Page |1

INTRODUCTION

A Company can only act through humans, and a human being who commits an offence on
account of, or for the company will be responsible for that offence himself, the importance of
the incorporation make the company liable for certain circumstances as well as the human
beings- Glanville Williams

Corporate crimes are those offenses committed by the corporate officials for their corporation
and the offenses of the corporation itself.1

The advancement in science and technology has made the world borderless i.e. a global
village, the transactions and dealings of the corporate have become global with the help of
technology, thereby paving a way for new sophisticated crimes. The evolution of the concept
of corporate criminal liability in India can be classified as a long processing effort from the
judiciary to fix responsibilities on non-fictitious persons.

As we know that a corporation is a separate legal entity which means that the law treats a
corporation distinct and separate from the ones who constitute such corporation. And this is
also a fact that these corporations have turned out to be more dangerous than the individual
criminals. So the question arises as to how will such corporations be punished? In case of a
crime being committed by a normal human being in his individual capacity, the Procedural
law prescribes the methods of punishment which may be inflicted on such a person and one
such mode is imprisonment. But what has to be done when such crime is committed by a
non- fictitious person. The Common Law has various theories which determine the liability
of the corporations and the best example would be the doctrine of vicarious liability under the
tort law which asserts that the corporations would be held liable for the torts committed by its
employees. India, being a country which adopted the common law remedies, was able to
answer the questions concerning the tort liability of the corporations. But, the concern as to
whether the corporations can be charged for the crimes committed, created uncertainty in the
minds of the adjudicators. The reason can probably be, unlike the tort law, the nature of
Indian criminal law which takes its source from a statute i.e. Indian Penal Code.

1
Clinard and Quinney, 1986.
 Page |2

It is pertinent to note that Corporate have been engaged in practicing a corporate veil in order
to avoid any liability and the detailed interpretation can prominently evidence that due to the
principal of the corporate veil ascertainment of the criminal liability for a corporate has been
quite a debatable and a tricky one as there was a lack on interpretation on this perspective by
the judicial authorities of India. Treading through these qualms recently, the Indian Judicial
authorities have taken a firm stand that the Corporate are liable to be put under the ambit of
criminal liability based on the onus of the Mens rea.

The case of New York Central & Hudson River Railroad v. united States provides the
framework for the idea that a corporation can be held liable for the deeds of agents acting in
the capacity of their jobs.2

Criminal liability means legally accountable or responsible to the society for any criminal act
done , enforceable by punishment. Similarly, corporate criminal liability is the doctrine under
which a corporate is liable for the act done by it, that is, its agents. It defines the extent to
which it can be made liable for its acts or omissions. The expansion of corporate sector
through globalisation, information and technological development has led to the development
of doctrine of Corporate Criminal Liability. Once there was a time when there was no
criminal liabilities over companies, but today the world has come to a situation where
corporates are held liable for their crimes.

EVOLUTION OF THE CONCEPT OF CORPORATE CRIMINAL

LIABLILITY

Corporations have been in existence since the time of the Romans. During this time,
corporations existed in order to set up and control such legal entities as universities, churches
and associations. The East India Company is probably the first entity with recognized
corporate powers.

The general belief in the early sixteenth and seventeenth 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 people that a corporation has no soul, hence it cannot have "actual wicked

2
Richard D. Hartley, Corporate Crime: A Reference Handbook , Pg.- 66.
 Page |3

intent”. It cannot, therefore, be guilty of crimes requiring "malus animus.3"Treason, felony,

perjury, and violent crimes against the person could be committed only by natural persons.4
Courts in England drew some distinctions, however, between crimes requiring specific intent
and those for which general intent would suffice. In one sense the acts of the corporation are
the acts of its officers, directors, and employees. In Cowley v. People,5 it was held that
corporate employees could be held personally liable or they were accountable for crimes
committed on behalf of a corporation was a point on which there was ‘no doubt’. During the
early twentieth 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 imprisonment cannot be conferred on companies and, hence, there cannot be criminal
liability on companies. 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.

