You are on page 1of 31


Corporate Criminal Liability

Submitted to
Prof. D. S. Sengar

Section B Group 6

Sanil Badhani (PGP32091)

Rahul Rawat (PGP32092)
Ankit Kumar Daluka (PGP32093)
Shubham Goyal (PGP32094)
Nidhi Dahiwale (PGP32095)

We would like to thank Prof. D. S. Sengar for giving us an opportunity to work as a
group on our project titled Corporate Criminal Liability as part of fulfilling our
coursework for Legal Aspects of Management course. The project would not have
been completed without the guidance of Prof. D. S. Sengar.
Deficiency in Corporate Criminal Laws, is a world-wide problem and through this
project we became aware of the various laws and regulations regarding Corporations
and there Criminal Liabilities. This was a valuable learning opportunity that would
help us in future as managers.
Thank You
Section B - Group 11

Introduction.......................................................................................................................... 4
Status of the problem..........................................................................................................5
Adequacy of legal and regulatory measures adopted to control and prevent the
problem:................................................................................................................................ 9
Effectiveness of Enforcement Mechanism to deal with the problem realties................13
Role of Businesses/Industry Associations:.....................................................................19
Judicial Approaches.......................................................................................................... 23
Conclusion.......................................................................................................................... 29
References:......................................................................................................................... 31

A corporation is a body that is granted a charter, recognized as a separate legal
entity, having its own rights, privileges and liabilities distinct from those if its
members. With the onset of Globalization and worldwide increase in more free trade
of goods, national laws are being changed to empower corporations, to get the first
right over natural and community resources. Historically, the criminal law has been
used as an instrument for deterrence, and since corporations are increasingly
significant actors in our economy, they have also acquired the ability to victimize the
A corporation is considered to be a separate legal entity and is considered to be a
legal person in the eyes of law, however, a corporation can also be made criminally
liable through the acts of any of its agents, if they are considered to be acting in the
scope of authority. The evolution of the concept of assigning criminal liabilities to
corporations is the result of Judiciarys relentless struggle to overcome the
complications involved in assigning criminal blame to fictional entities. Since
corporations have more power and can flex its muscles to do more harm and are
less compliant to disgrace or punishment, there is a need for a regulatory check to fill
the loopholes in the constitution and also prevent use of Corporations as a shield to
do acts otherwise unjustifiable.

Doctrine of Corporate Criminal Liability:The doctrine of Corporate Criminal Liability is essentially the doctrine of Respondeat
Superior, which is Latin for let the master answer, which states that an employee is
responsible for the actions of employees performed within the course of their
Law of Torts:- A tort is simply a civil wrong, that unfairly causes someone else to
suffer some kind of loss or harm, resulting in legal liability for the person who is
responsible for this tortious act.
The legal US Doctrine, Respondent Superior has been imported into Criminal Law,
from the Law of Torts. The Law of Torts is itself a branch of the concept of Vicarious

Status of the problem

Under the prevailing legal rule, corporations can be held criminally responsible for
any act committed by an employee as long as that act is committed in the scope of
employment, and with the some intent to benefit the employer. The requirement that
the agent is working within the scope of his employment is met if, the employee has
actual or apparent authority to
Actual Authority: - Authority that the corporation knowingly entrust to its agents or
Apparent Authority: - Authority which an agent can be inferred to have by an
average responsible person (If a relationship can be established between an
employees criminal conduct and his corporate duties, agent is said to have an
apparent authority)
Current Scenario:At present, all the directors, officers and employees are liable for criminal acts
committed by them, for which they have actual authority to perform, or appear to
have authority to perform as observed by an average reasonable man.
The Accomplice Theory:This theory states that a person is criminally liable by virtue of his responsible
relation to the misconduct regardless of whether or not he possesses any
knowledge regarding the criminal activity. Under this, the Directors and officers may
also be held liable if:1. They either instructed or encouraged a subordinate to commit a criminal act
2. They failed to exercise due care and supervision of their subordinate which
resulted in execution of crime
For the Doctrine of Corporate Criminal Liability to be applicable,
1. The criminal act must be committed with the intention of benefitting the
corporate in some manner, or
2. The criminal act must be committed with the intention of personal benefit, and
this act ultimately result in benefit of the company as well.


1. Corporate criminal liability in the United States of America
Before 1909, corporations were not liable to be prosecuted, as the firm were
considered to be an intangible entity which cannot be physically or mentally
present in the court of law for the crime. In 1909, New York Central and
Hudson River Railroad v. U.S case, this case incorporated the Corporate
criminal liability in the US law, an employee of Railroad company found guilty
of paying rebates to shippers in violation of federal law. Supreme court raised
the issue of involving the corporation as part of the guilt. Agent worked for the
benefit of the firm and rebates benefited the firm, so the supreme court found
the firm to be liable for the actions of its agent.

