CORPORATE LAW -1

NAME: - Prathmesh Agrawal

EMAIL: - prathmesh220036@nujs.edu
ROLL NO.: - 220036
YEAR: - 3rd Year
PROJECT: - Corporate Law - 1
SESSION: -Monsoon Semester (2022-23)
TOPIC: ANALYTICAL UNDERSTANDING OF CORPORATE CRIMINAL
LIABILITY: AN INDIAN PERSPECTIVE
INTRODUCTION
Corporate personalities rule the world of business and are found in all aspects of our daily lives.
Because of the serious issue of corruption and bribery in developing nations, particularly among
public officials, underdeveloped nations who are already heavily indebted to the International
Monetary Fund have seen an upsurge in crime.1So that it is feasible to determine the level of liability to be
placed on them, the idea of corporate crime must be clearly defined. If "life and let live" is to be the guiding
principle of a civilized society, then this is vital. 2

Globally, the legal stance on corporation criminal culpability has been shrouded in suppositions,
inconsistency, and dispute. The nature and scope of the idea of corporate criminal culpability have
taken on a particular significance with the rise in global multinational corporations. A corporation is a
distinct legal body that is considered in law as having its own personality. As a result, it is subject to
its own responsibility. Any person or group of people who are responsible for any wrongdoing
committed within the corporation may be held liable. Acts are unlawful when committed while under
the influence of an unlawful state of mind, according to the legal adage "actus non facit reum nisi
mens sit rea," which is the foundation of criminal responsibility

In terms of corporate crimes, India is not a foreign country. Given the prevalence of corporate fraud
that is on the rise and endangering the welfare of the nation's economy, it is actually a serious
current issue owing to the multifaceted character of these types of crime. 3 While the corporate
sector cannot guarantee economic stability, it does play a significant role in every nation's
development. Corporate crime poses a severe threat to society's well-being because of how many
people it touches and how much it permeates most facets of social and communal life.

Corporate enterprises are therefore in a position to significantly impair both the physical and
economic environment. Corporate liability needs to be enhanced in the current environment.
Historical Background –
The 20th century saw the primary emergence of the phenomena of corporate criminality. 4 India

1
Clinard, Marshall B. Yeager, Peter C., Corporate Crime (Transaction Publishers, New Brunswick, 2006).
2
Sharma, Sumit. Corporate Crimes & Financial Frauds: With Biggest Financial Frauds in the History of India, India
(Authors Press, New Delhi, 2014).
3
Goel, Shivam. Corporate Manslaughter and Corporate Homicide: Scope for a New Legislation in India, (Partridge
Publishing India, Gurgaon, 2015).

4
Kelly-Kilgore, Sarah. Smith, Emily M., ‘Corporate Criminal Liability’, 48(2) American Criminal Law Review 421-
453 (2011).
is strengthening its corporate liability rules, especially in the wake of the Bhopal Gas disaster. It
is still in its infancy, though. Corporate criminality was never considered while considering
crime from a traditional standpoint. Corporate business has risen to prominence in society.
Finding out if firms are criminally liable becomes even more crucial when you consider the
corporate penetrating reach in the numerous domains of social existence and the commercial
view in our value systems.

Objectives –

 To research the evolution of corporate criminal liability in Indian legal systems

 To assess seriously the issues with prosecuting corporate personalities under criminal law.
 To analyze the 2013 Companies Act's provisions on corporate criminal liability.

 To comprehend Corporate Crime's new facet in India.

 To suggest reforms in order to tackle Corporate Criminality.

Research Questions –
This study aims to critically evaluate several facets of corporate criminal liability in light of the
aforementioned discussion. The main issue is still whether an artificial person called a corporate
entity is capable of committing a crime. In addition, it should be determined whether a corporate
personality is criminally accountable for the alleged crime.

Research Methodology –
The methodological approach is based on doctrinal research method, where the problem stated in
the research will be proven by analysing various sources of the data available in the public domain
with appropriate backing. This is done after studying the subject matter of the research work, the
nature, and the objectives of the present study.