THEORIES OF CORPORATE CRIMINAL LIABILITY

THEORY OF VICARIOUS LIABLITY

This is the most important theory of the corporate criminal liability. It is the first proposed
theory for making the corporates liable for their criminal acts. This is the liability where, a
person is made liable for the acts of the other. In the case of corporation, it acts through its
directors, employers, workers and other authorities, therefore, it is made liable for their acts It
follows the concept of master servant relationship, where master is liable for the acts of the
servant (Corporate criminal liability). Similarly, corporation here is master which is made
liable for the acts of the person working for and in it. The doctrine of vicarious liability is

3
State v. Morris & Essex R.R., 23 NJ.L. 360, 364 (1852)
4
Commonwealth v. Proprietors of New Bedford Bridge, 68 Mass. 339, 345 (1854)
5
83 NY. 464, 469 (1881)
 Page |4

based on the two legal latin maxims the first maxim mean that he who acts through another
shall be deemed to have acted on his own, and second, respondeat superior which means let
the master answer. Vicarious liability is the concept which is generally applicable in the cases
of civil liability but the Courts have said that because a corporation is an artificial person and
a separate legal entity thus it is necessary to bring the applicability of vicarious liability in the
case of corporate criminal liability.

in the case of Ranger v. The Great Western Railway Company6 it was held that the
company is held vicariously liable for the acts committed by its employees if it is done in the
course of its employment. In the case of Gunston and Tee Ltd v. Ward7 this doctrine is
applicable as same as Respondent Superior was applicable as in civil law, but it does not find
in criminal law as in criminal law it states that every person is liable for the acts committed
by them and not for acts committed by others.

As earlier the concept of vicarious liability has been evolved in which the company held to
be liable but this liability was surrounded with many exceptions –via, Act of God,
Negligence, plaintiff consent, etc. So with the advantage of the ever exceptions the
wrongdoers or criminals being releases. Therefore, for restraining such act our judiciary
focused on the principleof strict liability principle. But this principle was an accompanied
with the concept of “Due diligence” according to this principle, everyone should be held libel
for that act which creates nuisance or crimes in or against the people or society.

IDENTIFICATION THEORY

According to this theory, first the centre of criminal mind in the company is needed to be
identified. In case any criminal mind of, any of the authority is found to be the directing the
criminal acts of the firm, then it is considered to be the criminal act of the company and the it
is directly made liable. Under this theory, the corporation is liable for its crimes or offence
directly, as stated.

In DPP v. Kent & Sussex Contractors Ltd,8 Machaghten J. said that if a responsible agent
of a Company puts forward on its behalf a document which he knows to be false and by
which he intends to deceive, his intention and belief must be imputed to the company.

6
W 1838 R11
7
[1902] 2 KB 1
8
[1944] KB 146.
 Page |5

Therefore, under identification theory the state of mind and acts of the individual doing the
act are attributed to the company.

AGGREGATIVE THEORY

Under this theory, the state of mind and acts of the employees are aggregated to identify
whether in total these acts together forms any liability of the company or not or to identify
whose act amounts to larger responsibility. According to Celia Wells, aggregation of
employees‟ knowledge means that corporate culpability does not have to be contingent on
one individual employee’s satisfying the relevant culpability criterion. For the establishment
of Corporate Criminal Liability, certain requirements are to be fulfilled:

A crime to be called as Corporate Crime, it must be established by the employee during the
course of employment, it means, the employee must be doing any activity that is authorised
by the company. But all agents of the corporation are not considered worthy of representing a
corporation for the purpose of establishing liability. Both Common law and Model Penal
Code provisions, depict different views on this issue. According to common law approach,
irrespective of the status of employees, the corporation is liable for all of theirs activities. In
the case of Dollar Steamship vs. United States,9 the criminal liability on the company for
dumping waste in the water was upheld. Whereas, Model Penal Code provisions states that
the illegal act must be authorised, requested, commanded, performed or recklessly tolerated
by the directors or higher authorities acting on behalf of the corporation acting within the the
area of the employment.

