Corporate Criminal Liability

• 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, as well as the human beings.
---------Glanville Williams
 Introduction
• In criminal law, corporate liability determines the extent to which
a corporation as a legal person can be liable for the acts and
omissions of the natural persons it employs.
• It is sometimes regarded as an aspect of criminal vicarious
liability, as distinct from the situation in which the wording of a
statutory offence specifically attaches liability to the company /
corporation.
• The basic rule of criminal liability revolves around the Latin
maxim actus non facit reum, nisi mens sit rea.
• It means that to make one liable it must be shown that act or
omission has been done which was forbidden by law and has
been done with guilty mind
 Historical Evolution
• 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 intent”
• During the early twentieth century courts began to hold corporations
criminally liable in various areas in which enforcement would be
impeded without corporate liability
• Major hurdles that faced the attribution of criminal liability on
corporates were factors such as :--
1. artificial juristic personality and
2. absence of mens rea on the part of the corporate.
Corporate criminal liability in 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
 Corporate Criminal Liability
Case Law -- Pre-Standard Chartered Bank
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 (1992) Cr.L.J. 1448,
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,
1. the first being that of mens rea and
2. 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) (1997) 8 SCC 732
• A company accused and arraigned under the Terrorists and Disruptive
Activities Prevention (TADA) Act, was alleged to have harbored terrorists.
trial court convicted the company - section 3(4) of the TADA Act- appeal S C
referred - definition "harbor" -Section 52A IPC- nothing to indicate- mens rea
excluded
• 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 -S C-- 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
  In Zee Tele films Ltd. v. Sahara India Co. Corp. Ltd (2001) 3 Recent
Criminal Reports 292
• the court a complaint dismissed -Section 500 of the IPC-alleged that
Zee had telecasted a program based on falsehood and thereby defamed
Sahara India-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 (2004) Cri.L.J. 1576,
the Bombay H C quashed a proceeding- 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.
  In The Assistant Commissioner, Assessment-II, Bangalore & Ors. v. Velliappa
Textiles,
• a private company was prosecuted- Sections 276-C and 277 of the ITA provided
for a sentence of imprisonment –S C held -company could not be prosecuted
• - each sections required the imposition of a mandatory term 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 (2005) 4
SCC 530
• Standard Chartered Bank was being prosecuted for violation of certain
provisions of the Foreign Exchange Regulation Act, 1973
• Supreme Court held that the corporation could be prosecuted and punished,
with fines, regardless of the mandatory punishment required under the
respective statute.
In Velliappa Textiles case, 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.
•  view of different High Courts in India was very
inconsistent
in State of Maharashtra v. Syndicate (1963)
Transport Bom. L.R. 197
• High Court had held that the company could not be
prosecuted for offenses which necessarily entailed
corporal punishment or imprisonment; prosecuting a
company for such offenses would only result in a trial
with a verdict of guilty and no effective order by way
of a sentence.
 in Oswal Vanaspati & Allied Industries v. State of Uttar Pradesh Comp.L.J.172
• The Full Bench of the Allahabad High Court had disagreed: “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 may not in all cases be illegal”
•  The Supreme Court in this particular case held:“We do not
think that the intention of the Legislature is to give
complete immunity from prosecution to the corporate
bodies for these grave offenses.
• The offenses mentioned under Section 56(1) of the FERA
Act, 1973 for which the minimum sentence of six months'
imprisonment is prescribed, are serious offenses and if
committed would have serious financial consequences
affecting the economy of the country.
• All those offenses could be committed by company or
corporate bodies.
 We do not think that the legislative intent is not to
prosecute the companies for these serious offenses, if
these offenses involve the amount or value of more than
one lakh, and that they could be prosecuted only when the
offenses involve an amount or value less than one lakh.”
• By implication, it can be said that post Standard Chartered
decision, corporations are capable of possessing the
requisite mens rea.
• As in prosecution of other economic crimes, intention
could very well be imputed to a corporation and may be
gathered from the acts and/or omissions of a corporation
 Corporate Criminal Liability
Post-Standard Chartered Bank Case
In Iridium India Telecom Ltd. v. Motorola Incorporated and Ors AIR
2011 SC 20,
• 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.
In CBI v. M/s Blue-Sky Tie-up Ltd and Ors Crl. Appeal No(s). 950 of
2004,
• the apex court reiterated the position of law held that companies
are liable to be prosecuted for criminal offences and fines may be
imposed on the companies.
 Can Criminal Liability of Corporation be
determined through Imprisonment?
• in case of corporation, Imprisonment cannot be recognised
even for serious offences mentioned under the IPC. 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
• The argument that a corporation has no soul to damn and no
body to imprison cuts both ways.
• Critics use it to argue that there is no reason to prosecute a
corporation.
• Supporters of corporate criminal liability might turn the
argument around and ask what’s the big deal, since the
corporation can’t go to jail?
• Corporate liability may appear incompatible with the
aim of deterrence because a corporation is a fictional
legal entity and thus cannot itself be “deterred.”
• In reality, the law aims to deter the unlawful acts or
omissions of a corporation’s agents.
• To defend corporate liability in deterrence terms,
one must show that it deters corporate managers or
employees better than does direct individual liability.
 International Scenario
• The criminal sanctions are quite high and criminal liability of a
company is recognized by the Australian Legislation.
• Moreover, the Australian legislature have introduced criminal
liability of directors
• A basic principle of German law is societas delinquere non potest,
which means that a corporate body cannot be liable for a criminal
offence.
• 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.
• It has provision for fine as punishment.
• Corporate criminal liability is an integral part of
Japanese law.
• There are currently more than 700 criminal provisions
on the national level alone, which can punish entities
other than individuals.
• China’s Criminal Code, which was first introduced in
1979, did not contain a provision on corporate
criminal liability until 1997.
Prior to the introduction of “unit crime” into the
Criminal Code in Article 30
• 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
• United Nations Congress on the Prevention of Crime and
the Treatment of Offenders of 1985
• 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.
 In India
• The wave of corruption scandals is affecting India very badly.
• In order to fix this it is 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.
• But the statutes in India are not in pace with these
developments and the above 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.
• So it is inevitable to take some serious measures in
relation to the criminal liability of corporation so
that it could be stopped from the multiple
dimensions of the court’s decision.
• Absent the possibility of criminal liability, corporations
would escape moral conviction for wrongdoing, and the
retributive import of criminal liability to the community
would be lost.
• For under a civil liability regime for the corporation qua
corporation, there would be no moral condemnation
equivalent to a criminal conviction: if found civilly liable, a
corporation might be deemed negligent, or perhaps
reckless, but no statement, in the form of a conviction,
would attest to the proper valuation of the persons or
goods at issue.
• In the end, the financial liability imposed would come to be
viewed, by both the corporation and the community, merely as a
cost of doing business.
• In effect, then, a corporate civil liability regime that paralleled
ordinary criminal liability for individuals charged with the same
wrongdoing would allow the corporation qua corporation to
purchase exemption from moral condemnation.
• Such exemption would affect the expressive significance of
criminal liability, as the vindication of the proper valuations of
persons and goods would vary not with the conduct alleged--a
distinction that rightly could affect the evaluative standard
employed--but, rather, with the identity of the offender.