Dr.

RAM MANOHAR LOHIA NATIONAL LAW UNIVERSITY

2020-21
INDIAN PENAL CODE
TOPIC

EVOLUTION OF CORPORATE CRIMINAL LIABILITY

Submitted to: Submitted by:

Mr. Malay Pandey Samyak Yadav

Assistant Professor (Law) Enrolment no.-190101124

2nd Year, IV Semester

 ACKNOWLEDGEMENT

Working on this project on “Evolution of Corporate Criminal Liability” was a source of immense
knowledge to me. I would like to express my sincere gratitude to my teacher Mr. Malay Pandey for the
guidance and valuable support throughout the course of this project work. I acknowledge with a deep
sense of gratitude, the encouragement and inspiration received from my teachers and colleagues. I would
like to thank people whosoever supported me in this project work.

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 TABLE OF CONTENTS

Contents
CERTIFICATE..........................................................................................................................................................2
ACKNOWLEDGEMENT..........................................................................................................................................3
INTRODUCTION......................................................................................................................................................5
CORPORATE CRIMINAL LIABILITY THROUGH THE AGES...........................................................................5
REQUIREMENTS FOR ESTABLISHING CORPORATE CRIMINAL LIABILITY..............................................6
HOW CORPORATIONS CAN BE MADE LIABLE................................................................................................7
AN OVERVIEW OF CERTAIN JUDGMENTS GOVERNING CORPORATE CRIMINAL LIABILITY..............8
VARIOUS PROVISIONS WHICH ATTRACT CORPORATE CRIMINAL LIABILITY IN INDIA....................10
CONCLUSION........................................................................................................................................................10
BIBLIOGRAPHY....................................................................................................................................................11

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 INTRODUCTION

Corporations have now become an integral part of our society, and with development of corporations they
have play a significant role the Indian economy. This in turns puts the society under the threat of getting
victimized by these corporations, and therefore they should be dissuaded. It is a well-known fact that the
corporations are treated distinctly from the members who represent it. Corporations have their own
identity, they have separate legal personality and they are different from their members, and this is
sufficient to makes it possible to held them liable and censures them for the threat they are posing. So, the
question that arises here is as to how the courts are going to punish these corporations which commit
crimes. Common law has various theories which govern the liability of the corporations and the best
example would be the doctrine of vicarious liability under the tort law which emphasizes that the
corporations would be held liable for the torts committed by its employees. As India has adopted the
common law remedies, it was able to answer the questions concerning the tort liability of the
corporations. But there was uncertainty in the minds of adjudicators as to whether the corporations can be
charged for the crimes committed. The probable reason might be the nature of Indian criminal law which
takes its source from a statute i.e. Indian Penal Code.

Section 11 of Indian Penal Code, 1860 (the Code) define person. It reads “the word person includes any
Company or Association or a body of persons, whether incorporated or not.” Further section 2 of the
Code provides that “Every person shall be liable to punishment under this Code.” Thus, section 2 of the
Code without any exception to body corporate, provides for punishment of every person which obviously
includes a Company. Therefore, by reading of these two-provision concept of corporate criminal liability
can be derived. There are other legislations too which provides for the punishment of corporate body, like
the Companies Act, 2013, Income Tax Act, etc. Criminal Liability is the quality or state of being legally
obligated or accountable; legally responsible to another or to society which is enforceable by criminal
punishment. Corporate Criminal Liability means the extent to which a Corporation as a legal person can
be held criminally liable for its acts and omissions and for those of the natural persons employed by it.

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 CORPORATE CRIMINAL LIABILITY THROUGH THE AGES

Throughout the ages, the evolution of the doctrine of corporate criminal liability faced many issues, the
main ones being:

 The main obstacle was finding the mens rea necessary for the commission of a criminal act. There
was failure to identify, establish and prove the criminal intent of a juristic fictional being.
 Courts required the accused in a criminal case to be physically brought before them for
proceedings to take place, which was impossible in the cases of corporate.
 A corporation could not be imprisoned or put to death and hence the threat of imprisonment which
plays a major role in criminal law could not be applied here. This lead to speculation that criminal
law was not appropriate for the enforcement of this doctrine.

Prior to the twentieth century, the general notion was that a corporation lacked the mens rea required for
the commission of a criminal act and hence to attain a criminal conviction. At present, the directors,
employees and officers are all held liable for the criminal acts committed by them which they have actual
authority to perform as observed by an average reasonable man. Further, directors and officers may also
be subject to criminal liability under the “accomplice theory” which states that they either encouraged or
instructed a subordinate to commit a criminal act or failed to exercise due care and supervision of their
subordinates which in turn led to the commission of the crime.1

Today, for the doctrine of corporate criminal liability to be applicable, the criminal act of the employee
must:

 Be committed with the intention of benefiting the corporation in some manner, or

 Be committed with the intention of increasing his own personal gain and this conduct ultimately
ends up benefiting the corporation as well.

