Nevertheless, at the onset of the 20th century, prosecution of a corporation within the ambit of con -
ventional criminal law which strictly requires two essential ingredients i.e actus reus and mem rea
has been made possible. Where mens rea was required, imposition of liability was subjected to the
56
‘identification’ of a corporate appendage to have committed the alleged offence. This simply meant
that all the requisite elements of mens rea and actus reus must be attributable to that person, and he
should fall within the category of those who may be called the “directing minds”, or the “brains” or
the controlling officers of the company. The scope of the liability was further restricted in Tesco
Supermarkets Ltd. v. Nattrass, wherein the judiciary stated that a person did not qualify as a con-
trolling officer merely by having the authority to exercise some level of managerial discretion.
Based on this reasoning, it was held that even the manager of a supermarket could not be considered
the so called “brains” of a company which owned hundreds of supermarkets. Therefore, it can be
concluded that liability may not always be assigned to the company, although the individual who is
responsible for the act may be held criminally liable, if the act can be attributed to him and the req-
uisites of the offence in question have been met with.

In 1915, the House of Lords, in a civil liability case entitled Lennard’s Carrying Co. Ltd., laid down
a general principle for attributing fault to a corporation the directing mind principle. Under this con -
cept, 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 li -
able. This stand was taken there for the responsibility of the corporation. Another principle i.e the
directing mind principle was developed through the various judgment which make responsible to a
company for their acts and directly liable for the crime committed by a company.
2. United States of America (U.S.A.)

As far as the position in U.S.A pertaining to criminal liability of a company is concerned, prosecu-
tion considers that a corporation is an artificial person and is guilty if any person commits a crime to
benefit the corporation while generally acting within the scope of his corporate duties.305 Particu-
larly in the case of large publicly traded corporations, the stigma and moral judgment that befall the
corporate entity, conventionally meant as an agent of deterrence for the offender, are often trans-
ferred to thousands of innocent employees and shareholders. With large-scale multinational corpo-
rations being under the supervision of professional managers, the owners seldom play any meaning-
ful role in the management of corporate affairs holding them liable for the acts of employees may
thus often lead to results defying rationality.

In U.S.A, the vicarious liability is based on the the following three essential conditions for the acts
of its employees such as if the individual:
a. acted within the scope and nature of his employment;
b. acted, at least in part, to benefit the corporation; and
57
c. the act and intent can be imputed to the corporation.

In several cases, federal courts have held the corporation accountable for an employee’s act despite
the former having implemented policies explicitly prohibiting such behaviour, although proof of
such implementation may qualify as mitigating circumstances. The U.S. Model Penal Code holds
corporations liable for employee behaviour if liability is imposed by statute (either directly or tan-
gentially through legislative intent) or if the commission of the offence has been authorized or toler-
ated by the directors or by a high-ranking agent acting on behalf of the corporation within the scope
of his duties. Regarding the second component, the employee’s mere intention to bestow benefit to
the corporation should suffice, with actions favourable to the corporate interest being viewed as
manifestation of such intention.

On rare occasions, corporations have been burdened with criminal liability for the prior wrongdoing
of a target corporation after a merger or amalgamation, but such cases have been governed by the
U.S. state corporation law related to successor liability, which is outside the purview of the present
discussion. Offences like deliberate disregard of criminal activity or concealing and failing to report
a felony may also attract corporate criminal liability. The wilful blindness doctrine is often applied
in such cases, which requires proof of either actual knowledge or conscious avoidance.

In the United States, corporations as entities can be criminally tried and convicted for crimes com -
mitted by individual directors, managers, and even low level employees. From a comparative per-
spective, such corporate liability marks the United States as relatively unique. Few other Western
countries impose entity liability, and those that do impose such liability comparatively infrequently
and under the threat of far less serious punishment. At the beginning of the century, some American
courts started to expand the concept of corporate criminal liability to include mens rea offences, a
move which was confirmed by the U.S. Supreme Court in New York Central & Hudson River

Railroad Company v U.S. Although the case before the Supreme Court was concerned with a statu-
tory offence, the lower courts rapidly expanded its scope of offences at common law. Several
decades later, in 1983, the 4th Circuit Court stated that “a corporation may be held criminally re-
sponsible for antitrust violations committed by its employees if they were acting within the scope of
their authority, or apparent authority, and for the benefit of the corporation, even if…such acts were
against corporate policy.”

3. Canada

58
In Canada, the directing mind concept is applicable in case of corporate criminal liability within the
corporation. This was held in the leading case of Dredge & Dock23. It is a landmark case pertaining
to corporate criminal liability in Canada. Here, Dredge & Dock established the existence of a corpo-
rate mens rea, a point that has been defended by a number of authors. Despite this move, a recent
civil damages case before the Supreme Court, The Rhone v. The Peter A.B. Widener24, suggests at
least implicitly that in future cases directing minds will only be found at higher levels of authority.
The court held that the “key factor which distinguishes directing minds from normal employees is
the capacity to exercise decision-making authority on matters of corporate policy, rather than
merely to give effect to such policy on an operational basis, whether at head office or at sea.” The
other two categories in question, absolute and strict liability offences allow natural persons to be
held criminally liable without the proof of mens rea. However, while strict liability provides the de-
fendant to exculpate himself by due diligence on his part, this opportunity is not given to the perpe-
trator of an offence which falls under the category of absolute liability.25

4. Australia

In Australia, the doctrine of vicarious liability was applicable upto 1995 but later on the Australian
legislature changed the criminal code to base corporate criminal liability on a test of the “corporate
culture.” It 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.” 26It is thus a departure from earlier approaches, and has been termed to be more direct and
realistic than the more mechanical and abstract identification doctrine. The corporate culture ap-
proach chosen by Australia provides four ways in which fault may be proven. Among these are a
“corporate culture which directed, encouraged, tolerated or led to a noncompliance with the relevant
provision;” or that the corporation failed to create and maintain such a corporate culture.

In addition, it is sufficient to establish that the board of directors “intentionally, knowingly or reck-
lessly carried out the relevant conduct, or expressly, tacitly or impliedly authorised 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 authorised or permitted the commission of the
offence.” With regard to the latter, a defence of due diligence exists, if the “body corporate can
prove that it exercised due diligence to prevent the conduct, or the authorisation or permission.

23 Canadian Dredge & Dock Co. Ltd. v The Queen (1985), 19 C.C.C. (3d) 1
24 [1993] 1 S.C.R. 497
25 https://www.researchgate.net/.../233061837_Corporate_criminaMiability_National_and
26 Criminal Code Act, 1995 12.3(6)
59
5. Germany

Germany has developed an elaborate structure of administrative sanctions, T71 which covers corpo-
rate criminal liability. The structure is known as Ordnungswidrigkeiten which are handed down by
administrative bodies. The key provision for sanctioning the corporation is § 30 Ord-
nungswidrigkeitengesetz, which calls for the imposition of fines on corporate entities. There has
been a great deal of debate in legal circles about the incorporation of corporate criminal liability in
Germany with arguments both for an inclusion and against such a move. This debate is due to the
increase in economic, but also environmental crimes.

Reasons for “true” corporate criminal liability include the inadequacy of existing sanctions and of
the deterrent effect of an administrative fine. A further problem is the “organized absence of respon-
sibility.”27 On the other hand, there are a number of reasons which are mentioned against the inclu -
sion of the concept of corporate criminal liability.

First and foremost, the lack of capacity to act and the lack of criminal capacity are mentioned.
These arguments are based on the notion that corporate entities are unable to act in a criminal law
sense, due to the absence of a will. The second argument is grounded on the belief that corporate
entities are not capable of being culpable. Other arguments include the inability to undergo punish-
ment, and a possible violation of the principle “non bis in idem.” Nevertheless, the German legisla-
ture has instituted a working group in early 1998, which is given the task to review and improve the
current situation by strengthening the role of criminal law with regard to corporate entities.

6. Japan

Corporate criminal liability is an integral part of Japanese law. There are currently more than 700
criminal provisions on the national level alone, which can punish entities other than individuals, and
this number is likely to increase in the coming years 28. In addition, the Japanese Supreme Court de-
cided that corporate entities must establish and implement policies and systems that prevent their
subordinates or employees from committing crimes in the course of doing business. If such policies
are not implemented or not updated accordingly, the entities can be held criminally liable on
grounds of negligence on the part of the directing minds in supervising the subordinates.

27 “National Development in Germany: An Overview,” p. 3.

28 “Criminal Protection of the Environment and the General Part of Criminal Law in Japan.”
International Review of Penal Law, v. 65, n. 3-4, p. 1043.
60
CHAPTER 5
CASE STUDIES ON CORPORATE
CRIMINAL LIABILITY IN INDIA

61
CHAPTER 5 CASE STUDIES ON CORPORATE CRIMINAL LIABILITY
The judiciary plays prominent role in determining the criminal liability of corporation. Judiciary’s
relentless struggle for solving the problem of criminal liability of a corporation cannot be ignored.
Corporation as a fictional entity has been assigned some rights and duties by law. This is particu-
larly relevant in a legal system based on the moral accountability of individuals. In the instant chap-
ter, judicial pronouncement and case study relating to corporate crimes has been elaborately dis-
cussed. The role of judiciary in finding out the criminal liability of the corporation has been em-
phatically discussed and the case study on scams, scandals and embezzlement has been highlighted.

Corporate criminal liability is complementary to individual liability. Today, a corporation is an arti -

ficial entity that the law treats as having its own legal personality, separate from and independent of
the persons who make up the corporation. This means, for example, that a corporation can own and
sell property, sue or be sued, or commit a criminal offence because; a corporation is made up of and
run by people, acting as agents of the corporation. A corporation has an existence separate from the
shareholders constituting it and they cannot be held liable for the wrongs committed by the corpora-
tion. The corporations are run by natural persons and these peoples actions can be criminal in nature
and can sometimes even result in great economical as well as human loss to the society. Hence, for
a better understanding of the concept of corporate criminal liability, it is necessary to trace the case
study in which corporation commit crime.

1. Union Carbide Corporation v. Union of India

Brief facts of the case

This case is also known as Union Carbide Case or Bhopal Gas Tragedy. The Bhopal Gas Leak
tragedy that occurred at midnight on 2nd December, 1984, by the escape of deadly chemical fumes
from the appellant's pesticide-factory was a horrendous industrial mass disaster, unparalleled in its
magnitude and devastation and remains a ghastly monument to the dehumanising influence of in-
herently dangerous technologies. The tragedy took an immediate toll of 2,660 innocent human lives
and left tens of thousands of innocent citizens of Bhopal physically impaired or affected in various
62
degrees. What added grim poignance to the tragedy was that the industrial enterprise was using
Methyl Iso-cyanate, a lethal toxic poison, whose potentiality for destruction of life and biotic-com-
munities was, apparently, matched only by the lack of a pre-package of relief procedures for man-
agement of any accident based on adequate scientific knowledge as to the ameliorative medical pro-
cedures for immediate neutralisation of its effects. By this disaster, it took an immediate toil of 2600
human lives and left tens of thousands of innocent citizens of Bhopal physically affected in various
ways. As per the figures furnished by the Union of India in its amended plaint a total number of
2,660 persons suffered agonising and excruciating deaths between 30,000 to 40,000 persons sus-
tained serious injuries as a result of the said disaster.

Provisions of law involved

Under the Bhopal Gas Leak Disaster (Registration and Processing of claims) Act, 1985, case for
claiming compensation was filed. Legal proceedings for the recovery of compensation for the vic-
tims were initiated against the multi-national company first in the U.S. Courts and later in District
Court at Bhopal in Suit No. 113 of 1986.
It is unnecessary for the present purpose to refer, in any detail, to the somewhat meandering course
of the legal proceedings for the recovery of compensation initiated against the multi-national com-
pany initially in the Courts in the United States of America and later in the District Court at Bhopal
in Suit No. 113 of 1986. It would suffice to refer to the order dated 4 April, 1988 of the High Court
of Madhya Pradesh which, in modification of the interlocutory- order dated 17 December, 1987
made by the learned District Judge, granted an interim compensation of Rs.250 crores. Both the
Union of India and the Union Carbide Corporation appealed against that order.