DEVELOPMENT OF CORPORATE CRIMINAL LIABILITY IN INDIAN JUDICIARY

Laws are being created to classify a variety of corporate behaviours as unlawful if they harm
society, even if they are advantageous for the corporation. Strict prohibition rules are used to
deal with fraudulent practises and other intentional crimes, particularly in the securities and
healthcare industries. Other criminal laws, such as the different environmental restrictions, have
been drafted to make sure that businesses take action to mitigate or stop the negative effects of
 their operations. Many laws are implemented by imposing both corporate and individual liability
on businesses engaging in illegal behaviour. The crucial issue facing law enforcement is how to
apply organised criminal and civil punishments against people and businesses that may act as a
deterrent. Only a few decades ago, the Indian judiciary began to promote the idea of corporate
criminal liability. Corporate criminal liability had by this point become a more hotly debated
legal topic in the west. In India, the judiciary classified its responses in the following ways-

A. Crimes that don't require criminal intent; similar to how the judicial systems of the
western countries originated with crimes that didn't require criminal intent, so did India's.
In the case of Anath Bandhu v. Corporation of Calcutta 5, the court stated that the limited
company would not be allowed to take legal action if there was anything in the definition
of a certain statute section that would restrict the application of the section to a limited
company.

B. A firm can only commit an offence in a specific set of circumstances, as was further
stated in the case of Punjab National Bank vs. A.R. Gonsalyes, Bunder Inspector, Karachi
Port Trust6. It is likely that there will be situations in which mens rea is not necessary and
in which the court will be able to impose a fine.
C. Crimes with criminal intent; it took a while for the judiciary to develop the jurisprudence
holding companies accountable for crimes with criminal purpose. On the basis of the
combination of the identification doctrine and vicarious liability, this was adopted. In the
case of State of Maharashtra v. Syndicate Transport Co. (P) Ltd.7, the court determined that
a corporate body, such as a company, typically acts through its managing directors, board of
directors, or authorized agents, and that a criminal act committed by an agent, including his
state of mind, intention, knowledge, or belief, is to be treated as an act of the company.

PROSECUTION OF CORPORATE PERSONALITY UNDER THE CRIMINAL LAW

Recently, corporate criminal responsibility has become more important. Because there weren't many
corporations and it was challenging to prosecute them, this was the cause. The necessity of including
personal bodily appearance in criminal trials was a crucial factor. Due to the fact that a company is an

5
AIR 1952 Cal 759.
6
AIR 1951 Sind 142.
7
AIR 1964 Bom 195
artificial person that only exists in the eyes of the law, it cannot take actions that it has not been given
permission to take, making such actions, by definition, supra vires. It was therefore questionable
whether the firm could carry out or even support such crimes.

Determining the mens rea, sometimes known as "a guilty state of mind," in a hypothetical idea like
a company was also exceedingly difficult. The fact that Company was a created person meant that
penalties like incarceration and other forms of punishment were not an option. However, there are
other illegal acts in which a company can engage and, sadly, does, ranging from workplace
fatalities and injuries to personal injuries and harm to the property of customers and other members
of the public. The ineffective rate of assigning responsibility for them and pursuing prosecution has
been caused in part by the absence of perception to link the business image with such crimes.8
Thus, the legislative and judicial branches' never-ending battle to find a solution to the issue of
criminally blaming fictitious entities in a legal system founded on the moral responsibility of
individuals is what has defined the development of the idea of corporate criminal liability. However,
there are other ways to classify corporate criminal culpability, including: liability lies solely with the
individual who committed the crime; liability rests with the corporation alone; or liability rests with
both the individual and the company.
Each of the aforementioned situations has advantages and disadvantages, but there is only one point
of agreement: at least one party must be held accountable for the crime that was committed using the
company's vehicle. There are numerous theoretical and practical barriers to prosecuting corporations
under criminal law.

8
Bronitt, Simon. McSherry, Bernadette, Principles of Criminal Law (Thomson Reuters, Australia, 2010).
 THEORETICAL HURDLES PRACTICAL HURDLES
The conventional arguments centered on the The type of penalties that may be imposed on a
necessity of subjecting businesses to criminal corporation in the event of a conviction was a
punishment when civil penalties could already be significant issue that needed to be addressed.
imposed. In the realm of criminal law, social Since incarceration was obviously not an
morality served as the foundation for this option for a company, the question of whether
discussion. It is argued that social morality and the the courts might impose penalties in lieu of the
criminal justice system are intertwined. Criminal punishment required by the law had to be
law serves as a tool to uphold societal morality and explored.
guarantee that crime is suppressed in order to
This problem surfaced in India with a unique
protect people from harm. The State is therefore
twist. Along with imprisonment, many IPC
permitted to utilise the authorities at its disposal
sections also impose fines as penalties. The
with the aim of preventing harm to members of
issue is what punishment should be applied to a
society.
business for such offences that call for both jail
Traditionally, businesses have solely been viewed and a fine since a corporation is not a "juristic
as profit-making entities. However, the number of person" and cannot be imprisoned. Companies
corporations simply increased dramatically in the cannot avoid prosecution just because the
decades following the Industrial Revolution and crime for which they must be charged entails a
the two World Wars, necessitating a reexamination mandatory prison term. The SC concluded that
of the complacent manner in which corporate the corporation is in the same situation as any
liability was handled by the criminal law. person subject to conviction for common law
Corporate crimes, on the other hand, found little and statutory offences, including those for
tolerance among the general public by the middle which mens rea is required.9
of the 20th century, which marked a change in how
society perceived corporations. The society turned
to the State to use its powers to restrain corporate
crime as it became obvious that the activities of
businesses have a significant potential to
undermine social values and interests.