1
Akhil Mahesh, “Corporate Criminal Liability”, National University of Advanced Legal Studies, Kochi.
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REQUIREMENTS FOR ESTABLISHING CORPORATE CRIMINAL LIABILITY

There are a few necessary requisites whose existence must be established before criminal liability can be
imposed on a corporation of any other kind of legal entity:

1. Act within the scope of employment: The first and foremost requirement for establishing corporate
criminal liability is, that the employee committing the offence must be acting within the scope of his
employment. The employee must be given authority to do that act or duty by his parent company. All
the agents of a corporation are not considered worthy of representing a corporation for the purpose of
establishing liability. Common law states that a corporation is liable for its agent’s activities
irrespective of the employee’s status or position in the corporation’s bureaucracy. Model Penal Code
on the other hand states that the illegal 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.” 2 Thus the MPC allows corporations to
escape liability as long as the top level in their hierarchy carry out due diligence in the monitoring
and stamping out of misconduct.

2. Benefit to the Corporation: The second requirement is that the agent’s behaviour must, in some
way, benefit the corporation. The corporation need not actually be directly benefited by the acts nor
the benefit be enjoyed entirely by the company, but the illegal act must not be divergent to corporate
interests. This is because it is an extremely rare case when an employee commits an illegal act
unselfishly, with no intention to make any personal gain.

3. Establishing mental culpability of a corporation. There are two main methods by which this is
done:
 The Collective Blindness Doctrine
 The Wilful Blindness Doctrine

2
Akhil Mahesh, “Corporate Criminal Liability”, National University of Advanced Legal Studies, Kochi.
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 HOW CORPORATIONS CAN BE MADE LIABLE

Courts today follow certain methods and ideologies to impute the employee’s actions and knowledge to
the parent corporation to stamp out illegalities from the economic sphere of life:

1. The Collective Blindness Doctrine

Courts have held corporations liable even when it wasn’t a single individual who was at fault. To come to
this conclusion, the courts have treated the sum knowledge of all the employees. This is known as the
“Collective Blindness Doctrine”. The rationale behind this is to prevent corporations from delegating
their work and duties in such a manner that it paves a way to escape the liability by pleading ignorance in
the event of any criminal prosecution.

2. Willful Blindness Doctrine

If a corporate agent becomes doubtful or suspicious of some ongoing illegal activities, but to escape the
consequences, he takes no step to mitigate the damage or bring the offender to light, the corporation is
held liable. Corporations are made criminally liable if they knowingly turn a blind eye to ongoing
criminal activities.

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. Corporations can be
held liable for the offence of criminal conspiracy along with its employees or involving one employee and
others not on the payroll of the corporation.

4. Mergers, Dissolutions and Liability

Corporations can be made criminally liable for the previous violations and criminal acts of another
corporation with which it has merged or has consolidated. If there arises any charges of conspiracy
against the predecessor corporation, the new corporation will have to defend themselves after the merger.
It is not always necessary that corporations will escape prosecution if dissolution takes place before filing
of charges. Sometimes even obsolete corporations are forced to defend themselves against criminal
prosecution.

5. Misprision of Felony

A corporation may also be held liable for misprision of felony. Felony is the offence of concealing and
failing to report it. This consists of four elements:

 That the principal committed a felony

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  That the defendant knew about said felony
 That the defendant failed to notify the concerned authorities at the earliest, and
 That the defendant took proactive steps for the concealment of the felonious act.

Merely failing to notify the authorities is not enough to qualify as misprision of felony and neither is
merely having the intent to conceal the felony if such intention is not carried out.

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 AN OVERVIEW OF CERTAIN JUDGMENTS GOVERNING CORPORATE
CRIMINAL LIABILITY

Section 11 defines that the ‘person’ would include “any Company of Association or body of persons,
whether incorporated or not". Hence, corporations can be tried and held liable under IPC for the crimes
committed. It is an undisputed fact that the corporations cannot be prosecuted for crimes where the only
punishment as contemplated in IPC, is imprisonment. The major task that was thrust upon the courts was
to determine the position of the cases where the corporation commits crimes and has punishment of both
imprisonment and fine. Some landmark decisions settled the issue and helped in the development of the
concept of corporate criminal liability.

In the case of Assistant Commissioner v. Velliappa Textiles Ltd.3 the Supreme Court held that as
corporations could not be imprisoned they could not be prosecuted for an offence where IPC states
compulsory imprisonment. The dissenting judge observed that just because a corporation cannot be
imprisoned, it should never be a reason for an observation that the corporation cannot be prosecuted. The
judge further added that the court had two functions to perform. The same was held in AK Khosla v
Venkatesan.4

In Oswal Vanaspati & Allied Industries V State Of Uttar Pradesh5, the Allahabad High Court held that “A
company being a juristic person cannot obviously be sentenced to imprisonment as it cannot suffer
imprisonment. It is settled law that sentence or punishment must follow conviction; and if only corporal
punishment is prescribed, a company which is a juristic person cannot be prosecuted as it cannot be
punished. If, however, both sentence of imprisonment and fine is prescribed for natural persons and
juristic persons jointly, then, though the sentence of imprisonment cannot be awarded to a company, the
sentence of fine can be imposed on it. Legal sentence is the sentence prescribed by law. A sentence which
is in excess of the sentence prescribed is always illegal; but a sentence which is less than the sentence
prescribed may not in all cases be illegal”6.

