CORPORATE CRIMINAL LIABILITY: THE INDIAN SCENARIO

ABSTRACT:

Large Corporations dominate the global enterprise and are prominent in all aspects of
our lives. Nonetheless, the corollary of this supremacy is that large corporations have
begun to engage in unethical activities. Because they are not natural human entities,
their actions criminal or otherwise are also not ordinary.

Developing countries experience significant corruption and bribery problems.

Therefore, it is necessary to define the concept of corporate crime clearly, so It is
possible to assess the extent of the responsibility that should be enforced on them.

The Supreme Court's decisions lately have made the situation clear in India that the
corporation can be sued as a separate legal entity except in cases where the penalty
is imprisonment. The idea of "No soul to kick" has become outdated, and the sheath
has been revealed to raise the corporate veil. This research aims to throw light on
India's present status as to where it stands on Corporate Criminal Liability and how the
judicial decisions so far are inconsistent with the existing legal provisions, based on
the review and analysis of various laws and case regulations. Further, solutions to the
current inconsistency of assessing corporate criminal liability are provided.

INTRODUCTION:

In the early sixteenth and seventeenth centuries, the prevailing assumption was that
companies could not be held criminally accountable. Legal scholars believed
corporations could not possess the moral blameworthiness necessary to commit
crimes of intent. The general notion was that a corporation has no soul and cannot
have "actual wicked intent." Consequently, it cannot be guilty of crimes requiring
"malus animus 1 ". However, some distinctions were made by courts in England
between crimes requiring particular intent and those for which general intent would
suffice. Indeed, the courts began to hold corporations legally responsible for nearly all
wrongs, except rape, murder, bigamy, and such malicious offences. Thus, leaving
behind the old school of thinking that Via its directors and staff, corporate activities
should not attract corporate criminal liability.

"Corporate bodies are more corrupt and profligate than individuals, because they have
more power to make mischief, and are less amenable to disgrace or punishment. They
neither feel shame, remorse, gratitude, nor goodwill.2"

Criminal liability's root finds its place in judiciary's relentless struggle

to resolve the crisis of assigning criminal responsibility to fictional entities. Through,
communication technologies and developments in information corporate activities
have become global, making it easier, more complex and at the same time more
challenging to understand to the of commission corporate crime. In a legal framework
focused solely on the moral responsibility of individuals, this has become especially
important.3

A company can only act through human beings, and a human being who commits an
offence on account of or for the benefit of a company will be responsible for that
offence himself. The importance of incorporation is that it makes the company itself
liable in certain circumstances and human beings4.

The fundamental principle of criminal liability is based upon the Latin maxim actus non
facit reum; nisi mens sit rea. It translates to 'make one liable it must be proven that an

1
a Latin term for evil intention
2
Celia Wells,Corporations and Criminal Responsibility
3
Shouvik Kr. Guha & Abhyudaya Agarwal, Criminal Liability Of Corporations: Does The Old Order Need To
Change?
4
Glanville Williams
act or omission forbade by law and has been performed with a guilty mind/intent'.
Thus, every crime has two elements: actus reus and mens rea. This is the rule of
criminal liability in a technical sense. The general principle states that an individual's
burden of responsibility flows naturally from the freedom to make rational choices
about actions and behaviour.

Under early common law, a company was not responsible for any offence. Still, the
broad general rule is now well known that a company can be sued for breaching a
statutory or common-law obligation. Many countries generally accept that, under civil
and administrative authorities, companies may be sanctioned. The criminal
responsibility of businesses, however, has become more contentious. The criminal
accountability of companies, however, has become more complicated. Although the
principle of corporate criminal responsibility under different models has been
embraced and applied by many jurisdictions, other law structures have not been able
or willing to implement it. Only those actions in which there is a breach of criminal law,
i.e., because there can be no fault without liability, are added to criminal liability.

INDIA'S STANCE ON CORPORATE CRIMINAL LIABILITY:

India, as far as corporate crimes are considered, is not an unknown territory. It is

currently a serious contemporary one, Concern about the multidimensional
dimensions of certain forms of corruption, considering the number of corporate crime
Scams occur regularly and endanger the state's overall economy and healthcare.

Although the country is mostly dependent on the corporate sector, the economy's
stability must not rely on the corporate sector. Given its existence and effect on most
facets of social and cultural life and the number of people it affects, corporate crime
seriously undermines society's wellbeing.
Corporate responsibility must be reinforced in the current sense. The corporate crime
phenomenon originated mainly in the 20thcentury. In India, corporate liability
legislation, particularly after the Bhopal Gas tragedy case 5 , is being strengthened.
However, it remains in a nascent phase.

The conventional outlook on Corporate criminality has never been included in crimes.
The corporate sector has been a popular part of the city. It is all the more necessary to
assess the company's criminal responsibility in the various spheres of social existence
and the market outlook in our value systems, given the company's penetrative scope
in the different spheres of social reality.