9
(2011) 1SCC 74.
Corporate companies were now The SC made it quite plain that despite the claim that
anticipated to have a social conscience. criminal mens rea was lacking, businesses are not
Adapting moral norms made it possible exempt from criminal punishment. Adopting the
for businesses to be under the purview concepts of attribution and imputation has rendered
of criminal law. irrelevant the notion that a company cannot be held
Despite the general concept being in accountable for the commission of a crime. In light of
place, there were certain practical issues the expanding scope of corporate crimes, it is
that needed to be resolved. First, it was necessary to establish more definite and stringent
difficult for the courts to assign mens rea regulations and standards that could prevent them
to cases in order to demonstrate that they from committing such crimes.
were "intent crimes." Since a "juristic A company can be found guilty of both common law
person," who is incapable of acting or and statutory offences, including those requiring mens
thinking for itself, has never been rea, and is essentially in the same situation as any
imagined in the realm of mens rea, human. When a person or group of people in charge
interpreting the idea of mens rea as of the corporation's affairs commits an offence related
established in traditional criminal law to its business, the corporation becomes criminally
was difficult in the situation of liable. In such cases, it would be necessary to confirm
companies. It was quite difficult to adapt that the degree and level of control of the person or
the concept for a corporate setting. body of people is sufficiently strong that it can be
argued that a company thinks and acts via the person
or body of people.
NORMATIVE RECOGNITION OF CORPORATE CRIMINAL LIABILITY IN INDIA: THE
COMPANIES ACT, 2013

India's legal governance environment and perception of corporate criminal responsibility are
both changing. One excellent example of the same is the Companies Act of 2013. To better
manage and deter corporate frauds and standardise governance practises, the law has undergone
significant modification. This Act has specific rules that address common business crimes
including fraud and deception, among others. The Act restricts frauds and discourages their
repetition by increasing the accountability and responsibility of independent directors, auditors,
and other professionals who serve as watchdogs to ensure a company's compliance with The
Companies Act and other relevant legal requirements. In addition, the Act imposes personal
obligations on key personnel, auditors, and other workers. The current Act has gained praise
from both business experts and members of the legal community since it is not only thorough but
also rigorous with real consequences that work to stop frauds. Overall, it can be claimed that
India's legal system is developing and adapting to the growing necessity to curtail and manage
corporate crimes' multifaceted nature. The corporate criminal liability is recognized under the
following sections of the Companies Act, 2013 –

 Section 53: Prohibition on an issue of shares on discount

The company will be fined for the amount not less than one lakh but which may extend
up to five lakhs. Further, the officer in default may be imprisoned for up to six months or
fine of minimum one lakh which may extend to five lakhs or both.

 Section 57: Punishment for personation of shareholder

Such person in default will be ordered a minimum 1 year to maximum 3 years
imprisonment or, with fine not less than Rs. 1 lakh and may extend to Rs. 5 lakhs.

 Section 58(6): Refusal of registration and appeal against refusal

Such person in default will be ordered a minimum 1 year to maximum 3 years
imprisonment or with fine not less than Rs. 1 lakh and may extend to Rs. 5 lakhs.

 Section 118(12): Minutes of proceedings of general meeting, meeting of Board of

Directors and other meeting and resolutions passed by postal ballot
 If a person is found tampering with the minutes of meeting then such an officer in default
may be imprisoned for the term which may extend to 2 years or with fine of not less than
twenty-five thousand but may extend to one lakh.

 Section 128(6): Books of account, etc., to be kept by Company

Officer in default with a maximum imprisonment of 1 year or fine, not less than Rs.
50,000 and may extend to Rs. 5 lakhs or with both.

