The question of punishing a corporation came up recently in the Supreme Court in a

criminal case filed by Iridium India Telecom Ltd against Motorola Incorporated. The
allegations were cheating and criminal conspiracy. The magistrate in Pune started
proceedings against Motorola. It moved the Bombay High Court against the prosecution.
The high court quashed the proceedings giving several reasons, one of them being that a
corporation was incapable of committing the offence of cheating as it has no mind.
According to the high court, although a company can be a victim of deception, it cannot
be the perpetrator of deception. Only a natural person is capable of having a guilty mind
to commit an offence.However, the Supreme Court set aside the high court’s finding and
asserted that a corporate body can be prosecuted for cheating and conspiracy under the
Indian Penal Code. The offences for which companies can be criminally prosecuted are
not limited only to the specific provisions made in the Income Tax Act, the Essential
Commodities Act, and the Prevention of Food Adulteration Act. Several other statutes also
make a company liable for prosecution, conviction and sentence.
The court allowed the prosecution to go on, stating that companies and corporate houses
can no longer claim immunity from criminal prosecution on the ground that they are
incapable of possessing the necessary mens rea for the commission of criminal offences.
The legal position in England and the United States has now crystallised to leave no
manner of doubt that a corporation would be liable for crimes of intent. This is the
position all over the world where rule of law supreme. In its ruling, the Supreme Court
reiterated the legal position on two counts: (i) the scope of jurisdiction of the High Court
in quashing criminal proceedings under Section 482 of the Criminal Procedure Code; and
(ii) the fact that companies can be prosecuted for offences involving mens rea. On the
second count, the Supreme Court merely reiterated the principles laid down in the
previous case of Standard Chartered Bank v. Directorate of Enforcement [(2005) 4 SCC
405].

The Supreme Court, however, did not have the opportunity to rule on certain other
important aspects of the case, which relate to the liability of a company for misstatements
or non-disclosures in an information memorandum issued in connection with an offering
of securities. That would be the subject-matter of the prosecution that would continue
now that the Supreme Court has flashed the green signal.

The criminal complaint pertains to a charge of cheating under section 420 read with
section 120B (conspiracy) under the Indian Penal Code (I.P.C.). The allegation is that
Motorala Inc., the respondent in the case and the primary contractor for the Iridium
system/project, floated a private placement memorandum (PPM) to obtain
funds/investments to finance the Iridium project. The project was “represented as being
the world’s first commercial system designed to provide global digital hand held
telephone data … and it was intended to be a wireless communication system through a
constellation of 66 satellites in low orbit to provide digital service to mobile phones and
other subscriber equipment locally.” Several financial institutions invested in the project
based on the information contained in the PPM. However, it is alleged that the
representations were false and that the project turned out to the commercially unviable
resulting in significant loss to the investors.

The facts of the case provide the basis for potentially interesting legal issues.
First, it must be noted that the complaint has been brought under the I.P.C. (being the
general criminal law) and not under any specific corporate or securities legislation. That
is understandable because the PPM did not pertain to a “public” offering of shares, and
hence the relevant prospectus provisions (and concomitant liability issues therein) are
not attracted. The transaction appears to be in the nature of a private placement and
hence governed contractually rather than as a matter of public securities laws. Whether
or not the use of general offences of cheating and conspiracy to offerings of corporate
securities would enure to the benefit of the complainant or the respondent remains to be
seen.

Second, the issuer has placed reliance on the extensive nature of risk factors and
disclaimers in the PPM as a defence against criminal liability. Although the High Court
was persuaded by the existence of such cautionary language in the PPM, the Supreme
Court did not place much importance to risk factors, at least at the present stage of
deciding whether to allow the prosecution to continue. The validity of, and weightage
given to, disclaimers and risk factors in a PPM is sure to be tested.

Third, it would be necessary to consider the question whether sophisticated investors

such as financial institutions would be held to a higher standard while considering
whether there had been “deception” practised by the issuer company.

Finally, the court would have to draw a clear line on the facts as to whether there was
deception and inducement “fraudulently and dishonestly” on the part of the issuer
company, or whether it was merely a case of bad business judgment. Although the
distinction may be fairly stark as a matter of law, it may not always be quite as clear on a
given set of facts and circumstances.