JUDICIAL RESPONSES ON CORPORATE CRIMINAL LIABILITY:

All Penal liabilities are usually regulated in India under the IPC, 1860.6It is this rule that
needs to be pondered in the event of corporate criminal liability. Corporations play an
essential role in the development and management of companies, and most people's
shared lives. That is why most current criminal law frameworks anticipate the risk of
criminalizing the business.

Companies are legal entities and, thus, the common opinion was that due to
procedural problems of detention, etc., a corporation should not be charged with
offences. No criminal responsibility may be applied to them because of the lack of the
necessary intention to commit a crime. The SC has accepted the alter ego theory in
Assistant Commissioner, Bangalore v. Messers Velliappa Textiles Ltd.7

5
1990 AIR 273 1989 SCC (2) 540
6
Indian Penal Code, 45 of 1860, Sec.11: The word “Person” includes any Company or Association or body of
persons, whether incorporated or not.
7
AIR 2004 SC 86
However, the majority held that a corporation should not be sued for offences
involving incarceration alone or a mandatory period of imprisonment combined with
a fine. The Supreme Court has inched ahead in deciding corporate criminal liability
following the ruling in Standard Chartered Bank v. Directorate of Compliance 8and has
given jurisprudential value through Iridium 9and Sunil Bharati Case. 10

The problem of corporate criminality has often been contentious. Over the years, the
legal status of corporate criminal liability has grown. With time, courts in India have
adopted a stricter approach when assessing a corporate body's liability for actions
committed by its directors and other agents.

The importance of Iridium lies in the fact that it clarifies the law as to whether for
offences requiring mens rea, a corporation may be prosecuted. In the present case,
Iridium lodged a criminal complaint against Motorola according to sections 120
(Conspiracy) and 420 (Cheating) of the Indian Penal Code, based on which proceedings
were instituted against Motorola by the Pune magistrate.

Motorola then appealed to the High Court of Bombay, trying to quash the judicial
Magistrate's proceedings. The High Court permitted the petition to stop the
proceedings at the Magistrate's level, giving many reasons, one of which is that a
business is unable to have a guilty mind, so it does not commit any offence of cheating.
Iridium, by way of appeal, addressed the SC. For its consideration, the SC framed the
following two issues: firstly, it is possible to assign mens rea to companies for criminal
liability; secondly, it is possible to attribute mens rea to companies for criminal liability
and, what is the criminal penalty for errors in the form of stock offers made on a
confidential basis to individual investors.

Essentially, the Supreme Court was worried about the company's corporate criminal
liability. This was achieved by employing the attribution theory. This theory is invoked

8
AIR 2005 SC 2622
9
Iridium India Telecom Ltd. v. Motorola Inc. (2011) 1 SCC 74
10
Criminal Appeal No. 35 of 2015 (arising out of Special Leave Petition (Cri.) No. 3161 of 2013 decided on
January 9, 2015
when the issue arises as to the mental aspect of which the corporation is credited for
the commission of criminal liability. The Court ruled that the individual who is in direct
control and charge of the company's affairs and the degree of power is so strong and
rigorous that the company is said to be working through the individual, is instrumental
in attributing the company to criminal liability. The two critical points on which the
Court ruled were: firstly, that a company can possess the necessary mens rea, and
secondly, in deciding the required metal element, the strict test of the identification
of the company's guiding mind must be followed.

In the Sunil Bharti case11, a converse scenario is addressed about the ruling laid down
in the Iridium case. This case addresses the proposal as to whether the directors (or
someone representing the company's alter ego) should be charged on the company's
account of illegal actions.

Standard Chartered Bank v Compliance Directorate 12 , changed the Indian courts'

stance and outlook concerning corporate criminal liability. The corporation was
accused of breaching the rules of the Foreign Exchange Regulations Act 13in this case.
The Court denouncing the literal interpretation of the law, stated that in a case where
the punishment prescribed is both imprisonment and fine the company is found guilty,
can be imposed of fine. Further, there is no ambiguity because it was never the
legislature's intention to let the corporates escape criminal liability. This is portrayable
from the definition of 'person' as provided for in the Indian Penal Code, 186014, which
includes "a company, an association, or a body of persons whether incorporated or
not."

Therefore, the courts have the power to impose a fine in situations where both the
imprisonment and the fine are punishable by a mandatory penalty, as far as juristic
persons are concerned, since it is not practicable to impose a sentence in prison.

11
Supra n 9
12
Supra n 7
13
(FERA) was promulgated in 1973 and it came into force on January 1, 1974
14
Section 11, IPC, 1860
However, whether an organization should be imprisoned for the execution of a crime
raises completely different problems. It is clear that an organization is just a fictional
entity and cannot be forced behind bars in a real sense. Indeed, the directors,
shareholders, and staff categorized as average person’s running the business are
capable of being imprisoned.

There is no current statutory law that expressly allows for the incarceration of a
corporation. Still, it can perform severe offences referred to in separate Acts in its
power. As a means of deterrence, incarceration's sole motive is to prevent the criminal
from committing crimes in the future. A company's legal character defeats this very
purpose.