Hence, these provisions helps the corporations from escaping the liability, as long as the
higher officials exhibit due diligence in the monitoring and stamping out the wrongdoing

CORPORATIONS AS A PERSON

Section 11 of the Indian Penal Code has not defined the term ‘person’ in a narrow and
technical sense but has given a wider meaning to the term to include both a natural person
and a artificial person.10 According to it, the word ‘person’ includes any Company or
11
Association or body of persons, whether incorporated or not. Hence, by virtue of this
Section, the corporations are liable to be prosecuted under Indian Penal Code. Corporations

9
28 USCA 167 41
10
K.D. Gaur, Textbook On Indian Penal Code, Universal Law Publication Co., Pg.- 12.
11
Section 11 of the Indian Penal Code, 1860.
 Page |6

are indictable for offences of quasi- criminal nature, such as non- repair of highways, bridges,
nuisance, trespass, forgery, etc., for which the fine is the sole punishment or an alternative
punishment to imprisonment. However, it is an undisputed fact that the corporations cannot
be prosecuted for crimes done by human beings like rape, murder, offences against state,
public tranquility and the like where the only punishment as contemplated in IPC, is
imprisonment.12 Then, the grey area was to determine the position of the cases when the
corporations commit offences where the IPC demands a mandatory punishment of both
imprisonment and fine.

In the case of Assistant Commissioner v. Velliappa Textiles Ltd.13 the Supreme Court by a
majority of 2:1 held that since corporations could not be imprisoned they could not be
prosecuted for an offence where IPC mandates an imprisonment. The dissenting judge
observed that just because a corporation cannot be imprisoned can never be a reason for an
observation that the corporation can not at all be prosecuted in that case. The judge further
added that the court had two functions to perform. The first one is to determine whether the
accused is guilty of having committed the crime and this conclusion has to be made on the
basis of the evidence produced before the court. And the second function is to award a
sentence for the offence for which the accused is found guilty.

He explained:

“Courts would be shirking their responsibility of imparting justice by holding that

prosecution of a company is unsustainable merely on the ground that being a juristic person it
cannot be sent to jail to undergo the sentence. Companies are growing in size and have huge
resources and finances at their command. In the course of their business activity they may
sometimes commit breach of the law of the land or endanger others lives. More than 4,000
people lost life and thousand others suffered permanent impairment in Bhopal on account of
gross criminal act of a multinational corporation. It will be wholly wrong to allow a company
to go scot-free without even being prosecuted in the event of commission of a crime only on
the ground that it cannot be made to suffer part of the mandatory punishment.”

Analyzing these functions, the Judge observed that the corporations could be punished with a
sentence of fine if the Court finds such corporation guilty.

12
State of Maharashtra v. Syndicate Transport (P) Ltd., AIR 1964 Bom 195.
13
(2003) 11 SCC 405.
 Page |7

The same issue was heard in the case of Standard Chartered Bank v. Directorate of
Enforcement14 where the Supreme Court overruled the Velliappa Textiles case15 and held
that there is no blanket immunity for any corporation from the prosecution of offences just
because the prosecution demands a mandatory imprisonment. And the court decided that in
cases of offences which mandate both imprisonment and fine, the corporations should be
punished with a fine.

CRIMINAL LIABILITY OF A CORPORATION AND INDIA

All the Penal liabilities are generally regulated under the IPC, 1860 in India. It is this
statute which needs to be pondered upon in case of criminal liability of corporation.
16
Corporations play a significant role not only in creating and managing business but also in
common lives of most people. That is why most modern criminal law systems foresee the
possibility to hold the corporation criminally 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 surrounding areas. Though working of such factories and plants is
regulated by a 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.17

THE TREND BEFORE THE STANDARD CHARTERED BANK CASE

Indian courts were of the opinion that corporations could not be criminally prosecuted
for offenses requiring mens rea as they could not possess the requisite mens rea. Mens rea is
an essential element for majority, if not all, of offenses that would entail imprisonment or
other penalty for its violation. Adopting on overly generalized rationale, pre Standard

14
AIR 2005 SC 2622.
15
(2003) 11 SCC 405.
16
Section 11 of Indian Penal Code, 1860
17
Charan Lal Sahu v. Union of India, AIR 1990 SC 1480
 Page |8

Chartered decision, Indian courts held that corporations could not be prosecuted for offenses
requiring a mandatory punishment of imprisonment, as they could not be imprisoned.