Punishments under U.S. Law

Persons can be punished by capital fine, imprisonment and/or death penalty
but corporate firms cannot be kept behind the bars. So the punishment for
firms is capital fine and/or seizure of property registered in the name of the

2. Corporate Criminal Liability in the United Kingdom

Under United Kingdom law, a person (director, manager, employee, officers or
shareholders) responsible for the unlawful act is punished and the firm is also
considered to be punished for the same crime if the firm is getting benefitted
by the act. In the United Kingdom, the mentality of the agents or employees of
the firm is considered to be the mentality of the firm, since the firm doesnt
think on its own.
In case Tesco Supermarket Limited v. Nattrass, store keeper was found guilty
and Tesco tried to save itself from the punishment by using act or omission of
another person, Tesco claimed that they had taken all the precautions to not
be liable for a criminal act. Lord Reid held that the person responsible for the
unlawful act is guilty and if the firm is also guilty if the person is working for it
because when a person works for a company he/she are not individual and
not representing the company but they are thinking of the company and acting
physically as a company.
Seriousness of the punishment is decided on the following four factors:


Whether the offense was planned

Whether the offense committed with the objective of high profit
Whether there was the failure in responding to warnings
Whether concerns were expressed by others about the behavior of

The corporate firm can be punished by capital fine, confiscation,
compensation orders and debarment from public procurement.

3. Corporate criminal liability in the rest of Europe

Till 1970, Western European countries were against imposing any kind of
punishment or penalties on the corporate firms as they believed corporate
firms cannot be blameworthy as it imposes rules and regulation for the
employees of the firm. After 1970, corporate firms were considered to be
liable for any criminal activity.

4. The Netherlands
In 1976, the Netherlands became the first Western European nation to
consider the corporate criminal liability. In 1976, corporations became liable
for all the offenses committed by the person representing or acting on behalf
of the corporation.

5. Denmark
Denmark introduced corporate criminal liability in 1926 with the passage of
the Butter Act. Denmark expanded the list of crimes under corporate criminal
liability by the end of the century.

6. Switzerland
Switzerland incorporated corporate criminal liability in 2003. Swiss criminal
liability is different in concept as compared to previous countries as it is based
on subsidiary liability. Subsidiary liability means a corporation can only be
held responsible for any criminal activity if the fault cannot be attributed to any
individual. Corporate criminal fines can range up to five million Swiss francs.

7. Corporate Criminal Liability in India

For any offense, company or a juristic person can be prosecuted for an
offense by imprisonment and/or fine. There are several cases in India in which
both imprisonment and fine are applicable (for example; The Assistant
Commissioner, Assessment- II, Bangalore and Ors v. Velliappa Textiles and

the State of Maharashtra v. Syndicate Transport etc). There have been

instances where only fine can be imposed but as per law offender was
punished by both imprisonment and fine.
Court should not deviate from the punishment prescribed in any case. As
company cannot be punished by the imprisonment, judgement in 2005 of the
Apex court in the Standard Chartered Bank and Ors etc. v. Directorate of
Enforcement and Ors etc that changed the previous views about corporate
criminal liability. This case was related defunct Foreign Exchange Regulation
Act (1973), otherwise known as FERA. Seriousness of the offence suggested
the punishment to be imprisonment but company cannot be sentenced to
imprisonment, so court can only impose fine on it which lowers the intensity of
the punishment. The majority agreed on imposing fine instead of
imprisonment to company. If both company and person are guilty then both
imprisonment and fine can be imposed as punishment. Blanket immunity for

Adequacy of legal and regulatory measures adopted

to control and prevent the problem:
The following adequacies related to the legal rules and regulations must pertain in
order to control and prevent Corporate Criminal Liability


Requirements for Establishing Corporate Criminal Liability:

1. Act within the range of employment:
Any employee of a corporate firm committing the offence must act within the
range of his employment i.e. he must perform the duties sanctioned and
approved by his parent company. Actual authority exists when a corporation
knowingly and intentionally sanctions and approves an employee legally to act
on its behalf. Although, not all representatives of a company are viewed as
deserving of speaking to the organization for the thought process of building
up liabilities. Primarily, there are two contradictory systems which tackle this
issue differently:

Common Law:
Common law states that an enterprise is obligated for its specialists'
exercises independent of the representative's status or position in the
organization's administration. Consider the case of Dollar Steamship Co.
V. Joined States, the common law framework maintained the criminal
obligation of a steamship organization for contaminating the waters despite
the fact that the representative dumping decline over the edge was a
negligible kitchen worker.