Appeals allowed

The appeals of the UCC and Union of India went on appeal and it was allowed for hearing. The
Court by its order dated the 14th February, 1989 made in these appeals directing that there shall be
an overall settlement of the claims in the suit for 470 million U.S. Dollars. It further directed for ter-
mination of all civil and criminal proceedings. On May 4, 1989 the Court pronounced its reasons for
its aforesaid order dated 14.2.1989 thus:
The Statement of the reasons is not made with any sense of finality as to the infallibility of the deci-
sion; but with an open mind to be able to appreciate any tenable and compelling legal or factual in-
firmities that may be brought out, calling for remedy in review under Article 137 of the Constitu-
tion.
The basic consideration motivating the conclusion of the settlement was the compelling need for ur-
gent relief. Considerations of excellence and niceties of legal principles were greatly over-shad-
63
owed by the pressing problems of very survival for a large number of victims. The instant case is
one where damages are sought on behalf of the victims of a mass disaster, and having regard to the
complexities and the legal question involved, any person with an unbiased vision would not miss
the time consuming prospect for the course of the litigation in its sojourn through the various courts,
both in India and later in United States. This Court considered it a compelling duty, both judicial
and humane to secure immediate relief to the victims. In doing so, the Court did not enter upon any
forbidden ground. What this Court did as in continuation of what had already been initiated.
The range of choice for the Court in regard to the figures was, therefore, between the maximum of
426 million U.S. Dollars offered by Shri Nariman and the minimum of 500 million U.S. Dollars
suggested by the Attorney General.

Having regard to all the circumstances including the prospect of delays inherent in the judicial
process in India and thereafter in the matter of domestication of the decree in the United States for
the purpose of execution, the Court directed that 470 million U.S. Dollars which upon immediate
payment and with interest over a reasonable period, pending actual distribution amongst the
claimants, would aggregate very nearly to 500 million U.S. Dollars or its rupee equivalent of ap-
proximately Rs.750 crores which the Attorney General had suggested be made the basis of the Set-
tlement. The court also referred M.C. Mehta v. Union of India, in deciding the case.
The Supreme Court by its order dated 14 February, 1989 made in those appeals directed that there
be an overall settlement of the claims in the suit, for 470 million US dollars and termination of all
civil and criminal proceedings. The opening words of the order said-
"Having given our careful consideration for these several days to the facts and circumstances of the
case placed before us by the parties in these proceedings, including the pleadings of the parties, the
mass of data placed before us, the material relating to the proceedings in the Courts in the United
States of America, the offers and counter-offers made between the parties at different stages during
the various proceedings, as well as the complex issues of law and fact raised before us and the sub-
mission made thereon, and in particular the enormity of human suffering occasioned by the Bhopal
Gas disaster and the pressing urgency to provide immediate and substantial relief to victims of the
disaster, we are of opinion that the case is pre eminently fit for an overall settlement between the
parties covering all litigations, claims, rights and liabilities related to and arising out of the disas-
ter.... “

2. Standard Charted Bank v. Directorate of Enforcement

64
In the instant case, the Court held that the intention of the legislature is to give complete immunity
from prosecution to the corporate bodies for grave offences could not be the intention of the legisla-
ture. In this case, the appellant filed a writ petition before High Court of Bombay challenging vari-
ous 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, contending 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) is imprisonment for a term which shall not be less than six months and with fine.

The question for consideration before court was:

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

The court held that the prosecution is essential for inflicting any punishment. But it is obvious that
when no punishment can be imposed on any person, no prosecution can also be initiated. Thus, it is
clear from in the instant 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 ig-
nored as it is impossible to impose on the company as it is an artificial person. But how can it be as-
certained. This can be interpreted from the language of the statute and the intention of the legisla-
ture behind the enactment of the law in this regard.

Maxim developed

In the instant case, a maxim is developed known as Lex-Non-Cogit-Ad Impossibilia which connotes
that law does not contemplate something, which cannot be done. The maxim applies to a company
in the case of imposition of punishment as it is not possible to send the company to custody. The
maxim by itself does not empower the court to break up the Section into convenient parts and apply
them selectively nor does the maximum potentia excusat legem apply here for the same reason. The
language of the Section can not be separated for imposition of fine and the punishment as the dis-
tinction is not permissible by the statute. But the discretion lies on the court to choose the most ap-
propriate sentence.
As far as this case is concerned, it was expressly stated that the company is liable to be prosecuted
even if the offence is punishable both with a term of imprisonment and fine. In case the company is
found guilty, the sentence of imprisonment cannot be imposed on the company and then the sen-

65
tence of fine is to be imposed. The court has the discretion power to impose the either sentence
which will be the most appropriate and suitable. The courts in this case have denied any blanket im-
munity to corporations from criminal liability. This is different from the natural person because the
natural person can be imposed bot the sentence as well as the fine simultaneously if found guilty.

3. Bofors Scandal

During 1980-1990, a major political scandal was occurred in India which is known as Bofors scan-
dal implicating the former Prime Minister Rajiv Gandhi and several other members of Congress
Govt, they were accused of receiving kickbacks from Bofors AB for winning a bid to supply India’s
155 mm field howitzer. The scandal relates to illegal kickbacks paid in a US $1.4 billion deal be-
tween the Swedish arms manufacturer Bofors with the government of India for the sale of 410 field
howitzer guns, and a supply contract almost twice that amount. It was the biggest arms deal ever in
Sweden, and money marked for development projects was diverted to secure this contract at any
cost. The investigations revealed flouting of rules and bypassing of institutions.

To compare and contrast, the scale of the corruption was far worse in India than Sweden.The
Swedish company paid 640 million (US$9.4 million) in kickbacks to top Indian politicians and key
defence officials. It reflects the range of corruption by the politicians who play the nasty politics for
the sake of money. Corruption is just like the multifaceted ghost which not only erode the confi-
dence of the people on the politicians but also a bane for the democracy.

As far as the brief facts are concerned, on 24th March 1986, a $285 million contract between the
Government of India and Swedish arms company Bofors was signed for supply of 155mm How-
itzer field guns. About a year later, on 16th April 1987, Swedish Radio alleged that Bofors paid
kickbacks to people from a number of countries including top Swedish and Indian politicians and
key defence officials to seal the deal. As a result of the revelations, the Indian government black-
listed Bofors in 1987, preventing the company from doing business in India. The middleman associ-
ated with the scandal was Ottavio Quattrocchi, an Italian businessman who represented the petro-
chemicals firm Snamprogetti. Quattrocchi was reportedly close to the family of Rajiv Gandhi and
emerged as a powerful broker in the 1980s between big businesses and the Indian government.
While the case was being investigated, Rajiv Gandhi was assassinated on 21st May 1991 for an un-
related cause by the LTTE. In 1997, the Swiss banks released some 500 documents after years of le-
gal battle.

66
On 10th June 2002, Delhi High Court quashed all proceedings in the case so far. However, this was
reversed by Supreme Court of India on 7th July 2003. Meanwhile the central government changed
and Indian National Congress came to power after 2004 Lok Sabha elections. On 5th February 2004
even before Indian National Congress came to power in India, the Delhi High Court quashed the
charges of bribery against Rajiv Gandhi and others, On 31st May 2005, the Delhi High Court dis -
missed the allegations against the British business brothers, Shrichand, Gopichand and Prakash Hin-
duja, but charges against others remain. In December 2005, Mr B. Daat, the Additional Solicitor
General of India, acting on behalf of the Indian Government and the CBI, requested the British
Government that two British bank accounts of Quattrocchi be unfrozen on the grounds of insuffi-
cient evidence to link these accounts to the Bofors payoff. The two accounts, containing €3 million
and $1 million, had been frozen. On 16 January, the Indian Supreme Court directed the Indian gov-
ernment to ensure that Ottavio Quattrocchi did not withdraw money from the two bank
accounts in London. The CBI, the Indian federal law enforcement agency, on 23rd January 2006 ad-
mitted that roughly Rs 210 million, about US $4.6 million, in the two accounts have already been
withdrawn by the accused. The British government released the funds later.

However, on 16 January 2006, CBI claimed in an affidavit filed before the Supreme Court that they
were still pursuing extradition orders for Quattrocchi. The Interpol, at the request of the CBI, has a
long-standing red comer notice to arrest Quattrocchi. Quattrocchi was detained in Argentina on 6th
February 2007, but the news of his detention was released by the CBI only on 23rd February. Quat-
trocchi was released by Argentinian police. However, his passport was impounded and he was not
allowed to leave the country.

As there was no extradition treaty between India and Argentina, the case was presented in the Ar-
gentine Supreme Court. The government of India lost the extradition case as the government of In -
dia did not provide a key court order which was the basis of Quattrocchi's arrest. In the aftermath,
the government did not appeal this decision because of delays in securing an official English trans-
lation of the court's decision.

A Delhi court provided temporary relief for Quattrocchi from the case, for lack of sufficient evi -
dence against him, on 4th March 2011. However the case is still going on. On 12th July 2013, Quat-
trochi died of a heart attack in Milan. He was, however, guilty of knowing about the kickbacks and
not taking action on them.

4. Sahara India Group Scandals

67
This is also an instance of major fraud committed by the Sahara India Real Estate Corp Ltd. here
money was collected illegally collected from the investors. Since 2009, when the Sahara Group’s
activities first came under the radar of SEBI leading up to the arrest of Sahara India Pariwar founder
Subrata Roy in 2014, both parties have been engaged in an aggressive regulatory conflict. SEBI al-
leged that Sahara India Real Estate Corp Ltd (SIRECL) and Sahara Housing Investment Corp Ltd
(SHICL), which issued Optional Fully Convertible Debentures (OFCD), illegally collected investor
money. Meanwhile, Sahara denied SEBI had any jurisdiction in the matter.

SEBI went on to order Sahara to issue a full refund to its investors, which was challenged by Sahara
before the Securities Appellate Tribunal (SAT). When the SAT upheld SEBI’s order, Sahara moved
to the Supreme Court in August 2012, which ordered Sahara to refund investors’ money by deposit-
ing it with SEBI. Sahara then declared that most of the US $3.9 billion had already been repaid to
investors, save for a paltry US $840 million, which it handed over to SEBI. This was disputed by
SEBI, which claimed that the details of the investors who were refunded had not been provided.
When Sahara failed to deposit the remaining money with SEBI and Subrata Roy skipped his hear -
ing, the Supreme Court of India issued an arrest warrant for the Sahara chief in February 2014.
Amid rumours of black money laundering and the misuse of political connections, Sahara vehe-
mently denied all charges and continued to defy SEBI. The regulator persevered through what the
Supreme Court referred to as the “ridiculous game of cat and mouse” and finally managed to pin
down Sahara chief Subrata Roy in 2014. In this rare victory, SEBI not only brought Sahara to jus -
tice, but also made an excellent case for why the regulator, and others like it, require greater auton-
omy and penalising powers.

5. Saradha ‘Chit Fund’ Ponzi Scheme

The Ponzi scheme run by Saradha Group collected money from investors by issuing redeemable
bonds and secured debentures and promising incredulously high profits from reasonable invest-
ments. Local agents were hired throughout the state of West Bengal and given huge cash payouts
from investor deposits to expand quickly, eventually forming a conglomerate of more than 200
companies. This syndicate was used to launder money and confuse regulators like SEBI. In April
2013, the scheme collapsed completely causing a loss of approximately US $5 billion and bankrupt-
ing many of its low-income investors.

India has been flooded with various Ponzi schemes that take advantage of unsuspecting investors
looking for alternate banking options. Lacking access to formal banks, low-income Indians often
68
rely on informal banking. These informal banks invariably consist of money lenders who charge in-
terest at inflated rates and were soon replaced by more sophisticated methods of conning people
through disguised Ponzi schemes. Fundraising is done through legal activities such as collective in-
vestment schemes, non-convertible debentures and preference shares, as well as illegally through
hoax financial instruments such as fictitious ventures in construction and tourism. The rapid spread
of Ponzi schemes, especially in North India, has various causes, not the least of which include the
lack of awareness about banking norms, steadily falling interest rates, lack of legal action against
such activities, and the security of political patronage. Ponzi schemes is not confined to North India
only, it had also business transactions in other parts of India.