The Courts in England have emphatically rejected the notion that a body corporate could
not commit a criminal offence which was an outcome of an act of will needing a particular
state of mind. The aforesaid notion has been rejected by adopting the doctrine of attribution
and imputation. In other words, the criminal intent of the "alter ego" of the company / body
corporate, i.e., the person or group of person that guide the business of the company, would
be imputed to the corporation. It may be appropriate at this stage to notice the observations
made by the MacNaghten, J. in the case of Director of Public Prosecutions Vs. Kent and
Sussex Contractors Ltd.36:

"A body corporate is a `person' to whom, amongst the various attributes it may have, there
should be imputed the attribute of a mind capable of knowing and forming an intention --
indeed it is much too late in the day to suggest the contrary. It can only know or form an
intention through its human agents, but circumstances may be such that the knowledge of
the agent must be imputed to the body corporate. Counsel for the respondents says that,
although a body corporate may be capable of having an intention, it is not capable of having
a criminal intention. In this particular case the intention was the intention to deceive. If, as
in this case, the responsible agent of a body corporate puts forward a document knowing it
to be false and intending that it should deceive, I apprehend, according to the authorities
that Viscount Caldecote, L.C.J., has cited, his knowledge and intention must be imputed to
the body corporate."

[1944 1 All ER 119]

The principle has been reiterated by Lord Denning in the case of H.L.Bolton (Engg.) Co.
Ltd. Vs. T.J.Graham & Sons in the following words:-

"A company may in many ways be likened to a human body. They have a brain and a nerve
centre which controls what they do. They also have hands which hold the tools and act in
accordance with directions from the centre. Some of the people in the company are mere
servants and agents who are nothing more than hands to do the work and cannot be said to
represent the mind or will. Others are directors and managers who represent the directing
mind and will of the company, and control what they do. The state of mind of these
managers is the state of mind of the company and is treated by the law as such. So you will
find that in cases where the law requires personal fault as a condition of liability in tort, the
fault of the manager will be the personal fault of the company. That is made clear in Lord
Haldane's speech in Lennard's Carrying Co. Ltd. Vs. Asiatic Petroleum Co. Ltd. (AC
at pp. 713, 714). So also in the criminal law, in cases where the law requires a guilty mind
as a condition of a criminal offence, the guilty mind of the directors or the managers will
render the company themselves guilty."

he aforesaid principle has been firmly established in England since the decision of House
of Lords in Tesco Supermarkets Ltd. Vs. Nattrass38. In stating the principle of corporate
liability for criminal offences, Lord Reid made the following statement of law:-

"I must start by considering the nature of the personality which by a fiction the law
attributes to a corporation. A living person has a mind which can have knowledge or
intention or be negligent and he has hands to carry out his intentions. A corporation
has [1956 3 All ER 624] [1971 All ER 127].

none of these; it must act through living persons, though not always one or the same person.
Then the person who acts is not speaking or acting for the company. He is acting as the
company and his mind which directs his acts is the mind of the company. There is no
question of the company being vicariously liable. He is not acting as a servant,
representative, agent or delegate. He is an embodiment of the company or, one could say,
he hears and speaks through the persona of the company, within his appropriate sphere, and
his mind is the mind of the company. If it is guilty mind then that guilt is the guilt of the
company. It must be a question of law whether, once the facts have been ascertained, a
person in doing particular things is to be regarded as the company or merely as the
company's servant or agent. In that case any liability of the company can only be a statutory
or vicarious liability."

38. From the above it becomes evident that a corporation is virtually in the same position
as any individual and may be convicted of 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. 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 position of law
on this issue in Canada is almost the same. Mens rea is attributed to corporations on the
principle of `alter ego' of the company. So far as India is concerned, the legal position has
been clearly stated by the Constitution Bench judgment of this Court in the case of
Standard Chartered Bank Vs. Directorate of Enforcement39 On a detailed consideration of
the entire body of case laws in this country as well as other jurisdictions, it has been
observed as follows:

"There is no dispute that a company is liable to be prosecuted and punished for criminal
offences. Although there are earlier authorities to the effect that corporations cannot
commit a crime, the generally accepted modern rule is that except for such crimes as a
corporation is held incapable of committing by reason of the fact that they involve personal
malicious intent, a corporation may be subject to indictment or other criminal process,
although the criminal act is committed through its agents."