Model Penal Code:

MPC on the other hand states that the unlawful act must be authorized,
requested, commanded, performed or recklessly tolerated by the
board of directors or by a high managerial agent acting in behalf of
the corporation within the scope of his office or employment.
Subsequently the MPC permits companies to sidestep obligation as long
as the higher ups in their hierarchy exhibit due diligence in the monitoring
and stamping out of wrongdoing.

2. Benefit to the Corporation:

The agent's conduct must, somehow, benefit the organization. The

organization need not actually directly receive the benefits nor must the
benefit be enjoyed completely by the corporation, however the illicit
demonstration must not be as opposed to corporate interests. This has been
explained on the grounds that it is to a great degree uncommon that a worker
confers an unlawful demonstration sacrificially, with no expectation to make
any individual gain
3. Establishing Mental capability:
There are two principle techniques by which this is done:
A) The Collective Blindness Doctrine:
Courts have discovered organizations at risk notwithstanding when it
wasn't a solitary person who was at fault. The Courts considered the
aggregate information of the considerable number of representatives to
reach this conclusion. This is known as the Collective Blindness
Doctrine. The method of reasoning behind this is to keep partnerships
from compartmentalizing their work and obligations in a manner that it gets
to be rudimentary for them to sidestep risk by arguing lack of awareness in
case of any criminal prosecution.
B) The Willful Blindness Doctrine:
Companies are made criminally at risk on the off chance that they
purposely choose not to see to progressing criminal exercises. In the
event that a corporate operator gets to be suspicious of some continuous
unlawful acts yet to keep away from culpability, he makes no move to
mitigate the damage or investigate further or bring the offender to book,
the partnership gets to be at risk.


How Corporations can be made Liable

Courts today have contrived various strategies and belief systems to ascribe
the employee's activities and learning to the parent corporation to stamp out
illegalities from the financial circle of life:
1. The Collective Blindness Doctrine

Courts have discovered enterprises obligated notwithstanding when it wasn't

a solitary person who was at flaw. The Courts considered the total information
of all the employees to arrive at this conclusion. This is known as the
Collective Blindness Doctrine". The method of reasoning behind this is to
keep partnerships from compartmentalizing their work and obligations in a
manner that it gets to be rudimentary for them to dodge risk by arguing lack of
awareness in case of any criminal arraignment.
2. Willful Blindness Doctrine
Partnerships are made criminally subject on the off chance that they
intentionally choose not to see to progressing criminal exercises. If a
corporate agent becomes suspicious of some ongoing illegal acts but to avoid
culpability, he takes no action to mitigate the damage or investigate further or
bring the offender to book, the corporation becomes liable.
3. Conspiracies
A conspiracy has been traditionally defined as two or more people who agree
to commit an offence, with one or more people taking affirmative action to
further the aim of the conspiracy. Companies can be made at risk for a
criminal conspiracy amongst its representatives or including one worker and
others not on the payroll of the corporation.
4. Mergers, Dissolutions and Liability
Corporations can be made criminally liable for the past criminal acts and
infringement of another company with which it has merged or has
consolidated. Enterprises, after a merger, will likewise need to safeguard
themselves against charges of conspiracies against the antecedent
partnership. Likewise, it is not generally necessary that organizations will
dodge arraignment if disintegration happens before filing of charges.
Contingent upon the tradition that must be adhered to, some of the time even
ancient organizations are compelled to protect themselves against criminal
5. Misprision of Felony

A corporation may also be held liable for misprision of felony, that is the
offense of disguising and neglecting to report a crime. This consists of four

That the principal committed a felony

That the defendant knew about said felony

That the defendant failed to notify the concerned authorities at the earliest

That the defendant took proactive steps for the concealment of the
felonious act.

Simply neglecting to notify the authorities is not enough to qualify as

misprision of felony and neither is merely having the goal to cover the lawful
offense if such expectation is not completed.

Effectiveness of Enforcement Mechanism to deal with the

problem realties

The concept of Corporate Criminal Liability, however, does not commands

unanimous response from the legal fraternity world-over. Many apprehensions have
been raised, and the demand for discarding the very notion of Corporate Criminal
Liability have also been made. The two major apprehensions raised are,
1. Deterrent effect of fines and other sanctions against corporations on the
grounds that it is not the corporations that commit crimes, it is the individuals
who do
2. Retributive effect is borne by innocent shareholders (by decreasing the value
of their shares) and consumers (by driving up the prices of commodities and
These two major areas of contention are not substantiated well though. Existence of
corporate criminal liability gives the top officers an incredible impetus to regulate
middle and lower level administration intently. Absence of Corporate Criminal Liability
would encourage a dont ask, dont tell kind of attitude from the Top-brass, thereby
keeping themselves clear of all risks whilst procuring the benefits from the unlawful
acts. As far as the second point of contention is concerned, Shareholders these days
are well aware of the risk involved in any venture and are seemingly happy when
illegal acts reaps profit, so it is only fair to expect them to bear a part of the brunt,
when those illegalities are discovered.