SEBI first detected something suspicious in the group’s activities in 2009. It challenged Saradha be-
cause the company had not complied with the Indian Companies Act, which requires any company
raising money from more than 50 investors to have a formal prospectus, and categorical permission
from SEBI, the market regulator. The Saradha Group sought to evade prosecution by expanding the
number of companies, thus creating a convoluted web of interconnected players. This created innu-
merable complications for SEBI, which laboured to investigate Saradha in spite of them. In 2012,
Saradha decided to switch it up by resorting to different fundraising activities, such as collective in -
vestment schemes (CIS) that were disguised as tourism packages, real estate projects, and the like.
Many investors were duped into investing in what they thought was a chit fund. This, too, was an
attempt to get SEBI off its back, as chit funds fall under the jurisdiction of the state government, not
SEBI. However, SEBI managed to identify the group was not, in fact, raising capital through a chit
fund scheme and ordered Saradha to immediately stop its activities until cleared by SEBI. SEBI had
previously warned the state government of West Bengal about Saradha Group’s hoax chit fund ac-
tivities in 2011 but to no avail. Both the government as well as Saradha generally ignored SEBI un -
til the company finally went bust in 2013.

After the scandal broke, an inquiry commission investigated the group, and a relief fund of approxi-
mately US $90 million protected low-income investors. In 2014, the Supreme Court transferred all
investigations in the Saradha case to the Central Bureau of Investigation (CBI) amid allegations of
political interference in the state-ordered investigation.

As far as the powers and limitations of SEBI is concerned, Section 11(1) of the Securities and Ex-
change Board of India Act 1992, SEBI is required to protect the interests of investors in securities
and regulate and promote the development of the securities market. Established in 1988, the Securi-

69
ties and Exchange Board of India (SEBI) was instituted as the official regulator of Indian markets
but was only given statutory powers through the SEBI Act in 1992 by Indian Parliament.

It is pertinent to mention here that the primary objective of SEBI is to cater to the needs of the mar -
ket, which include investors, issuers of securities and any third parties involved. Its functions in-
clude, but are not limited to, regulating the stock market, preventing insider trading, managing com-
pany takeovers and acquisition of shares, and investigating fraudulent activities in the securities
market. To an extent, SEBI has successfully made tangible changes in the market. It did away with
inefficiencies and delays by passing the Depositories Act, which eliminated the need for physical
documents and certificates and played a major role in moving markets toward an electronic and pa -
perless platform. Administrative achievements aside, SEBI also made strict changes that demanded
corporate promoters disclose more information.

6. The 2G Spectrum Scam

In the instant spectrum, loss of crores of rupees was caused to the Govt. of India. 2G spectrum scam
was an Indian telecommunications scam and political scandal in which politicians and government
officials undercharged mobile telephone companies for frequency allocation licenses, which they
then used to create 2G spectrum subscriptions for cell phones. The difference between the money
collected and that mandated to be collected was estimated by the Comptroller and Auditor General
of India at 1.76 trillion (US$26 billion), based on 2010 3G and BWA spectrum-auction prices. In a
charge sheet filed on 2nd April 2011 by the Central Bureau of Investigation (CBI, the investigating
agency), the loss was pegged at 12309845.5 million (US$4.6 billion). In a 19 August 2011 reply to
the CBI, the Telecom Regulatory Authority of India (TRAI) said that the government had gained
over D30 billion (US$440 million) by selling 2G spectrum. Minister of Communications & IT
Kapil Sibal said in a 2011 press conference that "zero loss" was incurred by distributing 2G licenses
on a first-come-first-served basis.

On 2nd February 2012, the Supreme Court of India ruled on a public interest litigation (PIT) related
to the 2G spectrum scam. The court declared the allotment of spectrum "unconstitutional and arbi-
trary", cancelling the 122 licenses issued in 2008 under A. Raja (Minister of Communications & IT
from 2007 to 2009), the primary official accused.461 According to the court, Raja "wanted to
70
favour some companies at the cost of the public exchequer" and "virtually gifted away important
national asset(s).1,462. The zero-loss theory was discredited on 3rd August 2012 when, after a
Supreme Court directive, the government of India revised the base price for 5-MHz 2G spectrum
auctions to 140 billion (US$2.1 billion), raising its value to about 28 billion (US$410 million) per
MHz (near the Comptroller and Auditor General estimate of 33.5 billion (US$490 million) per
MHz).

But recently, the judgment has been pronounced by the CBI Court in this high profile case where
the court has acquitted the accused persons A.Raja and Kanimozhi as the prosecution has failed to
prove the case miserably. Although the accused persons has been proved as innocent in this white-
collar crime still the public raises the questions with regard to delay of trial of this case, role of
prosecution and the loss to the state and criminal wastage of time of court etc.

7. Fodder scam in Bihar

As far as the scams and scandals in India are concerned, the State of Bihar is no exception to it. On
dated 4/1/2018, the CBI Court convicted Lalu Prasad Yadav, ex-chief Minister of Bihar in a high
profile fodder scam. The CBI Court convicted Rashtriya Janata Dal (RJD) supremo and former Bi-
har Chief Minister Lalu Prasad has been sentenced to 3 and half years in jail in a fodder scam case.
In addition, he has also been slapped Rs 5 lakh fine by the Ranchi court. Lalu heard the sentencing
from jail via video conferencing. His son Tejashwi Yadav said that they will approach the high
court and also apply for bail after studying the sentence. Other accused Phool Chand, Mahesh
Prasad, Bake Julious, Sunil Kumar, Sushil Kumar, Sudhir Kumar and Raja Ram have also been sen-
tenced to 3 and half years in jail and Rs 5 lakh fine each. After a two-day delay, the Ranchi Special
Central Bureau of Investigation (CBI) court today pronounced the quantum of sentence for the RJD
chief. The court had convicted Prasad for offences of cheating with criminal conspiracy under the
Indian Penal Code and the Prevention of Corruption Act. Under the Sections, Prasad can
be sentenced to a minimum jail term of one year and maximum of seven years. Lalu has been con-
victed in one of the cases of the fodder scam, wherein Rs. 900 crore from the Bihar exchequer was
siphoned off under the pretext of purchasing fodder for livestock, during the '80s and ’90s.

8. Vijay Mallya Scam

Facts

71
The infamous case of money laundering of Rs. 9081 crores (estimated amount including interest)
of bank loans were executed by famous liquor baron Vijay Mallya. Tagged as ”the first business-
man to be pronounced as a Fugitive Economic Offender(FEO) under Section 12 of Fugitive Eco-
nomic Offenders Act of 2018. From taking over his father’s business to expanding it in the airlines
and liquor sectors. A young 28 year old was seeing the success of his company’s fast-paced growth.
During the downfall of the global aviation industry in 2012, Mallya acquired Air Deccan which re-
sulted in him taking loans from 17 banks. These loans were never repaid and he escaped arrest by
leaving the country. To the State Bank of India alone he owed Rs. 1600 crores. All this money was
allegedly invested in shell companies and was laundered overseas. There were speculations that the
money was utilised in transactions related to the IPL team The Royal Challengers Bangalore and
the F1 racing team Force India.

Consequences

While he escaped to Britain before his arrest in 2016, a warrant was issued against him under The
Prevent of Money Laundering Act of 2002. He was imprisoned following the same only to be given
bail which cost 65,000 pounds along with having to hand over his documents.

9. Harshad Mehta Scam

Facts

The Harshad Mehta scam alone brought down the entire stock market, done on a huge scale this se -
curities scam was all about government bonds, loopholes in the financial system and manipulation
of the market. An authenticated stockbroker of the Bombay stock exchange, Harshad Mehta utilised
the concept of ready forward deals where the government issues securities for big projects, while
the government raises finances from investors it also has interest charged on the same. These short
term loans of 15 days involve securities being transferred to one bank from another by the way of
bank receipts and then brought back by the lending bank at a higher rate. Mehta, acted as a broker
between the lending and the borrowing banks, misappropriating funds to invest them in the stock
market and utilising them for his gain. Since there was no actual transfer of securities from one
bank to another the borrower bank would issue bank receipts for the securities being transferred to
the lender bank. Fake bank receipts, influential connections of banks, bureaucrats, politicians, bro-
kerage agencies and several bank employees led to a scam that was reported by senior journalist
Sucheta Dalal.

72
Consequences

CBI probe followed by Mehta and his brother spending three months in jail, after which Mehta and
his family’s assets were attached and were charged with 76 criminal cases, 600 civil suits and vari-
ous tax irregularities.

Dated back to 1992, the effect of this scam was 4000 crores and called for restructuring of the entire
banking system in India. It tightened the involvement and powers of the Reserve Bank of India
bringing in a separate audio system and a new committee to overlook SEBI.

10. The Commonwealth Games scam

Facts

The commonwealth games happen every 4 years bringing in participants from various nations that
constitute the commonwealth nations. In 2010, India hosted the commonwealth games in its capital
city New Delhi. The commonwealth games were allocated a budget of 12 billion rupees and saw
participants from 71 different countries. 20 cities were developed to aid the multi-sport event along
with the setting up of what was called a Games Village. A committee chaired by Suresh Kalmadi
who led the scam of Rs 70,000 crores. The funds were misappropriated during the preparatory
phase with the use of arbitrary powers of the organising committee chairman. While the original
amount sanctioned was Rs 1000 crores it was later revised to 2460 crores. Not only were the funds
misappropriated, for example, the contract offer of Rs 141 crores from the chairman to Swiss Tim-
ings for timing equipment which was considered extremely high and unnecessary, but also several
issues arose on the political and administrative front. The funds were misappropriated in the areas
such as bus services, metro services and inaugural ceremony, while the budget for facilitating these
services for the tournament crossed what was initially allocated to them by the government. Several
transactions were manipulated with the use of overly expensive resources

Despite the expenditure, there was a delay in the maintenance of the venue, proper facilities were
not provided, there were several last-minute problems and the program management saw a huge
low.

Consequences

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As a result, there was a Central Vigilance Commission probe which led to the removal of Kalmadi
from the committee, his arrest on 25th April 2011 and suspension from the Congress Party. In 2012
Delhi High Court restrained him from participating in the opening ceremony of the London
Olympics. The committee along with Kalmadi was charged with criminal conspiracy, forgery to
cheat, cheating and other Sections of the Prevention of Corruption Act 2002.

11. Nirav Modi PNB Bank Fraud

Facts

Known as the biggest corporate scam in India, it shook the entire banking system of the country. In
a 14,000 crore rupee scam, Nirav Modi a well-reputed designer and jeweller is the main ac-
cused. Nirav Modi’s firm Firestar Diamonds started soaring and expanding across countries through
loans taken through a buyer’s credit from the Brady House branch of Punjab National Bank acting
as the importer’s bank in January 2018. The letter of undertaking that works as a bank guarantee al-
lowing a person to borrow money from another bank’s foreign branch and is under the liability to
pay the loan amount in case of default by the borrower generally calls for collateral or cash margin.
The officials who approached to take the buyer’s credit for the loan being given by an overseas
bank claimed that they had been issued buyer’s credit without any margins previously.

From then on the letters of undertaking which are issued for a buyer’s credit which is a short term
loan were fraudulently reissued because PNB’s core banking system was not linked with SWIFT
(Society for Worldwide Interbank Financial Telecommunications) a messaging network for banks
across the globe, is alerted when a letter of undertaking is issued for money to be loaned from an
overseas bank. While the message of issuing an LOU did go through via SWIFT it was not recorded
in the core banking system of the bank, based on these LOU the money kept getting transferred to
the Nostro account of PNB which is an account in foreign currency.

Consequences

A case of unauthorised reissue of LOU beyond its general validity for gems which was only 90
days, false in audits, certain colluding officers and the use of shell companies resulted in a fraud
carried out over 6 years. At present CBI and Enforcement Directorate are involved in auctioning
74
and recovering properties through the attachment of property. Nirav Modi who fled to London is
now in jail. An extradition treaty has been approved between India and London to extradite him, al-
though he has appealed against it.