In A. K. Khosla v. S. Venkatesan,18 two corporations were charged with having committed

fraud under the IPC. The Magistrate issued process against the corporations. The Court in this
case pointed out that there were two pre-requisites for the prosecution of corporate bodies,
the first being that of mens rea and the other being the ability to impose the mandatory
sentence of imprisonment. A corporate body could not be said to have the necessary mens rea
, nor can it be sentenced to imprisonment as it has no physical body.

In Kalpanath Rai v State (Through CBI),19 a company accused and arraigned under the
Terrorists and Disruptive Activities Prevention (TADA) Act, was alleged to have harbored
terrorists. The trial court convicted the company of the offense punishable under section 3(4)
of the TADA Act. On appeal, the Indian Supreme Court referred to the definition of the word
"harbor" as provided in Section 52A of the IPC and pointed out that there was nothing in
TADA, either express or implied, to indicate that the mens rea element had been excluded
from the offense under Section 3(4) of TADA Act. The Indian Supreme Court observed that
there was a plethora of decisions by Indian courts which had settled the legal proposition that
unless the statute clearly excludes mens rea in the commission of an offense, the same must
be treated as an essential ingredient of the act in order for the act to be punishable with
imprisonment and/or fine.

There is uncertainty over whether a company can be convicted for an offence where the
punishment prescribed by the statute is imprisonment and fine. This controversy was first
addressed in MV Javali v. Mahajan Borewell & Co and Ors 20 where the Supreme Court
held that mandatory sentence of imprisonment and fine is to be imposed where it can be
imposed, but where it cannot be imposed ,namely on a company then fine will be the only
punishment.

Even, if corporation cannot be punished for certain acts, the authority acting on behalf of it is
punished. This is clearly elaborated in the important case of, U. P. Pollution Control Board
vs. Modi Distillery,21 where an industry discharged its wastes in the nearby drain. This act is
in breach of the Water (Prevention and Control of Pollution) Act 1974. The court held that,

18
( 1992) Cr.L.J. 1448
19
(1997) 8 SCC 732
20
AIR 1997 SC 3964
21
(1944) 1 All E.R. 691
 Page |9

the authority responsible for this act of the firm will be prosecuted and punished, even if the
company cannot be prosecuted. The IPC has other more provisions to charge corporations for
joint liability, criminal conspiracy, aiding and abetting illegal activities etc. This doctrine has
gained more importance in the modern world. But this case was overruled by the case of
Aneeta vs. M/s Godfather Travels &Tours.,22 wherein the Supreme Court stated that,
incase company is viewed as criminal, the prosecution against the employees or employer of
the company is not maintained. Vicarious liability exists only when there is any prosecution
against the firm.For the applicability of the doctrine of Corporate Criminal Liability, the
criminal act of the employer or employee must be committed with the intention of benefitting
the corporation in some manner and be committed with the intention of increasing their own
personal gain, this conduct ultimately ends up benefitting the corporation.

In Zee Tele films Ltd. v. Sahara India Co. Corp. Ltd.,23 the court dismissed a complaint
filed against Zee under Section 500 of the IPC. The complaint alleged that Zee had telecasted
a program based on falsehood and thereby defamed Sahara India. The court held that mens
rea was one of the essential elements of the offense of criminal defamation and that a
company could not have the requisite mens rea. In another case, Motorola Inc. v. Union of
India,24 the Bombay High Court quashed a proceeding against a corporation for alleged
cheating, as it came to the conclusion that it was impossible for a corporation to form the
requisite mens rea, which was the essential ingredient of the offense. Thus, the corporation
could not be prosecuted under section 420 of the IPC.

It is clear from the above stated cases that Indian court never felt about inclusion of company
on certain criminal liability. But what if a corporation is accused of violating a statute that
mandates imprisonment for its violation?