 Section 129(7): Financial statement

Officer in default with a maximum imprisonment of 1 year or fine, not less than Rs.
50,000 and may extend to Rs. 5 lakhs or with both.

 Section 134: Financial statement, Board’s report, etc

Company Fine- Not less than Rs. 50,000 and may extend to Rs.25 lakhs and Officer in
default- Maximum imprisonment of 3 years or Fine- Not less than Rs. 50,000 and may
extend to Rs. 5 lakhs or with both.

 (4): Prohibitions and restrictions regarding political contributions Company Fine

will be 5 times of the amount of contribution in contravention and Officer in default
with a maximum imprisonment of 6 months and fine upto 5 times of the amount of
contribution in contravention.

 Section 184(4): Disclosure of interest by the director

Such person in default will be ordered a minimum 1-year imprisonment or fine not less
than Rs. 50,000 and may extend to Rs. 1 lakh or both.

 Section 187(4): Investments of Company to be held in its own name

Company Fine not less than Rs.25,000 and may extend to Rs.25 lakhs and Officer in
default will be ordered a maximum imprisonment of 6 months or fine not less than Rs.
25,000 and may extend to Rs. 1 lakh or with both.

 Section 188(5): Related party transactions

In case of unlisted Company, be punishable with fine which shall not be less than 25,000
rupees but which may extend to 5 lakh rupees.
  Section 447: Punishment for fraud
Any person who is found to be guilty of fraud will be imprisonment maximum of 6
months may extend to 10 years. Such person also liable to fine which may extend up to 3
times the amount involved. The Report of the Companies Law Committee 10 received
suggestions that the ambit of Section 447 was too broad and would result in minor
infractions being punished with severe penalties, which are non-compoundable.
However, it was also suggested during the discussions that once the offence of fraud is
established, it would not be tenable to provide for a threshold for it to be punishable
under Section 447. The Committee observed that “the provision has a potential of being
misused and may also have a negative impact on attracting professionals in the post of
directors etc. and, therefore, recommends that only frauds, which involve at least an
amount of rupees ten lakh or one percent of the turnover of the company, whichever is
lower, may be punishable under Section 447 (and non-compoundable). Frauds below the
limits, which do not involve public interest, may be given a differential treatment and
compoundable since the cost of prosecution may exceed the quantum involved.”

NEW DIMENSIONS OF CORPORATE CRIME

Every day, several new scams and crimes appear, and most of the time we are oblivious of
them. According to the Deloitte India Fraud Survey, there are various dimensions of corporate
crime that have been seen around the world. As a result of the rising tendency of using high-
tech digital media in conventional business models, India may soon experience four prevalent
frauds. Scams involving the media, e-commerce, cloud computing, and virtual currencies.11

I. E-commerce Fraud:

The use of computer networks, the Internet, and online media to conduct many transactions is now a

10
Ministry of Corporate Affairs (Government of India), Report of the Companies Law Committee. Report submitted
to Hon’ble Finance Minister on 1st February, 2016.
11
Deloitte India Fraud Survey- 2014; Available at:
http://www2.deloitte.com/content/dam/Deloitte/in/Documents/finance/in-finance-annualfraud-survey- noexp.pdf
common practise in almost every industry. The e-commerce market is currently valued at close to
INR 224 billion and has been expanding quite quickly. In the following two years, it is anticipated to
nearly double. The travel sector currently takes up a large portion of the e-commerce market with
transactions like online shopping, hotel reservations, and ticket purchases. In India, the likelihood of
conducting business online has been growing along with internet usage. More than 243 million
people are predicted to be Internet users worldwide by the year 2014.

II. Social Media Fraud:

Social networking is a very common and used technology today. Businesses use it to increase their
public profile and popularity. Social media provides businesses with a platform to engage with and
get to know their customers. Even while businesses have begun embracing social media as a tool for
strategic marketing and building consumer relationships, they are still learning how to use it. While
clients of all ages, genders, and locations frequently utilise social media, hackers have the ability to
intercept the data and use it against the advertiser. Additionally, there are other dangers like bad
press, customer data loss, etc. that make it a dangerous and alluring place for corporate crimes.