John Hasnas, Associate professor of law at Georgetown University, has a different

point of opinion. According to him, Criminal Law is a Penal law, and its purpose is
punishment. It is not designed to settle disputes, provide compensation, or impose
administrative sanctions. Since corporation is an abstract entity with no mind in
which to form mala fide intentions. There is a stark difference between moral and
criminal responsibility. Moral responsibilities indicates that one is deserving of
punishments, while Criminal Liabilities authorizes some human beings to punish
others. Therefore, Criminal liability inherently involves an element of human agency
that moral responsibility does not.

Major Issues faced in Successful Implementation

1. The Basis of Liability
The implementation of Corporate Criminal Liability has had to face some
fundamental legal design issues. A practical way to deal with making
organizations responsible requires an investigation of the basic leadership
structure of organizations and a degree of innovations in adjusting the
elements that define individual, human culpability.
(a) Common law theories
Identification Theory
It focuses on the actions of the "directing mind" of the corporation and
merges individual and corporate persons in order to assign criminal
liability to the latter. It requires that the corporation take responsibility
for those with decision-making authority over matters of corporate
policy (rather than only implementing policy). It is not sufficient merely
to establish that any employee or agent acted criminally.
The identification theory has been criticized for its limited application. It
is premised on the court having the capacity to ascertain key
managers who not only have control over making corporate policy, but
have also actually committed an offence. There may be more than one
directing mind, the identification theory goes only part way towards
addressing the manner in which large corporations function. Its
emphasis on individual choices by individual managers stands out
from the way that organizations are complex and may - in an extremely
negative situation create group norms and systemic pressures that
leads to lawbreaking.
Vicarious Liability (respondeat superior)
The criminal law model of vicarious liability was adapted from the law
of torts. A corporation may be criminally liable for the acts of its
officers, agents or servants who are acting within the scope of their
employment and for the benefit of the corporation. Vicarious liability,
therefore, is another crediting the illicit acts of employees to the
corporation itself.

(b) New Legislative Approaches

Corporate Manslaughter - United Kingdom draft proposals
It states that There can often be great difficulty in identifying an individual
who is the embodiment of the company and who is culpable" (emphasis in
original), and "the result of the identification doctrine has meant that there
have been only a few prosecutions of a corporation for manslaughter in the
history of English law. the concept is refinement of the "directing mind"
idea, i.e. the law is still looking for decisions made by certain managers, or
groups of managers, in order to find the corporation primarily liable;
however, there is no requirement that an individual be found liable as a
condition precedent to corporate liability.
"Corporate Culture" Commonwealth of Australia
With the Australian Criminal Code Act, 1995, the Commonwealth of
Australia adopted a broader concept of "corporate culture" as the premise
for corporate criminal liability. The Act starts by applying the general
principles of criminal responsibility under the Model Criminal Code to
corporations. For mens rea offences (those requiring intention, knowledge
or recklessness as a fault element), the Act attributes fault to the body
corporate where it expressly, tacitly or impliedly authorizes or permits the
commission of such an offence.
Such authorization or permission can be established by any of the following
four means,
1. Proving that the body corporate's board of directors intentionally,
knowingly or recklessly carried out the relevant conduct, or expressly,
tacitly or impliedly authorized or permitted the commission of the
2. Proving that a high managerial agent of the body corporate intentionally,
knowingly or recklessly engaged in the relevant conduct, or expressly,
tacitly or impliedly authorized or permitted the commission of the

3. Proving that a corporate culture existed within the body corporate that
directed, encouraged, tolerated or led to non-compliance with the
relevant provision;
4. Proving that the body corporate failed to create and maintain a
corporate culture that required compliance with the relevant provision.