In The Assistant Commissioner, Assessment-II, Bangalore & Ors. v. Velliappa

Textiles25 ,a private company was prosecuted for violation of certain sections under the
Income Tax Act ("ITA"). Sections 276-C and 277 of the ITA provided for a sentence of
imprisonment and a fine in the event of a violation. The Indian Supreme Court held that the
respondent company could not be prosecuted for offenses under certain sections of the
Income Tax Act because each of these sections required the imposition of a mandatory term

22
(2012) 5 SCC 661
23
(2001) 3 Recent Criminal Reports 292
24
(2004) Cri.L.J. 1576
25
(2003) 11 SCC 405
 P a g e | 10

of imprisonment coupled with a fine. The sections in question left the court unable to impose
only a fine. Indulging in a strict and literal analysis, the Court held that a corporation did not
have a physical body to imprison and therefore could not be sentenced to imprisonment. The
Court also noted that when interpreting a penal statute, if more than one view is possible, the
court is obliged to lean in favour of the construction that exempts an accused from penalty
rather than the one that imposes the penalty.

Standard Chartered Bank and Ors. v. Directorate of Enforcement 26

This is the landmark case in which the apex court overruled the all other laid down principles.
In this case, Standard Chartered Bank was being prosecuted for violation of certain
provisions of the Foreign Exchange Regulation Act, 1973. Ultimately, the Supreme Court
held that the corporation could be prosecuted and punished, with fines, regardless of the
mandatory punishment required under the respective statute.

The Court did not go by the literal and strict interpretation rule required to be done for the
penal statutes and went on to provide complete justice thereby imposing fine on the
corporate. The Court looked into the interpretation rule that that all penal statutes are to be
strictly construed in the sense that the Court must see that the thing charged as an offence is
within the plain meaning of the words used and must not strain the words on any notion that
there has been a slip that the thing is so clearly within the mischief that it must have been
intended to be included and would have included if thought of.

The Court initially pointed out that, under the view expressed in Velliappa Textiles, the
Bank could be prosecuted and punished for an offense involving rupees one lakh or less as
the court had an option to impose a sentence of imprisonment or fine. However, in the case of
an offense involving an amount exceeding rupees one lakh, where the court is not given
discretion to impose imprisonment or fine that is, imprisonment is mandatory, the Bank
could not be prosecuted.

THE TREND AFTER THE STANDARD CHARTERED BANK CASE

There is no immunity to companies from prosecution merely because the prosecution is in

respect of offences for which punishment prescribed is mandatory imprisonment. In Iridium

26
(2005) 4 SCC 530
 P a g e | 11

India Telecom Ltd. v. Motorola Incorporated and Ors,27 the apex court held that a
corporation is virtually in the same position as any individual and may be convicted under
common law as well as statutory offences including those requiring mens rea. The criminal
liability of a corporation would arise when an offence is committed in relation to the business
of the corporation by a person or body of persons in control of its affairs and relied on the
ratio in Standard Chartered Bank Case. The Supreme Court held:

“The criminal liability of a corporation would arise when an offence is committed in relation
to the business of the corporation by a person or body of persons in control of its affairs. In
such circumstances, it would be necessary to ascertain that the degree and control of the
person or body of persons is so intense that a corporation may be said to think and act
through the person or the body of persons.”

The apex court held that corporations can no longer claim immunity from criminal
prosecution on the grounds that they are incapable of possessing the necessary mens rea for
the commission of criminal offences. The notion that a corporation cannot be held liable for
the commission of a crime had been rejected by adopting the doctrine of attribution and
imputation

CORPORATE CRIMINAL LIABLITY AND THE INTERNATIONAL

SCENARIO

Corporate criminal liability is not a universal feature of modern legal systems. Some
countries including Brazil, Bulgaria Luxembourg do not recognize any form of corporate
criminal liability. Other countries including Hungary, Germany, Greece, Mexico and
Sweden, while not providing for criminal liability, nevertheless have in place regimes
whereby administrative penalties may be imposed on corporations for the criminal acts of the
employees.