III. Cloud Computing Fraud:

People use and demand online access to their data and applications that can let them do so more
frequently. Many different gadgets are used, including desktop PCs, smartphones, laptops, tablets,
and more. Cloud computing effectively addresses this issue. The younger generation in India uses
cloud solutions, but businesses are now adopting cloud access to quickly and concurrently share
internal data. Online scams are now quite likely to occur as a result. Currently, businesses may share
and update data and documents while concurrently seeing and using them from many locations
thanks to cloud technology. Real-time, low-cost interaction between people is possible on the cloud.
Because there are so many uses and applications for cloud computing, it has become a target for
online scammers who put shared data at risk. A variety of data, including internal information and
intellectual property, are vulnerable to theft or exploitation. Identity theft, hacking, and other risks
have increased as a result of cloud computing.

IV. Virtual / Crypto-Currency Fraud:

A digital or virtual currency that employs cryptography for security is known as a crypto currency.
One virtual currency that is quite popular on black market websites and has come under examination
from US officials is called "Bitcoin." This form of payment is accepted at numerous online
marketplaces and is dependent on intricate systems and networks. Online transfers, mobile recharges,
and various online trading or exchanges for goods or services are just a few of the transactions that
involve cryptocurrencies. Unlike the creation of actual money, which is governed and managed, the
creation of digital currency is much less controlled and more susceptible to manipulation.

CONCLUSION

Both worldwide and in India, the idea of corporate criminal culpability is still in its infancy. The
notion and idea of corporate criminal culpability are still in their infancy, despite efforts being made
to control and minimise corporate crime through legislation like the 2013 Companies Act. The Indian
government is working very hard to combat the growing threat of corruption. Such offences fall
under a category where not only individuals, but also businesses must share responsibility. How well
laws and regulations can regulate business behaviour is still up for dispute. It is again disputed how
tight these regulations should be and what strategy is best for dealing with corporate criminal
culpability. As a result, rather than using a predetermined strategy, most courts are attempting to
determine the best practicable result given the circumstances. The current state of the laws makes it
still impossible to stop many business crimes. The requirement to establish corporate criminal
culpability is changing along with the criminal activity.

Recommendations –

Currently, it has been noted that businesses are rarely subject to criminal prosecution. There is
obviously a lot that needs to be done in this area, but the work that has already been done should not
be discounted. Conflicts in the interpretation of corporate criminal liability and its implications for
businesses must be avoided. To stop the criminal acts carried out by businesses in the nation, the
legislative needs to implement appropriate measures in the form of new penalties. The following
suggestions may be implemented:
— The courts should be empowered to impose further sanctions on the corporation in addition to the
fine that has been assessed against them.
— More severe penalties, such as corporation dissolution. Courts should be allowed to monitor
whether the fined corporate reorganises in such circumstances.
— Social consequences should be applied to offences that seriously affect society.
—International networks between nations ought to behave in a way that prevents offenders from
evading prosecution due to their relationships with other nations.
— If the need arises, the courts should have the authority to appoint technical and professional
experts to provide evaluation reports on the corporation.

BIBLIOGRAPHY

Statutes –
 Companies Act , 2013
 India Penal Code

Research Articles –
 Bronitt, Simon. McSherry, Bernadette, Principles of Criminal Law (Thomson Reuters,
Australia, 2010).
 Clinard, Marshall B. Yeager, Peter C., Corporate Crime (Transaction Publishers, New
Brunswick, 2006).
 Goel, Shivam. Corporate Manslaughter and Corporate Homicide: Scope for a
New Legislation in India, (Partridge Publishing India, Gurgaon, 2015).
 Kelly-Kilgore, Sarah. Smith, Emily M., ‘Corporate Criminal Liability’, 48(2) American
Criminal Law Review 421-453 (2011).
 Sharma, Sumit. Corporate Crimes & Financial Frauds: With Biggest Financial
Frauds in the History of India, India (Authors Press, New Delhi, 2014).
Cases –
 AnathBandhu v. Corporation of Calcutta (AIR 1952 Cal 759)
 Punjab National Bank vs. A.R. Gonsalyes, Bunder Inspector, Karachi Port
Trust, (AIR 1951 Sind 142)
 State of Maharashtra vs. Syndicate Transport Co. (P) Ltd, (AIR 1964 Bom 195)
 Iridium India Telecom Ltd. v.Motorola Incorporated and Ors ((2011) 1SCC 74)

Reports –
 Ministry of Corporate Affairs (Government of India), Report of the
Companies Law Committee. Report submitted to Hon’ble Finance Minister
on 1st February, 2016.
 Deloitte India Fraud Survey- 2014

*****