In Zee Telefilms Ltd. V. Sahara India Co. Corp. Ltd7 the court gave a judgement that the company will
not be held liable for the criminal acts. The Court held that to commit a crime under defamation there
must be existence of mens rea which is one of the most essential elements of the offence of criminal
defamation and in this case the company could not have the requisite mens rea. Same issue was raised in
the case of Standard Chartered Bank v. Directorate of Enforcement8 where the Supreme Court overruled

3
(2003) 11 SCC 405.
4
(1993) 1 CLJ 172.
5
(1992) 75 HC 770.
6
Available at www.lorandoslaw.com/Publications/Corporate-Criminal-Liability-India.shtml.
7
(2001) 1 CALLT 262 HC.
8
(2006) 4 SCC 278.
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the Velliappa case 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 the
corporations should be punished with a fine in case the offence committed mandates both fine and
imprisonment.

In the case Iridium India Telecom Ltd. V Motorola Inc9 a criminal complaint was logged by Iridium India
Telecom under Section 420 of the Indian Penal Code and Section 120B against motorola inc. The issue
raised was that cheating was an offence which is mandates compulsory imprisonment, therefore any
further proceedings would be bizarre. But the argument was refuted and the decision held in Standard
Chartered Bank Case was upheld. The court stated that the corporations are capable of having mens rea
and can be made liable with mandatory punishment of imprisonment. In the case MV Javali v Mahajan
Borewell & co & ors10 the court held that mandatory fine and imprisonment should be imposed when
possible, but in the case of companies only fine be imposed.

In the case of U.P Pollution Control Board v. Modi Distillery11, the industrial unit had discharged highly
toxic and contaminated trade effluents into the river through local drain. The Court held that the executive
managers and the persons involved in the company’s actions be prosecuted even if the company was not
prosecuted. This ratio was reaffirmed in Anil Hada v. Indian Acrylic Ltd12. But in the case of Aneeta
Hada vs M/S Godfather Travels & Tours13, the Supreme Court overruled the decision held in Anil Hada
case and stated that the decision which was given in the Modi Distillery case is “treated to be restricted to
its own facts” since it is decided on its own factual matrix.14 After stating so, the court held that there can
be no vicarious liability on the persons associated with the company, unless there is any prosecution
against the company.

VARIOUS PROVISIONS WHICH ATTRACT CORPORATE CRIMINAL

LIABILITY IN INDIA

9
(2011) 1 SCC 74.
10
(1997) 8 SCC 72.
11
1988 AIR 1128.
12
(2000) 1 SCC 1.
13
(2012) 5 SCC 661.
14
Shreya Bhattacharjee, CORPORATE CRIMINAL LIABILITY IN THE GLOBALIZING WORLD: A MEANS TO
ACHIEVE SOCIAL JUSTICE, Journal On Contemporary Issues of Law (JCIL) Vol. 2 Issue 2.
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The term “person” includes “individuals as well as corporations and companies” as per the GENERAL
CLAUSES ACT, 1897. Section 141 of the Negotiable Instruments Act, 1881 states that when any sort of
offence committed under Section 138 of the Negotiable Instruments Act, then every person who ever
have committed the offence shall be charged for the criminal act and conduct of the business of the
company. If the company itself is the person, then company shall also be held liable for the offence and
will be punish accordingly Section 7 of the Essential Commodities Act, 1955 talks about penalties under
the Act. It states that if any person commits breach of any order made under Section 3 of the Act then he
shall be liable for imprisonment as well as a fine of certain amount.

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 CONCLUSION

A company can only act through human beings and a human being who commits a crime on account of or
for the gain of a company will be responsible for that offence himself. There have been a lot of
discussions regarding whether the companies can be held liable for criminal acts. Earlier the notion was
that if the company commits a crime for which the punishment is imprisonment as well as fine, the
company could not be tried or prosecuted for the same. The reason behind this was as it is impossible to
imprison the company it cannot be imposed with mere fine, and that both the provisions have to be
complied with. In the year 2005 the court through the majority judgement in Standard Chartered Bank
Case overruled the decision of the Velliappa Case and established that the company can be held liable for
the acts of the company and may also be send into imprisonment, without any sort of exemption. This
decision was strengthened by the famous Motorola Case. Thus it can be concluded from the above study
that there is still no settled rule when it comes to Corporate Criminal Liability. It is an absolutely new
area of law which the judiciary and the legislature have to work upon. This concept of criminal liability
has got a rippling effect on the economy of the country also. Thus the emergence of the large industrial
corporations, both depersonalized and institutionalized has a major social phenomenon and its impact on
the legal, economic and social structure of the society must be looked upon in order to settle the issue of
criminal liability that are been carried out by the corporations in today’s society.

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