27
AIR 2011 SC 20
 P a g e | 12

CORPORATE CRIMINAL LIABILITY IN

 UNITED STATES

Earlier in U.S., as corporations were fictitious legal entity incapable of forming any criminal
intention, were not made criminally liable for any acts of their agents. The judgment of the
case of New York Central and Hudson River Railroad v. U.S.,28 rejected the above idea.
In this case, the employee of this railroad company paid rebates to the shippers, which is in
violation of federal law. The court held that, the company cannot be convicted for the act of
its employee, as the corporation did not have any criminal intention. But later, the Supreme
court held the corporation criminally liable, because the act of the employee, however,
benefitted the corporation. In this case, the doctrine of respondent superior was imported
from the tort law to the criminal law. Most of the federal statutes are applicable to impose the
corporation under the criminal liability. But this does not mean that federal statutes overrule
the state laws. Both are interpreted harmoniously. A corporation is prosecuted under both
state laws and federal laws. Punishment – The punishments for the crime committed by the
corporation is either fine or forfeiture. In case if the punishment for any offence is
imprisonment, fine can bee imposed as the corporation cannot be imprisoned. The mode of
punishment to be imposed on the corporation is the discretion of the court .

 SWITZERLAND

The concept of Corporate Criminal liability in Switzerland was introduced in the late of 2003
where it was based on the subsidiary liability which stated that corporations can be held liable
when fault cannot be attributed to a specific individual due to lack of organisation within the
enterprise and also the Criminal fines range upto five Swiss francs.

 FRANCE

The concept of Corporate Criminal liability was codified in French law under Article 121-2
of the new French Penal code. According to the law in this country there are three
requirements which need to be fulfilled in order to impose a liability on a legal entity. The
first requirement is that French legislature must have enacted a substantive criminal offence
which the corporation must have contravened, the second requirement being that the actual
criminal liability must lie with the agents or representatives of that corporation on which

28
1909. 212 U.S. 481
 P a g e | 13

liability of corporate criminal liability will be imposed. The third requirement is that the acts
which are criminal in nature and criminal liability can be imposed must be for the benefit of
the Corporation. It provides a list Statutory Criminal Liability.

 GERMANY

In present situation in Germany companies cannot be held liable as per the German Law but
those individuals who commit crime can be held accountable for their actions even if those
actions are for Company’s benefit however fines can be imposed on companies under the
Administrative offences Act. A basic principle of German law is societas delinquere non
potest, which means that a corporate body cannot be liable for a criminal offence. The
argument is that the human element is missing and that the creation and operation of slush
funds, as well as giving bribes, are all human acts and not the acts of the company
itself53.But Germany has developed an elaborate structure of administrative sanctions, which
includes provisions on corporate criminal liability. These so-called Ordnungswidrigkeiten are
handed down by administrative bodies.

 UNITED KINGDOM

The EU General Data Protection Regulation along with the UK Legislation is set to introduce
new criminal offences for corporates which will not be relied on the basis of identification
principle where prosecutions will be in instances of cyber crime and misuse/manipulation of
personal data.29

 CORPORATE CRIMINAL LIABLITY AND INTERNATIONAL

DOCUMENTS

The Concept of Criminal liability of Corporation is also mentioned under various

International document. A number of conferences have dealt with the same issues since the
end of World War II. Among them are the 8th International Conference of the Society for
the Reform of Criminal Law in 1994 in Hong Kong and the International Meeting of
Experts on the Use of Criminal Sanctions in the Protection of the Environment in
Portland, in 1994. The Seventh United Nations Congress on the Prevention of Crime and
the Treatment of Offenders of 1985 in Milan mentioned that “due consideration should be
given by Member States to making criminally responsible not only those persons who

29
Available at http://www.legalserviceindia.com/legal/article-521-corporate-criminal-liability-white-collar-
crime.html, Visited on 18th April 2019 at 11;02 a.m.
 P a g e | 14

have acted on behalf of an institution, corporation or enterprise, or who are in a policy-

making or executive capacity, but also the institution, corporation or enterprise itself,
by devising appropriate measures that could prevent or sanction the furtherance of
criminal activities.”