CHAPTER 6
CORPORATE CRIME &
GLOBAL ECONOMY

75
CHAPTER 6 CORPORATE CRIME AND GLOBAL ECONOMY
6.1 IMPACT ON INDIAN ECONOMY

Corporate crimes are basically economic crimes. Economic crimes are crimes against property, in-
volving the unlawful conversion of the ownership (belonging to one person) to one’s own personal
use and benefit.These crimes also involve credit card fraud, mortgage fraud, medical fraud, corpo-
rate fraud, securities fraud (including insider trading), criminal misappropriation, payment (point of
sale) fraud, health-care fraud), corruption, scams or confidence tricks, tax evasion, bribery, embez-
zlement, identity theft, money laundering, and forgery and counterfeiting, including the production
of counterfeit money and consumer goods and include computer and cyber-crimes. It may be car-
ried out by individuals, corporations, or by organised crime groups. Victims may include individu-
als, corporations, governments and entire economy. In wider sense, it can be sub classified as:
1. Crimes involving government finances (eg. tax evasion, duty evasion, subsidy frauds etc.)
2. Crimes involving individuals’, finances (e.g. cheating, misappropriation, breach of trust etc.),
3. Crimes related to corporate management (e.g. commissions as bribes, illegal gratification, float-
ing fake firms, copyright violations etc.),
4. Crimes affecting national economy (e.g. foreign exchange, stock & commodity market manipula-
tions, counterfeiting currency etc.).29

Economic crimes create black market or underground economy, a market in which goods or ser-
vices are traded illegally. The key distinction of a black market trade is that the transaction itself is
illegal. The goods or services may or may not themselves be illegal to own, or to trade through
other legal channels because the transactions are illegal, the market itself is forced to operate out -

29 https://organiser.org/2014/01/25/116054/bharat/economic-crimes-and-their-impact-on-indian-economy/
76
side the formal economy, supported by the established state power. Two common motives for oper -
ating in black markets are to trade contraband, or to avoid taxes or price controls. Typically the to -
tality of such activity is referred to with the definite article as a complement to the official
economies, by market for such goods and services, e.g. “the black market in bush meat”.

Economic crimes cause significant damage to the general economy of the country, adversely affect-
ing the growth and development of the nation. Internationally, it erodes confidence in the financial
credibility and stability of the nation, thus weakening its global competitiveness and further, becom-
ing unattractive to investments from within as well as outside. Where there is a high incidence level
of economic crime, the government and bureaucracy are also viewed as being corrupt and weak.
Some of the major impacts on the national economy that may be caused by the economic crimes
are; increase in inflationary pressure, uneven distribution of resources and creation of elitism,
marginalisation of tax base, generation of abundant black money, creation of parallel economy, un-
dermining of developmental works/efforts, becomes a breeding ground for corruption, illicit busi-
nesses thrive affecting licit business, resources of financial and commercial institutions are diverted
and distorted, weakens morale and commitment of citizens, poor/weakest continue to be at risk,
countries’ economic equilibrium with at stake. Economic offences, such as counterfeiting of cur-
rency, financial scams, fraud, money laundering, etc. are crimes which evoke serious concern and
impact on the nation’s security and governance.

A significant corollary to the above is the diversion and investment of the black money acquired by
committing such crimes into furthering crimes and the hegemony of the criminal syndicates rule.
The threats to public security and eventually national security, would appear imminent as an ulti-
mate consequence.

Most of the economic crimes in India are committed through the cooperation and nexus between the
corrupt politicians, bureaucrats, industrialists, businessman and middle men. As far as criminality is
concerned these economic offences, while bearing similarity to traditional offences, constitute a
separate class by virtue of their scale and dimension; modus operandi; and in making individuals/
state/society as collective victims of financial loss. With general acceptance on this fundamental,
the call of tomorrow may be a comprehensive “economic offences code”, distinct from penal codes,
to effectively counter economic crimes. Criminologists, prestigious commissions and research bod-
ies agree that government must go beyond law enforcement and criminal justice to tackle the risk
factors that cause crime, because it is more cost effective and leads to greater social benefits than
the standard ways of responding to crime. Interestingly, multiple opinion polls also confirm public
support for investment in prevention. On the economic front, India has traditional village farming as

77
well as modem agriculture, handicrafts as well as a wide range of modem industries and a multitude
of support services.

Economic liberalization and globalization have opened up the prospects of regional economic inte-
gration with the extended neighbourhood and the opening up of markets. However, it has also
brought in its fold opportunities for white-collar criminals to manipulate and benefit from business
expansion, particularly in the field of financial and capital markets. Lack of understanding and ex-
pertise in these new spheres of crime has made it more difficult for government and criminal justice
agencies to control and suppress such economic crime.

Impact of corporate crime on society is more than the traditional crime

Impact of corporate crime on society is more than the traditional crime. This is stated by a special
court in December 16, 2017. The Special Court held ex-Jharkhand chief minister Madhu Koda
guilty of corruption in coal scam case. The court also convicted ex-coal secretary H.C Gupta and
others in the case. The eight accused persons were earlier granted bail by the court after they had
appeared before it in pursuance to the summons issued against them.
They were summoned as accused after the court took cognisance of alleged offences under Sections
120-B (criminal conspiracy) read with 420 (cheating) and 409 (criminal breach of trust by public
servants) of IPC and under provisions of Prevention of Corruption Act. The special CBI court
awards three-year jail term to former Jharkhand CM Madhu Koda in a coal block allocation scam
and imposed a fine of Rs 25 lakh on him.

The court also sentenced former Jharkhand coal secretary H.C. Gupta, then chief secretary Ashok
Kumar Basu and Vijay Joshi of Vini Iron and Steel Udyog Ltd (VISUL) to 3 years rigorous rigor -
ous imprisonment in the case. Basu and Gupta were fined Rs l lakh each, while Joshi and VISUL
were fined Rs 25 lakh and Rs 50 lakh, respectively.

In this landmark case, the Court held that White collar crime more dangerous than ordinary crimes.
The Court further held, 'White collar crimes' are more dangerous to the society than ordinary crimes
as they involve much higher financial losses and inflict public morale, a special court said today.
The court's observations came as it awarded four year jail term to Jharkhand Ispat Pvt Ltd (JIPL)
Directors, R S Rungta and R C Rungta, in a coal block allocation scam case.

Special CBI Judge Bharat Parashar noted in his order that of late, the anti social activities of persons
of the upper socio-economic strata of the society have attracted attention. The Judge said:

78
"White collar criminals have come to be defined as a person of the upper socio economic class who
violates the criminal law in the course of his occupational or professional activities. Such 'white
collar crimes' are in fact more dangerous to the society than ordinary crimes firstly because the fi-
nancial losses are much higher and secondly because of the damages inflicted on public morale.”

Financial loss to the public

The financial loss to society from corporate crimes is probably greater than the financial loss from
burglaries, robberies, and larcenies committed by persons of the lower socio-economic class. The fi-
nancial cost of corporate crime is probably several times as great as the financial cost of all the
crimes which are customarily regarded as the “Crime problem.”

Social Damage to Morale and Institutions

Generally, crimes cause some injury to the victims. Such injury may be the injury to property or the
person. Due to the injury caused to the victims, the whole community is disturbed. Corporate crimes
destroy morale and promote social disorganization. Crimes also create some distrust amongst the
people and shake the societal development.

The impact of white-collar crime so much diffused in the society as a whole and it apparently ap -
pears that the single individual victims is only marginally affected as it is evenly spread out on the
whole of the community. And because of this reason a conscious realization has not taken place.
Even if the offender is caught on some of the offences like misrepresentation, frauds, etc,, the courts
normally place the reliance on ‘caveat emptor’, i.e ‘let the buyer beware’ which is expressed in
prevalent attitude. While the corporate criminal commits the crime within the ambit of the law and
exploits the victims, it is worthwhile to mention that the community themselves in most of the times
knowingly contribute mainly to the commission of corporate crime such as illegal gratification,
black marketing, etc. such corporate crimes cause irreparable damage to social relation at a larger
scale.

Privileged class deviance

There is close linkage of corporate crime with capitalist structure of society. The supportive rela-
tionship between it and political and administrative corruption is also there. There is inadequacy of
the existing legal system to cope with its universality and complexity.
The term ‘Official deviance’ includes within its ambit every sort of misuse of official power, both
of political or non-political nature. Caste oppression and violence against Harijans or Tribals could

79
be instances of such caste privileged deviance. Bureaucratic corruption and favoritism, sale of prop-
erty before the stipulated period, change in land use pattern, unauthorized construction, under-valu-
ation of house and land price are generally done in collaboration with the government or corpora-
tion officials.

Trade unionists deviance

The phenomenon of deviance in industries and trading centres has become a legend. Extortions, as-
saults and murder have become a style of trade union operations not for setting scores with the em-
ployers and the trade union factors, but, for terrorizing, intimidating and winning the allegiance of
the workers as well. Certain deviant patterns of behaviour directed against women like bride-burn-
ing, witch-hunting, rape, etc, can be explained in terms of the sex-privileged position of the male
perpetrators.
“White -Collar Crime has to be placed on the same footing as ‘mass disobedience’ of laws in a cli-
mate of public opinion, which looks upon astute business practices as necessary for successful per-
formance even if they are illegal. The result is ‘mass neutralization’ of law and order which gives
rise to a group norm which approves white-collar crime as a ‘normal response’ particularly when
the social and power status of the offender gives him a distinct advantage in the practical operating
of the law.”

6.2 ROLE IN ECONOMIC DEPRESSION

Due to rapid industrialization and urbanization in the advancement of the technology, the corporate
crime has been increased and in most of the developing countries, it results in erroneous economic
depression. The state in present scenario, the crime inducing should be reduced and prevented by
the best formulated with policy implementation. Our country has several hazardous risks. These
throw light in the residential area which can be termed as potential high risk areas. The law is not
always static and regulation should be made still in effective prevalence in manner. The different
forms of the punishment incorporated should be in compliance of legal process and reduce criminal
conduct.

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CHAPTER 7
PROBLEMS IN IMPLEMENTING
PRESENT LAW OF CORPORATE
CRIMES IN INDIA

81
 CHAPTER 7 PROBLEMS IN IMPLEMENTING PRESENT LAW

OF CORPORATE CRIMES IN INDIA

Enactment of various laws to curb the corporate crime is not enough; it needs to be implemented
properly. We have multi laws pertaining to corporate crime and its prohibition and control, still the
corporate crime is alarming day by day. There must have some lacunas in the laws which is re-
quired to be find out and solution is to be sought. As stated earlier, the impact of the white-collar
crime is India is more than the blue collar crime. The society is very much affected. The economy
of the country is also affected largely. The innocent people are the victims of the various scams,
scandals, embezzlements, criminal misappropriation of property, breach of trust, cheating, fraud and
forgery.

There are various legislative enactments and measured adopted by the Government of India to curb
the menace of corporate crime, still due to improper or inadequate implementation of the same
causes the increasing commission of corporate crime. It’s a matter of regret that although there are
sufficient laws in India for prevention of corporate crime and punishment for the same but in recent
years it is seen that the rate of corporate crime has increased rapidly. Where the fault lies? Is there
any fault in laws or is there any fault with implementing authority? Is the corporate governance not
being properly complied? Where the problem lies? Why such type of crime has increased in the so-
ciety? What should be done? These are the millionaire question to be answered. However, in the
present chapter an attempt is made to discuss the various problems in implementing the existing
laws to combat the corporate crime.

Criminal law provides the ultimate means to society for the protection of its individuals and institu -
tions. Criminal law has to be strong enough, both in its content as well as in its implementation,
without being harsh or arbitrary. These qualities are needed in all branches of law but nowhere are
they so crucial as in criminal law since the stakes involved are exceptionally high in terms of social
injuries of various kinds. To understand the mechanism employed to achieve the above-mentioned
objectives, it is necessary to examine the fundamental features of the administration of criminal law
through police and courts.
The penal law in force in India is to be found in the various statutes enacted by the Central and State
legislatures. The general substantive criminal law, operate throughout the country, is laid down in
the Indian Penal Code enacted in the year 1860. The Penal Code incorporates various theories and

82
principles of the common law of England with some modifications here and there to suit the Indian
conditions.
There are various weaknesses in corporate governance in India. Different reasons are responsible
for the same. It may be improper structure, non availability of govt, support etc. Let us discuss some
of the relevant causes of its weaknesses which are as follows:

1. Lack of Proper Structure

Corporate governance has no proper structure or design. There is still lack of awareness about its
various issues, like, quality and frequency of financial and managerial disclosure, compliance with
the code of best practice, roles and responsibilities of Board of Directories, shareholders rights, etc.
There have been many instances of failure and scams in the corporate sector, like collusion between
companies and their accounting firms, presence of weak or ineffective internal audits, lack of re -
quired skills by managers, lack of proper disclosures, non-compliance with standards, etc. As a re-
sult, both management and auditor have come under greater scrutiny.