(c) Other Approaches

Reactive Corporate Fault
The "corporate mens rea" argument, however, is undermined if corporate
delinquency is viewed as largely negligence behaviour, or perhaps "gross
negligence", in the criminal law context. Rather than a requirement of proof
of a unique, corporate mens rea, some have suggested that a "reactive
corporate fault" theory be applied. It would only assess "fault" after the
company was given a chance to fix the problem.
This approach marks a clear deviation from the traditional approach by
raising the question that whether or not the mens rea will ever be
established at any time in the process. This model also raises the
significance of compliance as an objective of the criminal law.
Specific Corporate Offences
A specialized offence does provide clarity and certainty in the application
of the law to corporations and targets the most serious kinds of behavior.
However, it is not clear what the value would be if the victims of corporate
malfeasance are injured and no death results, or for other types of
malfeasance such as fraud or environmental crimes. In constructing a
narrowly tailored offence for specific contexts, regards must be given to
existing regulatory provisions that may address the same specific

2. Punishment, Remedial Orders and Corporate

Outside the corporation there may be specific victims who deserve
redress; there may also be employees within the company itself who suffer
from the offences attributed to the corporate body. Yet, beyond individual
victims, the broader public interest may also be engaged in many
important ways, e.g. the state of the environment, the safety of consumer
products, etc.
On the general subject of fines and their effect, a few pundits have alluded
to what they call the "discouragement trap", whereby a fine may serve to
deflect future lawbreaking be that as it may, in the meantime, keep the
organization from making essential preventive and healing move. An
equalization ought to be struck. The Guidelines express that "the court
might decrease the fine to the degree that imposition of such a fine
would impair its ability to make restitution to victims".
A good compliance program serves to distinguish and give early warnings
before wrongdoing forms into criminal violation - a speculation that could
make the expense of a compliance economical as a preventive step. The
internal reporting structure of the organization is an imperative component
in deciding the attribution of liability to the corporate body. Those who can
demonstrate that inward reporting systems have been viable in
recognizing issues early may restrain their introduction to risk.
Suggestions:Probation, for up to five years, may appear as government observing and
oversight of the organization's exercises. Community service may be a
condition of probation, which for the most part interprets into the
organization paying workers or others to play out the administration
requested by the court. Different conditions could incorporate making
occasional entries to the court or a post-trial supervisor. As can be seen,
such probation may get to be meddlesome for the progressing working of

the organization. The court may arrange probation notwithstanding

different sanctions.

3. Liability of Directors, Managers and Employees

Numerous non-criminal statutes expressly impose liability on management
for their passive consent or active participation in the commission of
offences. A large portion of these address regulatory and strict liability
offences, however some cover mens rea offences.
Directors may also be held criminally liable as parties to an offence,
including for an offence observed to be committed by corporate body or
other employees. Under these procurements, a corporate executive or any
board member could be held liable if he or she supported or abetted a
person to commit an offence, guided a person to be a party to any offence,
or acts as an accessory ahead of the offence.

4. What is a Corporation?
While considering the criminal risk of the enterprise itself, the meaning of
"organization" is of significant significance, essentially on the grounds that
it decides the circumstances in which, and the degree to which, the law will
apply. The company, however, is a creature of statute, general or
exceptional, and none of the commonplace partnership statutes and
business enterprises statutes, or the government reciprocals, contain any
discourse of criminal risk or obligation in the custom-based law for the
most part by reason of the doctrine of identification.
The character convention combines the top managerial staff, the
overseeing chief, the administrator, the supervisor or any other individual
assigned by the top managerial staff to whom is designated the
administering official power of the organization, and the behaviour of any
of the consolidated substances is along these lines ascribed to the

Role of Businesses/Industry Associations:

Courts have been willing to translate the standard for corporate criminal liability in
much more broader sense because of which there are for all intents and purposes
no restrictions on the sorts of illegal employee conduct that can be credited to a firm.
Moreover, companies can be discovered criminally obligated for the unlawful
behaviour of a wide range of operators. These two components increase the
probability that an organization could go under government examination if there
should be an occurrence of unlawful exercises of the workers.
Companies can set up processes to minimise its corporate criminal liability the loss
attributed to criminal activities. Proactive processes to detect and weed out
individuals or employees breaking the law can help businesses reduce the chances
of conviction of the company.
Apart from that, after becoming aware of illegal activities that might put the firm in a
jeopardy the company should conduct proper internal investigation so that a firm can
either report the criminal activities or take steps to correct the mistakes made in the
past. We will discuss the steps corporations can take to prevent criminal activities
and in case there is any information on some wrongdoings, how to conduct an
A. Minimizing Corporate Criminal Liability
Organizations can participate in planned activities to diminish criminal risk. In like
manner, people don't need to sit by inactively on the off chance that they realize that
criminal movement is in progress. We will discuss the procedures and laws that can
battle crime in the business world.
Organizations should setup yearly annual training sessions on the topics like ethics,
to guarantee great working environment morals. They should create extensive codes
of morals, which serve as the hierarchical commitment towards following ethical
behaviour conduct.