Until recently, Indian courts believed that for crimes involving mens rea, corporations
could not be criminally prosecuted because they could not possess the necessary mens
rea. Mens rea is an integral component of the majority, if not all, of offences that
would suggest incarceration or other punishment for their infringement. Adopting
excessively generalized reasoning, pre-standard Chartered ruling15, and Indian courts
held that companies could not be punished because they could not be incarcerated
for offences involving a mandatory imprisonment sentence 16 . In A. K. Khosla v. S.
Venkatesan 17 , two corporations were charged with fraud under the IPC. The
Magistrate issued a process against the corporations. The Court subsequently pointed
out that there were two pre-requisites for the prosecution of corporate bodies, (a)
mens rea and (b) ability to impose the mandatory sentence of imprisonment. Under
these conditions, corporate criminal liability is hard to set as corporate bodies do not
possess the necessary mens rea, nor can they be sentenced to imprisonment as they
are not physical bodies.

15
Supra n 7
16
Ibid
17
(1992) 1 CALLT 77 HC, 1991 (2) CHN 321, 1994 80 CompCas 81 Cal, 1992 CriLJ 1448
Furthermore, there existed uncertainty over whether a company can be convicted for
an offence where the statute's punishment is imprisonment or fine. This dispute was
first discussed in MV Javali v. Mahajan Borewell & Co and Ors10, 18where the Supreme
Court held that the mandatory sentence of imprisonment and fine should be enforced
where it can be imposed. Still, if it can not be set, the only penalty would be the fine,
namely on a corporation. It is clear from the above-stated cases that Indian Court
never felt about its inclusion on specific criminal liability.19

Even post the Standard Chartered Bank case20, there is no exemption from prosecution
for businesses simply because the trial is involuntary incarceration regarding crimes
for which punishment is prescribed. The apex court held that a company is virtually in
the same place as any person in Iridium India Telecom Ltd. v. Motorola Incorporated
and Ors and may be convicted under common law as well as statutory offences,
including statutory offences.

A company's criminal responsibility would occur if an offence is committed by an

individual or body of individuals in charge of its affairs concerning the corporation's
business and relies on the ratio in the Standard Chartered Bank Case 21 . In Iridium
case22, the Supreme Court held: "The criminal liability of a corporation would arise
when an offence is committed concerning 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 are 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, based on the fact that they are unable to possess the
requisite mens rea for the execution of criminal offences, companies could no longer

18
(1997) 8 SCC 72
19
Supra n 16
20
Supra n 7
21
Ibid
22
Supra n 8
claim immunity from criminal prosecution. By following the theory of attribution and
imputation, the concept that a company should not be held responsible for the
commission of a crime was dismissed.

ANALYSIS:

The above review conclusively indicates that corporate criminal liability jurisprudence
has evolved extensively over time, but slower than corporate civil liability. This slow
progress is justified because of the various complexities involved, which have
extended beyond the plain legislative text's limits to the test of judicial interpretation.

In terms of attribution of mens rea, corporate entities can no longer take the
ambiguous defence of missing a personality. A large portion of corporate criminal
responsibility, irrespective of the crime committed, circumvents the imposition of
fines as the sole penalty and remedy. The impossibility of imprisoning legal entities is
an unavoidable fact, which is a very significant obstacle. One constructive solution can
be adherence to the principle of respondent superior. However, the doctrine of
identification proposes a broader set of rules. It is more detailed in that it defines and
attributes the guiding minds' actions as the actions of the organization itself, and can
thus be seen as a more precise theory than the vicarious liability principle. In the
landmark case of Iridium India, this idea was well enunciated. If the idea of special
vicarious liability, which has no statutory backing, grows. Thus, it can be inferred that
there is a desperate need for a variety of changes to be made which, if not created,
would lead to a miscarriage of justice and a breach of the principle of equity. The Sunil
Bharti Mittal 23 case is infamous for the very reason that the principle of vicarious
liability could not be applied in its reverse form.

23
Supra n 9
CONCLUSION:

India is hunting to curb its governance's constant corruption rate, commonly hit by
many large-scale corporate scandals. In this context, it is essential to investigate
criminal responsibility for individual directors or agents of a corporation and for the
company itself to assess liability for corruption and bribery offences. While
considerable controversy surrounds society's dependency on criminal accountability
to control corporate activity, few have deeply challenged the underlying justification
for corporate criminal liability being enforced. The courts are also founded on the
principle lex non-cogit ad impossible, which informs us that anything cannot be
achieved is not contemplated by the statute. The laws in India are not in line with these
developments. The above review shows that companies are not criminally responsible
and, even though they do so, no other penalties other than fines are levied by the
statutes and judicial interpretations. It is clear from the present action that specific
serious steps must be taken concerning the criminal liability of the Indian company to
be able to escape the various aspects of the Court's decision.

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