But, with the integration of Indian economy with global markets, industrialists and corporate in the
country are being increasingly asked to adopt better and transparent corporate practices. The degree
to which corporations observe basic principles of good corporate governance is an increasingly im-
portant factor for taking key investment decisions. If companies are to reap the full benefits of the
global capital market, capture efficiency gains, benefit by economies of scale and attract long term
capital, adoption of corporate governance standards must be credible, consistent, coherent and in-
spiring.

Individual shareholders, who usually do not exercise governance rights, are highly concerned about
getting fair treatment from controlling shareholders and management. Creditors, especially banks,
play a key role in governance systems, and serve as external monitors over corporate performance.
Employees and other stakeholders also play an important role in contributing to the long term suc-
cess and performance of the corporation.

necessary to apply governance practices in a right manner for better growth of a company. There
are two types of mechanism that resolve the conflicts among different corporate claim- holders, es-
pecially, the conflicts between owners and managers, and those between controlling shareholders
and minority shareholders. The first type consists of various internal variables, e.g.

(1) the ownership structure,

(2) board of directors

83
(3) executive compensation and (4) financial disclosure.

The second includes external mechanism with variables, e.g. (1) effective takeover market,

(2) legal infrastructure and

(3) product market competition.

2. Lack of Government Support

Government support is necessary for good corporate governance. Corporate governance stands for
fairness, transparency, accountability and responsibility are vital for corporate sector and growth of
corporation and national economy. Recent corporate scandals have led to public pressure to reform
business practices and increase regulation. The public outcry over the recent scandals has made it
clear that the status quo is no longer acceptable: the public is demanding accountability and respon-
sibility in corporate behaviour. It is widely believed that it will take more than just leadership by the
corporate sector to restore public confidence in our capital markets and ensure their ongoing vital-
ity. It will also take effective government action, in the form of reformed regulatory systems, im-
proved auditing, and stepped up law enforcement. These responses make clear that the governance
of corporations has become a central item on the public policy agenda. Different scandals them-
selves demonstrate that lax regulatory institutions, standards, and enforcement can have huge impli-
cations for the economy and for the public. It affect not only economy but also society at large.

3. Insider Trading

The officers, directors and employees of the company have sometimes well access to the confiden-
tial information about their corporation. There is like to misappropriate such information to get
profits. They do it by using their official position. Such type of information is to be disclosed. In
most countries, trading by corporate insiders such as officers, key employees, directors, and large
shareholders may be legal, if this trading is done in a way that does not take advantage of non-pub-
lic information.

It happens frequently by breaching the fiduciary relations and the trust imposed on them by the
company. Such corporate insiders use these information in such a way to reap profits or avoid
losses on the stock market, to the detriment of the source of the information and to the typical in-
vestors who buy or sell their stock without the advantage of “inside” information. The term insider
trading is popularly used in the negative sense as it is perceived that the persons having access to
the price sensitive and unpublished information used the same for their personal gains. However in-
sider trading per se does not mean any illegal conduct. It encompasses both legal as well as illegal
84
conduct. The legal version is when corporate insider’s officers, directors, and employees buy and
sell stock in their own companies. In order to legalize their transactions, the directors and employ -
ees of the company should inform about their dealing with the securities to the SEBI. Insider trad -
ing is defined as-“The use of material non public information in trading the shares of the company
by a corporate insider or any other person who owes a fiduciary duty to the company”. SEBI is the
watchdog of all the stock exchanges in India. It has been obligated to protect the interest of the in-
vestors in the securities market and to regulate the stock market through such other regulations as it
deems fit. It is due to the very fact that the investors invest on the shares being speculative, but
when the prices of the shares could be predicted well before in hand then they may take a decision
accordingly. Hence, pre determined price may result in undesired consequences as people may buy
huge amount of shares whose value may appreciate. Such practice prevail in share market or in
stock exchange market.

Section 17 Securities Exchange Act, 1933 contained prohibitions to deal with the fraud in the sale
of the securities in the most stringent manner possible. The Act addressed insider trading directly
through Section 16(b) and indirectly through Section 10(b). Section 16(b) of the Securities Ex-
change Act, 1934 prohibits the purchase and sale of the shares within six month period involving
the directors, officers, stock holders owning more than 10% of the shares of the company. The ra-
tionale behind the incorporation of this provision is that it is only the substantial shareholders and
the persons concerned with the decision and management of the company who can have access to
the price sensitive information and therefore there should be bar upon them to transact in securities.

It is pertinent to mention here that the central problem in Indian corporate governance is not a con-
flict between management and owners as in the US and the UK, but a conflict between the domi -
nant shareholders and the minority shareholders. The problem of the dominant shareholder arises in
three large categories of Indian companies. First are the public sector units (PSUs) where the gov-
ernment is the dominant (in fact, majority) shareholder and the general public holds a minority
stake. Second are the multinational companies (MNCs) where the foreign parent is the dominant (in
most cases, majority) shareholder. Third are the Indian business groups where the promoters (to-
gether with their friends and relatives) are the dominant shareholders with large minority stakes,
government owned financial institutions hold a comparable stake, and the balance is held by the
general public. It is important to bear in mind that the relation between the company and its share -
holders and the relation between the shareholders inter-se is primarily contractual in nature.

4. Non-compliance with disclosure norms

85
Another weakness is to conform the law which attract nominal fines with hardly any punitive ac -
tion. The Institute of Chartered Accountants in India has not been known to take action against
erring auditors. While the Companies Act provides clear instructions for maintaining and updating
share registers, in reality minority shareholders have often suffered from irregularities in share
transfers and registrations deliberate or unintentional. Sometimes non-voting preferential shares are
used by promoters to channel funds and deprive minority shareholders of their dues.

Minority shareholders have sometimes been defrauded by the management undertaking clandestine
side deals with the acquirers in the relatively scarce events of corporate takeovers and mergers.
There are many ways to present factually accurate information on a financial statement in a manner
that is misleading to investors. For example, selling property from a parent company to a subsidiary
to maximize parent company revenues. The functioning of the criminal justice system is wide
enough to achieve its goals and objectives. Its ultimate goal is undoubtedly to make the society
safer for its people. More specific and generally accepted aims of criminal law include:-

1. The enforcement of criminal law should reflect the society’s disapprobation for criminal activ-
ity through apprehending, convicting and punishing offenders.

2. Deterring criminal from indulging in criminal activities and at the same advising citizens as to
how to avoid failing a victim to a crime.
3. Criminal law should be beneficially used to rehabilitate the corrigible offenders and incapacitat-
ing those who might otherwise prove to be a potential danger to the society.
4. Ensuring safety and security of people through maintenance of law and order.
5. Helping the victims to get adequate compensation from the offender wherever possible or en-
suring their rehabilitation in any other way as the circumstance may warrant.
6. Efficient and fair application of law ensuring proper treatment of suspects, defendants, those
who are held in custody and witnesses. Also ensuring that the innocents are acquitted without
harassment and the guilty duly punished.
7. Ensuring that criminal justice system is accountable to the society.

To fasten liability in criminal law, the degree of negligence has to be higher than that of negligence
enough to fasten liability for damages in civil law i.e gross or of a very high degree. Negligence
which is neither gross not of a higher degree may provide a ground for action in civil law but cannot
form the basis for prosecution, Section 38 of Indian Penal Code, 1860 provides that the responsibil -
ity for the completed criminal act may be of different grades according to the share taken by the dif -
ferent accused in the completion of the criminal act, and this Section does not mention anything
about intention, common or otherwise, or knowledge.
86
Problem areas for India in having a proper Anti Money Laundering

Theoretically, the efforts taken by the Govt, of India for anti-money laundering is very much com-
mendable. Still, there are many problem areas for India in having an effective AML regime. There
are several factors contributing to these problems and there is a need to concentrate the efforts on
one direction aimed towards the focus of the problem. Some of the key problem areas are pointed as
follows:

1. Lethargy of Enforcement Mechanism

India started its anti-money laundering exercise in the year 1998, a well start, but not properly tack-
led and saw the day of enforcement only in 2005 - seven years - a long time for enforcement. When
the AMLA 02 with amendments in 2005 came into force, it was inherent with many lacunas as
there were several developments in those seven years which the Act failed to address. Then, as ob-
vious, a need was felt to have further Mihir Naniwadekar, SEBI moves to tighten insider trading
norms by prohibiting opposing transactions. PML Bill 2008 is laid before the parliament.

2. Growth of Technology

Not only the growth of technology has helped the common man it has proved also a boon for these
money-launderers and India is not an exception to this. Cyber finance is the growing concept in this
developing economy. The speed at which the technology is growing is not matched up with the en-
forcement agencies, specifically highlighted by the lame situation of cyber crimes.

3. Unawareness about the Problem

Unawareness about the problem of money-laundering among the common people is an impediment
in having proper AML regime. People in India, especially among the poor and illiterate, do not trust
banks and prefer to avoid the lengthy paperwork required to complete a money transfer through a fi-
nancial institution. The hawala system provides them same remittance service as a bank with little
or no documentation and even at lower rates. It also provide anonymity and security. This is be -
cause many don’t treat this to be a crime and are not aware about the harmful effects of the crime.

4. KYC Norms

KYC is Know Your Customer. Now India has KYC Norms in place in both money market and cap-
ital markets. However, these KYC Norm don’t desist the Hawala transactions, as RBI cannot regu-
late them. Further, KYC Norms become a mockery because of indifference shown by the imple-
menting authorities. KYC norms are followed in letters but the requirement is to follow it in spirits.

87
Increased competition in the market requires and gives motivation to the banks to lower their
guards. Specifically, the franchisees of banks are authorized to open accounts.

5. Smuggling

A rampant activity India has illegal black market channels for selling goods. Smuggled goods such
as food items, computer parts, cellular phones, gold, and a wide range of imported consumer goods
are routinely sold through the black market. By dealing in cash transactions and avoiding customs
duties and taxes, black market merchants offer better prices than those offered by regulated mer-
chants. This problem though has lessened due to liberalization policy of the government.

6. Tax Laws Justice

There is a need to make a distinction between the tax avoidance and tax evasion. There are appre-
hensions that Double Taxation Treaties may lead to money laundering channel.

7. Threshold Limit under PMLA

The definition of money laundering creates two classes of scheduled offences. In respect of of -
fences against the State and Drug related offences, any sum or property howsoever small may be
seized and confiscated under this Act. In respect of other scheduled offences falling under schedule
B, floor value of Rs. 30 Lakhs is prescribed so as to exclude relatively small offences, and proper -
ties. Unfortunately, this floor limit itself provides an escape route, as a person may engage with rel-
ative immunity in a series of transactions of money laundering below this limit.

8. Absence of comprehensive enforcement agency

As seen earlier, money-laundering has now become hybrid and is not only related to NDPS cases
but many areas of operation. Separate wings of the law enforcement agencies are dealing with digi-
tal crimes, money laundering, economic offences and terrorist crimes. The agencies do not have the
convergence among themselves but the 173 263 ITR 706 174 In this case. Lord Tomlin had re-
marked that "Every man is entitled if he can to order his affairs so that the tax attaching under the
appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure
this result, then, however, unappreciative the Commissioners of Inland Revenue or his follow tax
gatherers may be of his ingenuity, he cannot be compelled to pay an increased tax” Criminals are
working in a borderless world but the police in one State is still grappling with procedures on how
to arrest a person residing in another State. Apart from the above problem areas costs involved in
having a AML regime is also relevant.

Prevention of Corruption Act, 1988: Flaws and Defects

88
As far as this chapter is concerned, following are some of the obvious prominent flaws, defects, la -
cunas under the provision of Prevention of Corruption Act, 1988:

1. There are some similarities in languages of Sec. 315 of code of criminal procedure code and Sec -
tion 21 of the Prevention of Corruption Act. If we analyse the provisions of the both the Sections,
we find the same language used there. So, Section 21 is required to be repealed.