This Court also rejected the submission that a company could avoid criminal prosecution
in cases where custodial sentence is mandatory.

So also there are several other offences in the Indian Penal Code which describe offences
of serious nature whereunder a corporate body also may be found guilty, and the
punishment prescribed is mandatory custodial sentence. There are a series of other offences
under various statutes where the accused are also liable to be punished with custodial
sentence and fine.

30. As the company cannot be sentenced to imprisonment, the court has to resort to
punishment of imposition of fine which is also a prescribed punishment. As per the scheme
of various enactments and also the Indian Penal Code, mandatory custodial sentence is
prescribed for graver offences. If the appellants' plea is accepted, no company or corporate
bodies could be prosecuted for the graver offences whereas they could be prosecuted for
minor offences as the sentence prescribed therein is custodial sentence or fine.

31. As the company cannot be sentenced to imprisonment, the court cannot impose that
punishment, but when imprisonment and fine is the prescribed punishment the court can
impose the punishment of fine which could be enforced against the company. Such a
discretion is to be read into the section so far as the juristic person is concerned. Of course,
the court cannot exercise the same discretion as regards a natural person. Then the court
would not be passing the sentence in accordance with law. As regards company, the court
can always impose a sentence of fine and the sentence of imprisonment can be ignored as
it is impossible to be carried out in respect of a company. This appears to be the intention
of the legislature and we find no difficulty in construing the statute in such a way. We do
not think that there is a blanket immunity for any company from any prosecution for serious
offences merely because the prosecution would ultimately entail a sentence of mandatory
imprisonment. The corporate bodies, such as a firm or company undertake a series of
activities that affect the life, liberty and property of the citizens. Large-scale financial
irregularities are done by various corporations. The corporate vehicle now occupies such a
large portion of the industrial, commercial and sociological sectors that amenability of the
corporation to a criminal law is essential to have a peaceful society with stable economy.

32. We hold that there is no immunity to the companies from prosecution merely because
the prosecution is in
 respect of offences for which the punishment prescribed is mandatory imprisonment (sic
and fine). We overrule the views expressed by the majority in Velliappa Textiles1 on this
point and answer the reference accordingly. Various other contentions have been urged in
all appeals, including this appeal, they be posted for hearing before an appropriate Bench."

The use of the words "in furtherance" suggests that Section 34 is applicable also where the act actually
done is not exactly the act jointly intended by the conspirators to be done, otherwise, the words would
not be needed at all. The common intention can be to da one act and another act can be done in
furtherance of the common intention. It may be a preliminary act necessary to be done before
achieving the common intention; or it may become necessary to do it after achieving the common
intention or it may be done while achieving the common intention. Going to the spot in a motor car is
an act in furtherance of the common intention to commit a crime there; but if while going there the
driver runs over and kills a pedestrian, the collision is merely incidental and the running aver of the
pedestrian is not in furtherance of the common intention. If, however, a conspirator who wishes to
commit a crime involving violence against X is impeded by Y and throws Y aside in order to get at X,
the attack upon Y is made in furtherance of the common intention; see Russell on Crime, pages 557
and 558. 19. If the conditions mentioned in Section 34 are fulfilled, then each of the persons or
conspirators is responsible for the whole criminal act done by all of them. If A and B do a criminal act
to, furtherance of their common intention, each of them is guilty of that offence of which he would
have been guilty if he alone had done the whole criminal act. The law makes no distinction between
them or between the parts played by them in doing the criminal act; each is guilty of the same offence.
If Section 34 applies, it is impossible to convict the conspirators of different offences. 20. Now is the
time to consider the result or effect of the criminal act done by the conspirators because now the Court
has to decide what offence each of the conspirators has committed. The nature of the offence
committed by an accused depends upon the act done by the accused and the effect produced by it
and the sole object of Section 34 is to lay down what act will be deemed to be done by the conspirators.
The section is not a punitive section and does not enact a note of evidence. It enacts a common law
principle of substantive law. If A and B act in concern and do a criminal act, it makes A liable for all the
acts done by him and by B. It makes him liable not out of necessity.