In 1998, the Council of Europe passed the Convention on the Protection of the Environment
through Criminal Law, which stipulated in Article 9 that both “criminal or administrative,
sanctions or measures” could be taken in order to hold corporate entities accountable.30

CORPORATE CRIMES AND INDIAN LAWS

It is also worthwhile to mention that the Parliament also understood the problem of fixing
corporate liability and proposed to amend the Indian Penal Code in this regard by including
fine as an alternate to imprisonment where corporations are involved in 1972. However, the
Bill was not passed but lapsed. Such a fundamental change in the criminal jurisprudence is a
legislative function and hence the Parliament should perform it as soon as possible by also
considering the following arguments that the author has brought about. In India, certain
statutes like the Indian Penal Code talk about kinds of punishments that can be imposed upon
the convict and as per Section 53 include death, life imprisonment, rigorous and simple
imprisonment, forfeiture of property and fine. In certain cases the sections speak only of
imprisonment as a punishment like in case of offence under Section 420.

The Code of Criminal Procedure also recognizes corporate crimes by virtue of section 305
which states as under:

Procedure when corporation or registered society is an accused-

(1) “corporation" means an incorporated company or other body corporate, and includes a
society registered under the Societies Registration Act, 1860

(2) Where a corporation is the accused person or one of the accused persons in an inquiry or
trial, it may appoint a representative for the purpose of the inquiry or trial and such
appointment need not be under the seal of the corporation.

30
http://www.un.org/documents/ga/res/40/a40r032.htm, visited on 21st April 2019 at 1:08 p.m.
 P a g e | 15

(3) Where a representative of a corporation appears, any requirement of this Code that
anything shall be done in the presence of the accused or shall be read or stated or explained to
the accused, shall be construed as a requirement that that thing shall be done in the presence
of the representative or read or stated or explained to the representative, and any requirement
that the accused shall be examined shall be construed as a requirement that the representative
shall be examined.

(4) Where a representative of a corporation does not appear, any such requirement as is
referred to in sub- section (3) shall not apply.

(5) Where a statement in writing purporting to be signed by the managing director of the
corporation or by any person (by whatever name called) having, or being one of the persons
having the management of the affairs of the corporation to the effect that the person named in
the statement has been appointed as the representative of the corporation for the purposes of
this section, is filed, the Court shall, unless the contrary is proved, presume that such person
has been so appointed.

(6) If a question arises as to whether any person, appearing as the representative of a

corporation in an inquiry or trial before a Court is or is not such representative, the question
shall be determined by the Court.31

The Prevention of Corruption (Amendment) Act, 2018

The Act grants authorities the power to prosecute commercial organizations 'if any person
associated with such commercial organizations gives or promises to give any undue
advantage to a public servant...'. If any director, manager, secretary or other officer of the
concerned commercial organization is proven to have consented and / or connived to commit
the said offence, such officer would be punishable with imprisonment for a term not less than
three years and extendable to seven years and also liable to fine. 'Adequate procedures' in
commercial organisations would act as a valid defence.

The impact of these provisions would be far reaching considering directors / officers can be
sued for acts of commercial organisations. India, unlike other jurisdictions, has faced severe
criticism for abuse of process; therefore such provisions could lead to harassment of
individuals within companies even if not responsible/involved in the illegal act and could

31
Section 305 of Code of Criminal Procedure.
 P a g e | 16

potentially defeat the principle of 'corporate veil'. It is imperative that safeguards be put in
place before implementation of these provisions.32

Companies Act, 2013 which has replaced the Companies Act, 1956 has increased the
corporate liability of the directors. The Act has also increased the monetary penalties and
imprisonment. Not only corporate criminal liability under Companies Act, 2013 is recognized
but the act also recognizes civil liabilities. The Companies Act, 2013 not only makes the
director criminally liable but also includes officers in default under the concept of corporate
criminal liability in India.33

Section 16 of the Environment Protection Act, 1986 also provides for corporate liability.

ESTABLISHING CORPORATE CRIMINAL LIABILITY IN INDIA

Criminal liability is attached only to those acts in which there is a violation of criminal law
i.e. to say there cannot be liable without a criminal law which prohibits certain acts or
omissions. The basic rule of criminal liability revolves around the basic Latin maxim ‘actus
non facit reum, nisi mens sit rea”. It means that “to make one label, it must be shown that act
or omission has been done which was forbidden by law and has been done with guilty mind.