2. Similarly, Sec 19 of Prevention of Corruption Act, 1988 and Section 197 of Cr. PC speaks re-
garding sanction of Govt, for prosecution of public servant. In nutshell. Sec 19 prevents courts from
taking cognizance of offences allegedly committed under the Act by a public servant without prior
sanction of the government. But practically, these protective measures given to public servants have
functioned as a shield against prosecution, encouraging dishonest bureaucrats and ministers to flout
the laws with impunity. It is also proved that, governments make inordinate delay and the cases of
corruption keep on lingering for want of sanction. Bureaucrats who work in collusion with the
politicians often use such loopholes in laws to escape prosecution. Said sanctioning process for
prosecution is itself ultra-virus and unconstitutional. It is proved that, Sanctioning authority taking
under advantages of these defects under the law and often delays or rejects it as per their choice.
Nowadays, process of sanctioning became just a formality and choice of the sanctioning authority.
Even parameter or guidelines about the process of sanction are not prescribed under the provision of
prevention of corruption act. In other word sanction process become arbitrary and choice of the
sanctioning authority.

3. Nowadays, corruption is also committed not only by public servant, private or corporate sector
but also even by the Government itself. Government is unnecessary crossing its limits and violating
its own duties and responsibilities, involve unnecessarily in the private market. For example in the
international market price of petrol and diesel is always changing. Government fixed the price of
these items according to international market price. But our government club in hands with petro-
leum companies and only with an object to incur the loss of these petroleum companies, govern-
ment changes price of petroleum items as per their choice and not according to barrel price of inter -
national market. This is nothing but corruption on the part of government itself and for this criminal
misconduct Government is itself responsible. The Prevention of Corruption Act, 1988 is silent on
these issues and said criminal misconduct on the part of government is not treated as a corruption.
This is the main lacuna or defects under the present enactment related to prevention of corruption.
Hence necessary amendment in this respect is required to carry out under Sec 2 of the prevention of
corruption act by incorporating new definition as “Government Corruption”.

89
4. At present there are no legal provisions to check Corruption in the private and corporate sector in
India. The Prevention of Corruption Act 1988 is the existing law in India dealing with offences re-
lating to corruption. This law was essentially enacted to take care of corruption cases in the public
sector and by public servants, whereas in fact, there is widespread corruption in the private sector
also which seriously hampers the overall growth and development of the country. It is also observed
that, most corrupt practices are in public sector but some of the corrupt behaviour is also seen in the
private sector such as smuggling, fraud, fabricating, disrupting in economic system. The Prevention
of Corruption Act, 1988 was enacted with object to deal with corruption cases in the public sector
and by public servants only but no article is in the said act which check and control the widespread
corruption in the private sector which seriously hamper the growth and development of the country.

5. The proposed Prevention of Corruption (Amendment), Bill 2013 extended protection for sanction
of prosecution to the public servant even after their ‘retirement’. In other words, sanction of prose-
cution be extended to “retire government servant,” also. Since, there is no relation of employer em-
ployee after their retirement his relationship of employer employee is ceased hence proposed
amendment of extending protection of previous sanction for prosecution to “retire public servant” is
not bonafide and requires to be reconsidered and amendment to Sec 2 of Prevention of Corruption
Act, 1988 be carried out accordingly.

6. As per Sec 3 of The Prevention of Corruption Act, 1988 trial on corruption cases should con-
ducted by special judge but definition of ‘special judge’ is not defined under the Act. The Sessions
Judge or an Additional Sessions Judge or Assistant Sessions Judge under the Code of Criminal Pro-
cedure, 1973 are treated as a ‘Special Judge.’

7. Nowadays, we observe that scam and scandals which is nothing but a misappropriation of huge
amount of money by public servant. Present investigating machinery is become in effective to in-
vestigate these scam and scandals which are basically committed sophisticatedly on the record it-
self. Since, the investigating machinery and its officer is not having special knowledge or expert in
the field of modus operandi adopted by corrupt public servant at the time of committing an offence.
It was observed that, administrative lapses are always committed by investigating machinery during
the investigation not intentionally but only due to lack of their knowledge. Corrupt public servant
always take undue advantage of this situation and are acquitted by Court only on technical ground.

8. Under the Prevention of Corruption Act, 1988, there is no witness protection scheme, nor are
there provisions for quick and effective action against witnesses who become hostile. As a result,
witnesses frequently become un co-operative and spoil the prosecution case. Punishments are,
therefore, not swift and effective under the Corruption Act and don’t deter corrupt public servants.
90
Hence, necessary amendment u/s 21 the Prevention of Corruption Act, 1988 is required to be car-
ried out accordingly.

9. Though there are legal provisions for confiscation and recovery of property acquired as proceeds
of crime, such recovery is not easy. Corrupt public servants often acquire properties with the pro-
ceeds of crime in the names of their friends, relatives, family members and other acquaintances.
Therefore, it is not easy to prove in court that such properties are the proceeds of crime. Such prop-
erties are quite often held offshore under privacy laws and it is not easy to trace and recover them,
especially in the absence of desired international co-operation. Hence, necessary amendment u/s 13
the Prevention of Corruption act, 1988 is required to be carried out accordingly.

10. It is observed that, Anti-Corruption Bureau has no power to register complaint suo-moto in re -
spect of criminal misconduct committed by public servant. Government approach towards corrup-
tion or any detected scam is pro-active and is not reluctant to arrest corrupt public servants immedi-
ately. Every time court orders the investigating agency and then only these investigating agencies
take active participation in the investigation. So necessary amendments regarding empowering these
investigating agencies to take action suo-moto is become need of time. Hence, necessary amend-
ment u/s 17 the prevention of prevention act, 1988 is required to be carried out accordingly.

11. Sec. 13 of the Prevention of Corruption Act, 1988, prescribed criminal misconduct by public
servant under the said enactment, there is no provision in respect of confiscation of ill-gotten prop -
erties. Even the definition of unaccounted money having no source of income is not defined hence it
is very difficult to prove in the court that, exactly which property has been obtained through illegal
menace. Since element of intention is the main ingredient. Practically, it is observed that, corrupt
public servant always take benefit of element of intention. Since property in possession of public
servant is in this disproportionate to his known source of income, question of intention is not re-
quired. Element of intention in the disproportionate creates additional burden upon the anti corrup-
tion agencies to prove in the court of law. Therefore, element of intention under the said provision
is required to remove or deleted.

91
CHAPTER 8
SUGGESTIONS AND CONCLUSION

92
CHAPTER 8 SUGGESTIONS AND CONCLUSION
The study explored the conceptual analysis of corporation and its criminal liability. The jurispru-
dential and juridical analysis of corporate criminal liability within the criminal justice system has
been considered. An attempt has been made to analyse the historical background and latest develop-
ment of corporate criminal liability. The related legal provisions, their characteristic features as well
as the functionality of laws with regard to criminal liability of corporation under the Indian legal
system as well as the international scenario were considered. In tune of the objectives of the thesis
as defined, the study has been sensitive to the issues of an effective enforcement of the statutory
provisions pertaining to criminal liability of corporation and imposition of punishment on the same
in the light of the proportionality of punishment has been elaborately discussed. The study endeav-
oured to investigate matters as formulated in the hypothesis.

The Criminal Justice System is basically designed to prevent and control crime in the society. The
system has been in continuous process of evolution from ancient times, along with the changing
times, the law and the criminal justice system has been in the state of flux, to deliver its assigned
goal of abating crime and penalizing the offender. The system depends on the law enforcement
agencies viz.- the police, the prosecution and the courts. The system aims to reduce crime by bring-
ing the offenders to justice. However, there has been fallout, the system limps, and the offender is
found at large. The very investigation, the prosecution, the deposition of witness, the vital links of
evidence, the trial and the sentence are all each and collectively important elements to the outcome
of justice delivery process. Sentences imposed in most cases on offenders fail to deter future crimi-
nal behaviour by them which indicate that criminal justice system has failed in reducing crime by
mere penal measures. Criminal justice system is aimed to be a powerful display of fairness and
equality but today, it is under stress worldwide and India is no exception. An inefficient police sys-
tem, corrupt prosecution, delay in court practices and lack of protection to whistle blowers against
the corporation fraud revel that justice is either defied or denied. Rule of law is the first and fore-

93
most dictum of a constitutional state. To ensure prevalence of ‘rule of law’, it is necessary to put in
place an effective criminal justice delivery system. These are the reflections on the hypothesis of
this study.

More and more analysis leads to the unflinching conclusion that there prevails an urgent and immi-
nent need as of the changing times that the menace of corporate crime should be curbed. A boost in
the morale of the persons who are in charge of corporation will enhance the catalyst role with which
he/she is linked in a particular case.

Adequate steps must be taken for the protection of whistle blowers who disclose the information to
the public with regard to fraud in the company, scams or scandals committed and who appear be -
fore the court so as to render a helping hand in the dispensation of justice. As long as the corporate
crimes are white collar criminals are punished stringently, justice will continue to erode and shatter.
It is time for proper enforcement of substantial legal measures with regard to corporate crimes by
the enforcing agencies and proper and speedy disposal of cases by the court so that public will have
more confidence in the criminal justice delivery system in India. It is an established fact due to
fraud, embezzlement, scams and scandals, cheating, money laundering and black marketing by the
corporations/ companies, the innocent people are the worst sufferers. At the same time, the econ-
omy of the country is very much affected. It is an obstacle to the development of the country. As
earlier stated, corporate crime is having more impact not only on the society but also on the econ -
omy of the country. Where the lacuna lies? Are there any fault lies in the law or lethargy of the en -
forcement agencies? It is high time to find out the solution of these millennium questions so that the
alarming increase of the corporate crime can be prevented. An attempt has been made to suggest
some remedial measures to curb the menace of corporate crimes in India.

The efficient enforcement of corporate and securities law is an important factor in maintaining a
healthy capital markets. It seems to be general sense of dissatisfaction regarding the current en-
forcement situation in India. Given the uproar in the global financial markets, the frauds committed
by the corporations/ companies create a havoc in the justice delivery system. So the person who
come forward to furnish the information regarding corporate fraud or scams should be encouraged
and in selected cases, even incentives should be provided to come forward with that information. So
that the matter regarding fraud, embezzlement, scams and scandals, cheating can be detected early
and necessary steps can be taken for the prevention of the corporate crime. In addition to this, one
option would be to give a small reward to those parties providing enforcement relevant information
who do not bring their own suits or arbitration proceedings (or who forgo such proceedings). Stock
exchange enforcement in some measure should also be explored. Another important constraint is

94
that the criminal process is also quite slow, with quick arrests yet low conviction rates (when com-
pared to other nations). This imbalance suggests the need for greater caution in using the power to
arrest; the judicial process also needs to be speeded up. The latter is more difficult to achieve com-
pared to the former.

Therefore, it is suggested that the power to arrest for corporate and securities laws related issues
should either be restricted or that power should be vested in specific authorities. Finally we provide
a list of potential early warning signals which SEBI and others (shareholders, and the media per-
haps) could consider. Through such measures it would be possible to reign in corporate wrongdoing
before it rises to a scale which becomes difficult to address. All these measures need to be adjusted
to focus on the kinds of governance concerns relevant to the Indian situation (e.g. related-party
transactions, concerns associated with controlling shareholders). Adopting these steps along with
other measures may help to enhance enforcement in India and thereby strengthen India’s securities
markets further.

Remedial Measures

It is high time to combat the white-collar crime. It is not possible to wipe out the crime from the so -
ciety in a day. It will take time to control. For that collective interest is required. It is not possible to
combat by the laws alone. Even though there are plethora of laws in India to curb the menace of
white-collar crime, still the it is alarming. The incidences of white-collar crime are increasing in
alarming proportion. As far as the starvation, mass illiteracy and ignorance of the people in India
which affect largely the life of the people, white-collar crimes are definitely increasing trend. Con-
trol and prevention of white-collar crimes in India has become a crucial problem before the criminal
justice system. However, some of the remedial measures for combating white collar criminality
may be stated as follows:

a. The crying need of the hour is to create the public awareness against these crimes. This is possi-
ble through the mass media communication. Press plays a prominent role in this regard. Legal liter -
acy camps/programmes can be organized to create mass awareness. Audio-visual programmes are
to be conducted frequently in villages, school, college and university level which may perhaps help
in reducing the incidence of white collar criminality to a considerable extent. Regular conducting
seminar, workshops, discussion, deliberation, distribution of leaflets, pamphlets and poster pertain-
ing to incidence of white-collar crime will help to reduce the white-collar crimes in the society.

95
b. If necessary, a separate chapter is to be incorporated in the Indian Penal Code through an amend-
ment. Under this chapter, white-collar crimes are to be defined, prescribing punishment for the
same etc are to be incorporated for curbing the menace of white- collar crimes.

c. There is an urgent need for a National Crime Commission which may squarely tackle the prob-
lem of crime and criminality in all its facets.