This can go far towards building up a corporate society that qualities ethical conduct
and denounces exploitative activities, by setting example of leadership that serves
as role model for all employees.
A few organizations, for example, Boeing, have established an ethics hotline, which
permits empoyees to namelessly report unscrupulous conduct with the goal that it
can be examined. Also, government rules set up for companies express that
organisations that keep up thorough compliance to recognize and report
infringement of the law, and intentionally uncover those illegal activities when they
happen, are qualified for significantly diminished sentences and fines
At times, obviously, things still turn out badly. A man who observes illegal activities in
the work environment may not want to participate and would stay away from such
activities. Such a man can even turn into a whistle-blower. Whistle-blower are
individuals who report the illegal activities of their bosses or of their association to
Normally, the whistle-blower have watched some wrongdoing that may hurt others,
and they choose to "blow the whistle" to save the potential casualties or to just stop
the wrongdoing.Whistle-blowers face numerous difficulties in the work environment,
of which the biggest is the disgrace connected with blowing the whistle.
Paradoxically, despite the fact that the whistle-blower might work towards stopping
damage to innocent individuals, other employees may see the whistle-blower as
somebody who has broken the trust of the firm. As a result of this, whistle blowers
are regularly set in an ethical dilemma, considering the fact that while they may
watch wrongdoing, they may not feel comfortable in identifying the perpetrators or
reporting the illegal act.
The whistle blowers are usually deterred by the loss of jobs and the difficulties they
might face in finding a new one. Prospects of losing one's status, companions, or
notoriety can keep numerous individuals from blowing the whistle, despite the fact
that they may wish to stop such behaviour.

In spite of the fact that there are laws to secure the whistle blowers, in reality there
are numerous difficulties whistle blowers face which is huge obstacle for people to
come up. In the past, whistle blowers have found that the laws are limited not helpful
for the difficulties that face them after whistle is blown.
The organization ought to guarantee that the whistle blowers get the required safety
and their interests are protected. This would encourage others to take the right steps
in the future.

B. Internal Corporate Investigations:

In case a company suspects activities that are illegal or has been put under
investigation it should conduct an audit to figure out the realities it might face.
Leading a detailed investigation of their own is a necessary to understand the
process in case allegations are made against the company and at last situating the
organization to maintain a strategic distance from or minimize the results of
allegations for the illegal acts of an employee.

The motivation behind an internal investigation can be twofold:

1. Find actualities and survey the law which is applicable in case of government
2. Establish a framework and direction to provide legitimate guidance to the
organization which will provide a proactive method for managing the situation
There are, obviously, different preferences and a few inconveniences to directing
investigation, which ought to be considered but proper steps should be taken to
figure out the main cause of the issue.

The following guidelines can help an organization to setup an investigation:

1. Define the scope of the investigation and preparing a methodology to
implement the same
2. Preparing a strategy to share the results of the investigation
3. Selecting an investigative body which can capably conduct the procedures.

The organization must settle on who is to lead the investigation; an in-house

or outside body. They should choose a body fits the prerequisites, yet
dependably remember the significance of objectivity and believability to an
effective inward corporate examination.
4. The report of the internal investigation should be properly documented
including the interviews of employees, fact documents, detailed study of the
issue at hand

An in internal examination allows the firm to take proactive measures and decide
its stance in case of any controversy. The amount of information that the
company discloses can then be dependent upon the situation at hand.
An ethical correct management leads by example and sets the tone for the code
of conduct for the rest of the employees. Also, taking proper measures can help a
company hedge themselves against unexpected surprises and take preventive

Judicial Approaches
Standard Chartered Bank vs Directorate Of Enforcement
Citation AIR 2005 SC 2622

Cases Overruled /Reversed:

The Assistant Commissioner, Assessment-II, Bangalore and Ors. vs. Velliappa
Textiles Ltd. and Ors.
The judgment was delivered by a five judge constitution bench by closely split verdict
of 3:2.
The litigant in the present case recorded a writ request of Civil Appeal No. 1748 of
1999 under the watchful eye of the High Court of Bombay testing different
notification issued to them under Section 50 read with Section 51 of the Foreign
Exchange Regulation Act, 1973. The appealing party organization in the High Court
fought that it was not at risk to be arraigned for the offense under Section 56 of the
The appellant filed an appeal against the judgment of the Division Bench of the
Bombay High Court, dated 7th November, 1998, the appealing party fights that no
criminal procedures can be started against the litigant organization for the offense
under Section 56(1) of the FERA Act as the base discipline recommended under
Section 56(1)(i) is detainment for a term which should not be under six months and
with fine.
Issues of Consideration:
The main issues of consideration were as follows

1 Whether a corporate body or a company could be prosecuted for the offences for
which the sentence of imprisonment is a necessary punishment?
2 Where an accused is found to be guilty and the punishment which is to be
imposed is imprisonment and fine, whether or not the court can exercise the
discretion to execute the sentence of fine alone?