Section 34 makes it quite clear that the liability of all the conspirators is for the criminal act actually
done and not for the common intention, e.g., the act jointly intended by them. Nothing can be clearer
than this and one has only to read Section 34 to know it. What the common intention was, is therefore
not to be considered at all in deciding for what the conspirators are liable. The section does not punish
the conspirators for the act jointly intended by them; it punishes them for the act actually done. Even
if A and B formed a common intention to cause simple or grievous hurt and the simple or grievous hurt
caused by them resulted in death, they will be liable for causing the death. A person who causes
grievous hurt can be punished under Section 302 or 304, Penal Code if the hurt brings about death. It
is often forgotten that one who fractures skull bones can be punished under Section 302 or 304, Penal
Code if death results from the fracture. When A, intending to kill B, hits him on the head and he dies,
he only breaks the skull bones; the nature does the rest and extinguishes the life. So even when he
intends to kill he only fractures the skull. It is, therefore, quite illogical to argue that the conspirators
should be convicted under Section 325, Penal Code only because the common intention was to cause
grievous hurt, even though the grievious hurt results in death. In the case of -- AIR 1953 All 203 (F)' it
was said at page 207: "In the absence of any definite evidence that the intention of giving the beating
was confined to causing simple hurt or grievous hurt or an injury likely to cause death, the presumption
of intention drawn from the nature of the injury actually caused remains unshaken." The learned Judge
has not explained why, even if the common intention was to cause grievous hurt, when it resulted in
death, the offence of murder was not committed by the conspirators. With great respect we would
point out that the intention that is an ingredient of the offence of Section 300, Penal Code has been
confused with common intention. The learned Judge on page 207 writes that if the common intention
was to cause simple hurt or grievous hurt, the mere fact that actually an injury that is sufficient in the
ordinary course of nature to cause death has been caused would be immaterial and the conspirators
who did not cause the fatal injury would be guilty not of murder but of causing simple or grievous hurt
as the case may be. The reason for this is said to be that the fatal injury would be deemed to have
been caused accidentally or in excess of the common intention. Of course, if an act is done accidentally
Section 34 may not apply because it may not be held to be in furtherance of the common intention. If
the common, intention is exceeded, it only means that the act done was not in furtherance of it.
Therefore the real point is not that the conspirators are punished for the act jointly intended by them,
but that they are punished for the criminal act actually done, provided it is in furtherance of their
common intention. If there is a common intention to cause grievous hurt and grievous hurt is caused,
the result or effect of the grievous hurt is quite immaterial. If it results in death, it does not mean that
the grievous hurt was not caused in furtherance of the common intention. When the nature of the
offence is to be ascertained, the act done and the effect produced both must be taken into account;
so if grievous hurt is caused and that brings about death, the conspirators may be guilty of murder or
culpable homicide if the necessary intention or knowledge existed.

The chapter headings that followed broadly conformed to Bentham’s An Introduction to the Principles
of Morals and Legislation in classification and nomenclature. Offences were broadly classified
according to the public and private interests affected, and were set out in four classes: offences against
the public, person, property and condition/reputation. This ‘natural’ division replaced the technical
and complex common law denominations and arrangements that made highly esoteric distinctions
between tort, misdemeanour, felony and treason. As Stokes notes, Bentham had classified offences in
a dual manner: first, according to the entity affected (self, private, semi-private or public) and,
secondly, according to their effect (person, property, reputation or condition). The first created the
primary divisions and then each class was divided according to the second, but Bentham never
grappled with the practical difficulties of drafting a code according to this scheme. Macaulay avoided
the potential complexities caused by a rigid adherence to this scheme by adopting a simpler and looser
ordering, influenced by the 1810 French Code by Portalis. Thus, the IPC begins with public offences
rather than those that affect individual rights as Bentham had suggested.