Besides the above mentioned remedial measures, public vigilance is indispensable for anti-white
collar strategy. Unless and until the public are conscious regarding the consequences of white-collar
crimes, it cannot be reduced. To achieve this goal, there is necessity of strengthening of morals and
to adopt the ethical means. People should adopt the ethics of absolute honesty and integrity for the
sake of a country and its development.

It must be stated that a developing country like India where population is fast escalating, economic
offences are increasing by leaps and bound besides the traditional crimes. These are mostly associ-
ated with middle and upper class of society and have added new chapter to criminal jurisprudence.
To a great extent they are an outcome of industrial and commercial development and progress of
science and new technology. With the growing materialism all around the world acquisition of more
and more wealth has become the final end of human, activity. Consequently, moral values have ei-
ther changed or thrown, to winds and fraud, adulteration, misappropriation, misrepresentation, cor-
ruption, evasion of tax etc. have become the techniques of trade, commerce and profession. It is for
the criminal law administrators to contain the tendency by stringent legislative measures. It is rather
disappointing to note that though white collar crimes such as black market activities, evasive price
violations, rent-ceiling violations, rationing-law violations, illegal financial manoeuvres etc. by the
businessmen are widespread in society, no effective program for repressing them so far been
launched by the law enforcement agencies. Perhaps the reason for white collar crimes being carried
on unabated is that these crimes are committed generally by influential persons who are shrewd
enough to resist the efforts of law, enforcement against them. So, the stringent punishment are to be
prescribed in the laws and to be strictly enforced against these influential persons or the persons of
high repute. Enactments of laws are not sufficient. It is to be unchecked or dealt with ineffectively,
are serious. Organised crime can infiltrate financial institutions, acquire control of large sectors of
the economy through investment, or offer bribes to public officials and indeed governments. By
money laundering, the economy of a country is disturbed very much. It has both social and eco-
nomic impact on a country.

Considering the impact of the money laundering on society as well as on economy of the country, it
is suggested that-
96
1. Prevention of Money Laundering Act, 2002 is to be properly implemented.

2. Anti money laundering standards are to be properly complied.

3. Know Your Customer (KYC) norms/ Anti-Money Laundering (AML) standards/ Combating of
Financing of Terrorism (CFT)/ Obligation of banks under Prevention of Money Laundering Act,
2002 and Banks are required to be followed adequately. The KYC guidelines are to be complied
properly. So that combating Financing of Terrorism (CFT) is possible.

4. The bank should ensure that the information collected from the customer for opening the account
are to be kept secret and should be considered to be confidential. Banks should ensure that the infor-
mation collected from the customers are in conformity with the guidelines issued in this regard.
Bank should comply the guidelines properly pertaining to customers information. In addition to
this, bank should ensure that provisions of Foreign Contribution (Regulation) Act, 1976 are strictly
adhered to Know Your Customer norms.

As far as the chapter pertaining to legislative measures in the present study is concerned, it is found
that there are various lacunae in different Acts dealing with white collar crimes. So, there is an ur-
gent need to amend the laws pertaining to white-collar crimes. Besides the Indian Penal Code, 1860
which provide some basic principles relating to while collar crime, such as cheating, counterfeiting,
breach of trust, fraud and forgery, there are quite a few other enactments specifically designed to
deal with white collar crimes such as: the Prevention of Food Adulteration Act, 1954, the Essential
Commodities Act, 1955, the Copyright Act, 1957, the Narcotic Drugs and Psychotropic Substances
Act, 1985, the Prevention of Corruption Act, 1988, the Transplantation of Human Organs Act,
1994, Foreign Exchange Management Act, 1999, Information Technology Act, 2000, the Preven-
tion of Money Laundering Act, 2002, the Food Safety and Standards Act, 2006, the Conservation of
Foreign Exchange and Prevention of Smuggling Activities Act, 1973, Punjab Right to Service Act,
2011, the Punjab Prevention of Human Smuggling Act, 2012, the Lokpal and Lokayukta Act, 2013
etc. However, these Acts have certain demerits and to remove these demerits and to curb the men-
ace of white collar crimes following suggestions are made.

Suggestions

1. With regard to Prevention of Black Marketing Act, 1980 which deals with Illegal dealing with ra-
tioned articles and adulteration of petroleum products is a crime and a case registered under the law
must be tried in a Special Court constituted in each State for speedy and relevant remedy. Special
Court must take adequate steps for time bound justice to the justice seekers. Adequate infrastructure
should be provided to for expeditious disposal of cases relating to black marketing.
97
2. As far as the Essential Commodities Act is concerned, a public servant found guilty of offence or
abetment for offences relating to essential commodities should be strictly and separately punished
away from the normal punishment as provided under the Prevention of Corruption Act, 1988. It is a
heinous crime. More Special Courts should be established for this purpose. Special court should try
such case for speedy trial and punishment on the perpetrator.

3. As far as the Copyright Act is concerned, it is a comprehensive Act. The Act safeguards the own-
ership of the unpublished work also in addition to the protection granted to publish work. For
strengthening the I.P.R. administration system in India the awareness among the masses about the
intellectual property rights is the basic requirement. This goal is to be achieved by propaganda
through websites, periodic advertisement in newspapers, T.V channels and also through other elec-
tronic media, organising seminars, workshops, discussions, deliberations, distribution of leaflets,
pamphlets etc can also serve purpose a little bit. Another requirement is the training programme at
State police level on the pattern of training programs on copyright for the police and custom officers
conducted by the National Police Academy of Customs, Excise and Narcotics.

4. The subject of intellectual property rights and cyber laws are required to be strictly prescribed in
the syllabus for law and other degree courses. If feasible, it should be introduced from high school
level in regional language.

5. Under Section 64(1) of the Copyright Act, only Sub Inspector of police can investigate the case
under the Act. But in most of the cases, case is investigated by Sub Inspector only at the preliminary
stage but after that investigation is handed over to the lower rank police officer which is challenged
by the advocate of the accused during the prosecution of the case. So, it is suggested that the inves -
tigation must be conducted by the Sub Inspector throughout the case.

With regard to Narcotic Drugs and Psychotropic Substances (NDPS) Act, 1985, the following
suggestions are made for better implementation of the Act which are as follows:

1. Establishment of Special Courts in every major city is the crying need of the hour. Such court
should be empowered to try the specific offences related to NDPS under this Act. Special courts
should be directed to decide the cases within the time bound. In addition to this, the law enforce -
ment agencies should be well versed with the Sections of this Act. They should also be well versed
with latest amendment of NDPS (Amendment) Act 2014. They should remain update with latest
provisions of law.

2. Most of the drug users are from socially and economically backward classes. The elaborate pro-
visions concerning bail coupled with an inherent lack of knowledge, ignorance and poverty often
98
results in the poor vanquishing in prison. So it is suggested that provisions of bail must relaxed in
these cases.

3. As per the Act, according to Sections 15-25 and 27A-29, a convicted person shall be punished
with rigorous imprisonment for a term of not less than 10 years which may extend to 20 years and a
minimum fine of Rs.1 lakh which may extend to Rs. 2 lakh or more.

As far as Prevention of Corruption Act, 1888 is concerned; it is a comprehensive law which cov-
ers all possible acts pertaining to corruption and corrupt practices by public servants. There are laws
relating to tracking, seizing, and confiscating proceeds of such crimes, both inside and outside the
country. India has signed mutual legal assistance and extradition treaties with 20-25 countries re-
spectively to facilitate international cooperation in the fight against corruption. Ratification of the
UN Convention against Corruption by India will further strengthen its resolve to fight against cor-
ruption by providing and obtaining international co-operation. Despite all these measures and laws,
the country is still not free from the scourge of corruption. Corruption is still one of the biggest im-
pediments to extending the benefits of development and progress to the poorest of the poor. The In -
dian criminal justice system is facing many problems and challenges in its fight against corruption.
Corruption is a multi-faceted ghost. It is rampant now.

Even though there are several laws in India to curb the menace of corruption, still it is increasing
day by day. How can it be eradicated? The following suggestions are required to contain the mon -
ster of corruption:

1. Speedy justice is the crying need of the hour. The prevention of Corruption Act 1988 which deals
with offences relating to corruption. The system under the Act is painfully slow and punishments
are not swift. Under the Prevention of Corruption Act, 1988 prior permission of the authority is re-
quired before launching prosecution against a public servant. This often delays the launch of a pros -
ecution. The concerned authorities often take considerable time to grant such permission. Also, per-
mission is sometimes denied on political and other grounds. So, it is suggested that sanction process
must be made speedy. The sanctioning authority should ensure that the political influential is not
used to get favour by the person who is alleged to have committed corruption,

2. For trial of the cases related to corruption, number of Judges must be increased. The Prevention
of Corruption Act provides for trial of corruption cases under the Act exclusively by the special
judges. The number of special judges is highly insufficient. As a result, these courts are overbur-
dened and there is a large discrepancy in the number of cases disposed by the investigating agencies

99
and the number of cases disposed by the courts, adding to backlog each year. So, it is suggested that
their number must be increased.

3. Speedy trial is required. The delay to decide the cases should be prevented. There should not
have number of adjournments. Except reasonable grounds, the adjournments are to be restricted.
Further, the proceedings in the trial courts are challenged at various stages by parties by filing peti-
tions in the same court as well as in higher courts. Appeals and revisions filed in higher courts
against the order of the trial court often take years to be concluded. So, there is necessity of speedy
justice. Due to delay justice, faith of people is eroded and people are losing confidence to get proper
justice.

4. The Prevention of Corruption Act, 1988 should also be applicable to private sector also. This law
however, was essentially enacted to take care of corruption cases in the public sector and by public
servants, where as in fact, there is widespread corruption in the private sector also which seriously
hampers the overall growth and development of the country. After the liberalization of the Indian
economy in the early 1990s, the private sector has expanded greatly. The problem of corruption in
the private sector is increasing with the expansion of the private sector. Today it has assumed
alarming proportions. It has become the single biggest menace to Indian society. So, it is suggested
that private sector must be brought under the purview of the Act.

5. There should be protection to witness who adduce the evidence in the court in corruption cases.
Witness protection schemes should be launched as it is prevailing in other countries. The cardinal
principle of criminal cases is that the criminal case should be proved beyond the reasonable doubt.
For that witness plays prominent role under the criminal justice system. So, when a case relating to
corruption in under the trial under Prevention of Corruption Act, the protection should be provided
to the witnesses for better justice. It is seen that prosecution depend heavily on the testimony of wit-
nesses which often do not support the prosecution case because of influence, allurement and intimi-
dation from the other side. There is no witness protection scheme, nor are there provisions for quick
and effective action against witnesses who become hostile. Therefore, the witnesses are turning hos-
tile and the case is spoiled. So witness protection is the crying need of the hour.

As far as the tax laws in India are concerned, some suggestions are made for the purpose of our
study which is as follows:

1. Tax laws must be simple and clear. Tax structure should also be reasonable. Presently, these laws
are complicated and beyond the comprehension of ordinary tax payer. Tax rates should be reason -

100
able and tax evaders should not be given chance to evade the taxes. Spending of tax proceeds also
should be made transparent.

2. Judicial corruption in the higher judiciary has come on surface. In this context, an independent
institution is need of the hour tackle judicial corruption.

3. Technically Public Sector Undertakings are free from Government in their day to day work. But
these PSUs are like Zamindaries of the ministers and top bureaucrats. The PSUs must be separated
from Government and run on commercial lines.

4. Police and civil servants impinge on the lives of public intensely. Efforts should be made to mini-
mize the role of these Government instrumentalities.

5. The Government employees be paid market index salaries according to their responsibilities and
should be accountable. Stringent punishment like dismissal and prosecution be invoked in case of
corruption. Suspension and transfer will not serve the purpose.

As far as the Information Technology Act, 2000 is concerned, it is a commendable piece of legis-
lation for India pertaining to information technology. The Act has however during its application
has proved to be inadequate to a certain extent. Some remedial measures are suggested for improve-
ment of the law which are as follows:

Following are some suggestions to make improvements in the Act:

I. Under the Act, it is difficult to define the term lascivious information or obscene pornographic
information. It is not clearly defined under Section 67 of the Act. A clear interpretation is required.