To establish corporate criminal liability in India following requirements should be fulfilled:

 Criminal act has to be in the scope of employment :

the employee who has committed the criminal act or is accused to have been committed a
criminal act it is necessary that such action has to be committed in the scope of his
employment i.e., the act must be done while performing his official duties which he has been
authorized by the company to do. It is said that an act when performed under the scope of
employment the company becomes the principal of the person committing the act and thus by
virtue of agent-principal relationship the corporate criminal liability can be invoked.

32
http://www.mondaq.com/india/x/780342/White+Collar+Crime+Fraud/White+Collar+And+Investigations+Ind
ia+And+Globally, visited on 20th April 2019 at 12:44 p.m.
33
https://www.myadvo.in/blog/corporate-criminal-liability-in-india/, visited on 19th April at 1.02 p.m.
 P a g e | 17

 The benefit to corporation:

the next requirement to establish the corporate criminal liability in India is that the criminal
act of the employee must have given some benefit to the organization. It is not necessary that
the organization gets the direct benefit from such acts of the employee nor it is necessary that
benefit is completely enjoyed by the organization. It is just that the illegal or unlawful act of
the employee is not contrary to the organization.

Can Criminal Liability of Corporation be determined through Imprisonment?

It is always a debatable issue and almost agreeable that Corporation cannot be sentenced for
imprisonment. Imprisonment, transportation, banishment, solitude, compelled labour are not
equally disagreeable to all person under the penal code. It totally depends upon the
circumstances of the person for the imposition of punishment. But, in case of corporation,
Imprisonment cannot be recognised even for serious offences mentioned under the IPC.

The legal difficulty arising out of the above situation was noticed by the Law Commission
and in its 41st Report, the Law Commission suggested amendment to Section 62 of the Indian
Penal Code by adding the following lines:

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

Since, there is no explicit provision relating to it, Hence the apex court in various cases have
held that it is better to impose fine upon the corporation even in the cases where there is a
punishment for imprisonment. The imposition of fines may be made in four different ways as
provided in the IPC. It is the sole punishment for certain offences and the limit of maximum
fine has been laid down; in certain cases it is an alternative punishment but the amount is
limited; in certain offences it is imperative to impose fine in addition to some other
punishment and in some it is obligatory to impose fine but no pecuniary limit is laid down.
However, Section 357, CrPC, 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
 P a g e | 18

payment of compensation, out of the fine recovered, to a person for any loss or injury caused
to him by the offence.34

34
http://www.sascv.org/ijcjs/angira.html, visited on 21st April 2019 at 3:39 p.m.
 P a g e | 19

CONCLUSION

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 for
corruption and bribery offences, it becomes relevant to examine criminal liability, not just of
individual directors or agents of a corporation, but also of the company itself.

Although considerable debate surrounds society’s increasing reliance on criminal liability to

regulate corporate conduct, few have questioned in depth the fundamental basis for imposing
criminal liability on corporations. Accordingly Courts is based on the maxim lex non cogit ad
impossibilia, which tells us that law does not contemplate something which cannot be done.
The statutes in India are not in pace with these developments and the analysis shows that they
do not make corporations criminally liable and even if they do so, the statutes and judicial
interpretations impose no other punishments except for fines.
 P a g e | 20

BIBLIOGRAPHY

 K.D. Gaur, Textbook On Indian Penal Code, Universal Law Publication Co, New
Delhi, Fifth Edition, 2015.
 Richard D. Hartley, Corporate Crime: A Reference Handbook

WEBLIOGRAPHY

 http://www.legalserviceindia.com/legal/article-521-corporate-criminal-liability-white-
collar-crime.html
 http://www.mondaq.com/india/x/780342/White+Collar+Crime+Fraud/White+Collar+
And+Investigations+India+And+Globally
 http://www.sascv.org/ijcjs/angira.html
 http://www.un.org/documents/ga/res/40/a40r032.htm
 https://blog.scconline.com/
 https://indiankanoon.org/
 https://www.myadvo.in/blog/corporate-criminal-liability-in-india/