Contention on the behalf of Appellant:

The principle contention progressed in the interest of the litigant is that the statutes
making criminal obligation must be entirely translated. At the point when a statute
endorses discipline of detainment and fine, it is not allowable for the court to
recompense discipline of fine alone. An organization being a juristic individual can't
be honored the discipline of detainment. The appellants battle that when a statutory
procurement can't be followed according to its strict dialect, the outcome ought to be
that there can be no arraignment. There is no sense in arraigning some individual
when the discipline can't be recompensed according to the order of the statute.
The appellants likewise contented that the Parliament ordered laws knowing well that
the organization can't be subjected to custodial sentence and in this way the
administrative aim is not to prosecute the organizations or corporate bodies and
when the sentence endorsed can't be forced, the very indictment itself is useless and
negligible and therefore the dominant part choice in Velliappa Textiles has effectively
laid down the law.
Dispute on Behalf of Respondents:
The respondents relied heavily on looking into the issue of Delhi High Court in Delhi
Municipality v J.B. Bottling Company where the court held that the primary
assignment of the court and the judges is to expel mischief. This case was examined
by the counsel of the respondents to ascertain the point that strict development can
in some cases defeat the intent of legislation.

They likewise contended that the court keeping in its mind its interpretative and legal
capacity ought to rethink the decision given in Assistant Commissioner, AssessmentII, Bangalore and Ors v. Velliappa Textiles Ltd.
The majority view in this case was the one given by K.G. Balakrishnan, D.M.
Dharmadhikari and Arun Kumar
The judges said that the reality of the matter is that every penal statute are to be
entirely construed as in the Court must see that the thing charged as an offense is
inside the plain significance of the words utilized and should not strain the words on
any idea that there has been a slip that the thing is so clearly within mischief that it
probably has been proposed to be incorporated and would have been included if
considered. They continued saying that it would be sheer violence to practical will
that the governing body expected to rebuff the corporate bodies for minor and
senseless offenses and stretched out resistance of indictment to major and grave
financial wrongdoings.
After this case the present position is that that enterprises can no more claim
invulnerability from criminal indictment in light of the fact that they are unequipped for
having the fundamental mens rea for the commission of criminal offenses. The idea
that a company can't be held at risk for the commission of a wrongdoing had been

The Iridium / Motorola case:

The subject of rebuffing a company came up recently in the Supreme Court in a
criminal case filed by Iridium India Telecom Ltd against Motorola Incorporated.
Cheating and criminal conspiracy were the allegations made upon them. The
magistrate / judge in Pune began the proceedings against Motorola. It moved the
Bombay High Court against the indictment. The high court suppressed the
procedures giving a few reasons, one of them being that an enterprise was
unequipped for conferring the offense of cheating as it has no mind. As indicated by
the high court, despite the fact that an organization can be a casualty of deception, it
can't be the culprit of misleading. Only a characteristic individual is fit for having a
liable personality to confer an offense.
Nonetheless, the Supreme Court put aside the high court's finding and stated that a
corporate body can be indicted for cheating and conspiracy under the Indian Penal
Code. The offences for which organizations can be criminally arraigned are not
constrained just to the particular procurements made in the Essential Commodities
Act, the Income Tax Act and the Prevention of Food Adulteration Act. A few different
statutes likewise make an organization liable for indictment, conviction and sentence.
The court permitted the prosecution to continue, expressing that organizations and
corporate houses can no more claim immunity from criminal indictment on the
ground that they are unequipped for having the motivation for the commission of
criminal offences. The lawful position in England and the United States has now
solidified to leave no way of uncertainty that an organization would be subject for
violations of intent. This is the position everywhere throughout the world where rule
of law is supreme.
In its governing, the Supreme Court repeated the legitimate position on two counts:
(i) the extent of locale of the High Court in subduing criminal procedures under
Section 482 of the Criminal Procedure Code; and (ii) the way that organizations can
be indicted for offenses including motivation.