II. A uniform cyber law for the whole world will provide a platform to solve the problem pertaining
to cyber crime as it is not confined to a limited boundary. Cyber-crime is a global phenomenon. So,
efforts should be made to combat the crime.

III. Due to lack of awareness, most of the cases are going unreported under the Information Tech-
nology Act, 2000. So, there is need of awareness. People are to be more vigilant to enforce their
rights.

IV. There are no clear cut provisions under the I.T. Act pertaining to jurisdictional issues. Hence, it
should be incorporated in the Act if there is a dispute relating to territorial disputes. Though S.75
provides for extra-territorial operations of this law, but they could be meaningful only when backed
with provisions recognizing orders and warrants for information issued by competent authorities

101
outside their jurisdiction and measure for cooperation for exchange of material and evidence of
computer crimes between law enforcement agencies.

V. Cyber savvy judges are the need of the day. Judiciary plays a vital role in shaping the enactment
according to the order of the day.

VI. There is need of training for the enforcement agencies who are responsible for the better imple-
mentation of the laws.

VII. States are to take necessary steps to educate the people and to upgrade, update, notify and edu -
cate about cyber laws and cyber-attacks.

As far as the Food Safety and Standards Act, 2006 is concerned, the following suggestions are made
for better enforcement:

1. As the number of hawkers cannot be denied in India, there should be representation from their
association as well, in Food Authority.

2. As there is lack of proper training of procedure, both legal and scientific or technical, there has
usually been problem taking the sample in the adequate manner and quality required for testing.
For this purpose, the Ministry of HDR can think over role of universities, which can, after look-
ing at the seriousness of the affair, provide for the courses on food testing.
3. The Act should have a compulsory provision for black listing of the companies or even publica-
tion when held guilty of the offence. It should be made part of the punishment. Provisions for
publishing the name of the culprit is there but not in every case. So, it should be done in every
case.
4. Food safety is a serious crime. It is a socio-economic offence.

Law alone is not sufficient to effectively control the monster of white corporate crimes. So, the so-
ciety should also be involved for its control as it plays a very important role to check the menace of
corporate crimes and also in enforcement of laws. On this front the following submissions are being
made-

1. Role of Panchayat is very important because these can play a vital role at village level to educate
the villagers about these crimes.

2. Role of NGO to combat the corporate crimes cannot be neglected. They play major role in detect-
ing and preventing the corporate crimes and save the society form monetary loss.

102
3. Political parties should not be given tickets to contest in election if the candidate is alleged to
have committed corporate crimes.

Government should set up complaint centre for the public for lodging complaint against the corpo-
rate crimes.

Creating public awareness against these crimes through the media or press, platform and other au -
dio-visual aids is essential. Intensive legal literacy programme may perhaps help in reducing the in-
cidence of white collar criminality to a considerable extent.

Indeed, it can be said that corporate crimes are eating out the vitals of the society and unless these
crimes become abhorrent to public mind, it will not be possible to contain this growing menace. In
order to attain this objective, there is great need for strengthening anti white collar laws as well as
uplifting of morals particularly, in the higher strata and among the public service providers. It is fur-
ther necessary to evolve sound group-norms and service- ethics based on the twin concept of abso-
lute honesty and integrity for the sake of national welfare. This is possible through character build -
ing at grass-root level and inculcating a sense of real concern for the nation among youngsters so
that they are prepared and trained for an upright living when they enter the public life.

The following suggestions may be adopted by the legislature while enacting law pertaining to crimi-
nal liability of a corporation which are as follows:

a. Economic Sanctions

b. Social Sanctions.

The above mentioned sanctioned are suggested because the objective of penal law is to deterrence
which make the company liable. It is to be noted that the reformation theory is not applicable ade-
quately for the companies.

Economic Sanctions

Economic sanctions would amount to monetary losses to the company as a whole which would af-
fect the company and its growth. Besides fine, the following can be included in punishment:

a. In cases of continuous criminal behaviour corporate death or order for wining up of company can
be imposed. For example, the food department of a corporate can be directed to be shut if despite
several warnings, poisonous or objectionable substances are adulterated. Such type of sanctions are
advised because large number of people are affected and lose their lives due to adulterated food.

103
b. Another type of sanction is temporary closure of the company for a given period and such closure
can be lifted if the company comply the due norms for the smooth running of the company. It de -
pends upon the gravity of the offence committed by the company and the amount of harm caused to
the society and people. For example, a corporate being closed for causing pollution till the time it
does not arrange for a pollution free technology.

c. The most preferable sanction is rehabilitation of victims of crime, in this type of punishment, the
corporation would be given order to rehabilitate the victims who are the worst sufferer. For exam-
ple, cleansing of the riverbanks that have been polluted as a result of toxic disposal. Though it
would take some time but this would also assure that the crime has been undone.

d. Adequate compensation to the victims should be paid as given in the Bhopal gas tragedy. Com-
pensation to a victim may be made in different ways. In this context, the State can pay damages, the
offender can also made proper compensation by way of fine. As far as the legal provisions are con-
cerned, Section 357, Cr.P.C, empowers a Court imposing a sentence of fine or a sentence (including
a sentence of death) of which fine forms a part, in its discretion, inter alia, to order payment of com-
pensation, out of the fine recovered, to a person for any loss or injury caused to him by the offence.

The Supreme Court of India while discussing the scope and object of Section 357 Cr.P.C. in Hari
Krishnan and State of Haryana v. Sukhbir Singh observed that it is an important provision but the
courts have seldom invoked it, perhaps due to the ignorance of the object of it. It empowered the
courts to award compensation to victims while passing judgment of conviction. In addition to con -
viction, the Court may order the accused to pay some amount by way of compensation to victim
who has suffered by the action of the accused. It may be noted that this power of the Court to award
compensation is not ancillary to other sentences but is in addition thereto. This power was intended
to do something to reassure the victim that he/she is not forgotten in the criminal justice system. It
is a measure of responding appropriately to crime as well as reconciling the victim with the of-
fender. It is indeed a step forward in our criminal justice system.” However, since Section 357 (1) is
subject to some limitations, it should be categorized as a separate form of punishment itself which is
not dependent on the quantum of fine or constitutional provisions. It believe the same to be stolen,
in compensation any bonafide purchaser of such property for the loss of the same if such property is
restored to the possession of the person entitled thereto.

1. Compensation to victims can be awarded only when substantive sentence is imposed and not in
cases of acquittal.

104
2. Quantum of compensation is limited to the fine levied and not in addition to it or exceed the
fine imposed.
3. Compensation can be ordered only out of fine realized and if no fine is realized, compensation
to victim cannot be directed to be realized.
4. In very rare cases under IPC, the maximum amount of fine is imposed. Moreover the maximum
fine as prescribed in IPC amount 150 years back is now inadequate in terms of real losses to
victims.

Compensation to victim under this Section can be allowed by the court if it is of the opinion that the
compensation is recoverable by such person in a Civil Court. The right to compensation has also
been recognized as an integral part of right to life and liberty under Art. 21 of the Indian Constitu-
tion. As early as in 1983, the Supreme Court recognized the petitioner’s right to claim compensa-
tion for illegal detention and awarded a total sum of Rs. 35000 by way of compensation. In deliver-
ing the judgment, Chandrachud C.J. observed: “ Art 21 which guarantees the right to life and liberty
will be denuded of its significance content if the power of this Court were limited to passing orders
of relief from illegal detention. One of the telling ways in which the violation of that right can rea -
sonably be prevented and due compliance with the mandate of Art 21 secured is to mullet its viola-
tors in the payment of monetary compensation. In Sebastian Hongray v. Union of India, 100 two
women filed a writ of habeas corpus to produce their husbands who were missing and alleged to
have been murdered. The authorities failed to produce them and the Court directed the respondents
to pay Rs.100000 to each of the wives of the missing persons. In several cases thereafter, the apex
court has repeated its order, making compensation an integral aspect of right to life.

Social Sanctions

Goodwill is considered as the property of the corporation. Goodwill is the reputation of a company.
As human being is very much concerned about its reputation, so company is very much concerned
about the goodwill of the corporation. If it is lost, everything is lost and the company loss its reputa-
tion. Goodwill is the heart and soul of a corporation. Once, that is lost, the entire strength comes to
a standstill. The term 'reputation' carries with it more than one meaning. For individuals, reputation
loss connotes both the individual's sense of shame and others' increased reluctance to do business in
the future with the individuals? or corporations, however, reputation loss refers only to the reluc -
tance of others, such as customers and workers, to deal with the corporation in the future. Of course,
the managers of the corporation may feel shame about their corporation's conviction. As applied to
corporations, reputation refers, for example, to the supra competitive price that a firm with a good
reputation can charge customers for its products or the lower wages that a 'good' employer can pay

105
while still attracting workers. Once this is harmed, it would create a deep stigmatizing effect on the
corporation since its business would come to a standstill with no customers. This can be done by
asking the corporate to publish this crime widely compulsorily and fund the publication as well.
This will act as a strong deterrence for not to commit crimes and the shareholders also would come
in an active role in stopping the active organizational structure from authorizing committal of such
crimes. However, in certain situations reputation sanctions are not effective against corporations.
Because activities that harm third parties, such as environmental pollution, do not directly affect a
firm's customers, the firm will be unlikely to suffer a reputation loss for engaging in those activities.
Also, firms that lack reputations, such as 'fly-by-night' firms, cannot really suffer a reputation loss.
This would also make the share value less attractive to be invested in thereby leading to huge
financial losses also. Such sanctions should also be incorporated in Sec 52 for the corporate apart
from the traditional forms of punishment that are already there in the Section.

The other statutes like Essential Commodities Act, Food Adulteration Act, Companies Act, etc.,
also require such sanctions to be imposed so as to adopt a just approach of punishment which is re-
quired for deterrence as fine cannot deter all corporates in all cases.

Last but not the least, the increasing rate of corporate crimes demand stiff penalties, exemplary pun-
ishments and effective enforcement of law. In the event of wrong doings enough weapons are
present under law to deal with the issues of fraud. It should be comprehended that corporate compli-
ance lies not in the adequacy of legislature, but in its implementation. So, enactments of various
laws are not enough to eradicate fraud completely.

Implementation of the law should be given more importance to reduce the occurrence of fraud.

The administrative of justice and fair trial is the obligation of the state both under international as
well as domestic laws. It is the obligation of state to reduce the crime through proper implementa -
tion of laws, speedy trial of cases and imposition of punishment by the court so that the corporate
crime can be curbed and proper administration of criminal justice system in India can be strength -
ened and streamlined. Besides all, mind set of people is to be changed not to commit the corporate
crime at all because it has more harm on the society than the traditional crime. Although the corpo-
rate crime is not possible to be curbed midnight but gradually it can be combated to imagine a crime
free society.

106
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WEBSITES-
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#Corporate_Criminal_Liability_In_India

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JOURNALS-

1. Vivekananda Journal of Research January - June 2020, Vol. 9, Issue 1, 134-145 ISSN 2319-
8702(Print) ISSN 2456-7574(Online) Peer Reviewed Refereed Journal ©

2. EPRA International Journal of Multidisciplinary Research (IJMR) - Peer Reviewed Journal Vol-
ume: 6 | Issue: 3 | March 2020 || Journal DOI: SJIF Impact Factor: 5.614||ISI Value: 1.188

3.SASI Volume 28 Issue 4, Desember 2022: p. 506-520 P-ISSN: 1693-0061, E-ISSN: 2614-2961

4.Athens Journal of Law 2021, 8: 1-17 https://doi.org/10.30958/ajl.X-Y-Z

STATUTES-

1. Indian Penal Code, 1860 (Act No. 45 of 1860)

2. Code of Criminal Procedure, 1973 (Act No. 2 of 1974)

3. Prevention of Corruption Act, 1988 (Act No. 49 of 1988)
4. Prevention of Money Laundering Act, 2002 ( Act No. 15 of 2002)
5. Companies Act, 2013 (Act No. 18 of 2013)

BOOKS-

1. “Jurisprudence and Legal Theory” authored by Dr. V.N Paranjape (Edition 2020-2021)

2. “Corporate Frauds: Business Crimes now Bigger, Broader and Bolder” authored by Robin
Banerjee (Edition 2021)
3. Lawmann’s “E-crimes and Fraud” authored by Nayan Joshi (Edition 2020)

108