The Supreme Court, be that as it may, did not have the chance to govern on certain
other essential parts of the case, which identify with the risk of an organization for

errors or non-revelations in a non-disclosures in an information memorandum issued

in connection with an offering of securities. That would be the topic of the indictment
that would proceed with now that the Supreme Court has flashed the green sign.
The criminal complaint relates to a charge of cheating under section 420 read with
section 120B i.e. conspiracy under the Indian Penal Code (I.P.C.). The charge is that
Motorala Inc., the respondent for the situation and the primary contractor for the
Iridium project / system, glided a private position update (PPM) to get investments/
funds to finance the Iridium project. The task was "represented to be the world's first
business framework intended to give worldwide computerized hand held phone
information and it was proposed to be a remote correspondence framework through
a star grouping of 66 satellites in low orbit to give advanced support of cellular
telephones and other endorser hardware locally." Several financial corporations put
resources into the venture in view of the data contained in the PPM. However, it is
affirmed that the representations were false and that the undertaking swung out to
the monetarily unviable bringing about huge misfortune to the financial specialists.
The facts of this case provide the foundation for potentially interesting legal issues.
Firstly, it must be noticed that the dissension has been brought under the I.P.C.
(being the general criminal law) and not under a particular corporate or securities
legislation. That is justifiable in light of the fact that the PPM did not relate to an
"open" offering of shares, and thus the pertinent plan procurements (and
corresponding risk issues in that) are not pulled in. The exchange has all the
earmarks of being in the way of a private situation and henceforth represented
legally instead of as an issue of open securities laws. Regardless of whether the
utilization of general offenses of cheating and conspiracy to offerings of corporate
securities would ensure to the benefit of the complainant or the respondent stays to
be seen.
Secondly, the guarantor has set dependence on the broad way of risk factors and
disclaimers in the PPM as a safeguard against criminal liability. In spite of the fact
that the High Court was induced by the presence of such preventative dialect in the
PPM, the Supreme Court did not put much significance to risk elements, in any event
at the present phase of choosing whether to permit the indictment to proceed. The
legitimacy of, and weightage given to, disclaimers and danger components in a PPM
is certain to be tried.

Thirdly, it is important to consider the question whether advanced speculators, for

example, financial corporations would be held to a higher standard while considering
whether there had been "misdirection" practiced by the issuer company.
Lastly, the court would need to draw a clear line on the certainties with reference to
whether there was duplicity and actuation "falsely and deceptively" with respect to
the issuer organization, or whether it was only an instance of terrible business
judgment. Despite the fact that the qualification might be genuinely stark as an issue
of law, it may not generally be very as clear on a given arrangement of realities and

Corporate criminal risk is consistently picking up significance in the circles of social
concern, for example, customer insurance, environment law and word related
wellbeing and security standards. Till the later past, corporate administration wasn't
given much thought, yet with the rise of this specific regulation that spotlights on
hierarchical blameworthiness and responsibility of bosses, this attitude is changing
rather quickly. Issues with respect to the operation of partnerships are currently
being firmly connected to their administration to keep away from conceivably
activating criminal risk.
After some time, Courts have decided that enterprises also can have mens rea,
which is a basic part for the commission of a wrongdoing. This decision was
conveyed in India on account of Iridium India Telecom Ltd. v. Motorola Incorporated
&Ors. by the Supreme Court, along these lines building up that it was feasible for a
company to be gathering to a connivance. Indian social enactments like the
Essential Food Commodities Act 1955, the Prevention of Food Adulteration Act 1954,
the Negotiable Instruments Act 1881, the Environment (Protection) Act 1986 state
that at the season of the commission of the offense, the organization, alongside each
individual in its vocation, might be considered to be at risk for that offense and if
purported blameworthy, they could be rebuffed with a fine, as well as with
In globalization and industrialization era, corporate can work for the welfare of the
society and as the extent of the firms are touching almost all the population of the
country, which is good as well as bad, because if corporate is not working ethically
then it is not harming its employees but all the people connected to it directly or
indirectly which make the responsibility of the court to stop it with proper and
effective measures under corporate criminal liability.

There is a need for various forms of punishment like economic sanctions, social
sanctions. Court should make sure while sentencing any firm under corporate
criminal liability that the main objective is met and other corporations get the
message about the seriousness of the offence and courts stand on the same.
Court have the power to appoint a person to make a report on the firm to get the real
picture on the case. Appointment can be made on the basis of the person knowledge
about the sector, firm, depth knowledge of the system.
As most of the firms are working at international level and working in various
countries at the same time which needs the law makers to focus on the aspect of the
corporate criminal liability with different outlook. Corporate criminal liability is not a
national issue but it goes beyond the borders and which invites all the nations to
work closely to look into the matter through various channels. Special rules can be
made to impose it and punish the offenders. International level of surveillance will
surely reduce the corporate crime by blocking all the loop holes in the law.
Therefore, it has now gotten to be conceivable to hold a company criminally at risk
for acts perpetrated through their specialists and workers, and attributemens rea to
them. These days of financial headway where organizations have a say in verging
on each part of life, such a guideline has expected foremost significance in corporate

Iridium/Motorola Case criminalliability.html
Other Links: