This article is written by Ayushi Dubey, a third-year student of Institute of Law, Nirma University. The article discusses the concept of corporate criminal liability with respect to its position in different laws of the world. The article highlights the need for better and developed statutes and laws for corporate criminal liability in India. The author has provided a detailed account of various corporate criminal liability theories and supported the points through judicial pronouncements.
Corporations have a separate legal entity and they are treated as a separate personality in law. And therefore, separate liability can be imposed on corporations from any criminal liability which may be imposed on the individual members for any wrongdoing. The legal maxim upon which the basic rule of criminal liability stands is “actus non facit reum nisi mens sit rea means” which basically means that an act is not wrongful unless it is done with a wrongful state of mind.
The companies are criminally liable only for the offences that happen during the course of business operation and for which the company bears responsibility.
A corporation can be convicted for the violation of penal law in the courts which comes under that particular court’s jurisdiction. A company can be involved in offences such as murder, failure to ensure safety mechanism and any other offence of omission. A corporation cannot be imprisoned and presumably cannot be held liable for rape. As intention does not play a role in deciding cases against corporation therefore, it can be held liable for an offence which does not involve any intention.
After the debate about the propriety of criminal punishing a corporate entity, the current rules regarding corporate criminal liability came out. The major argument was that a corporate entity lacks the required mens rea to commit a crime. According to the current rules, both the corporation and its employees can be held liable for an offence by the corporation.
The criminal law regarding corporations is not only restricted to the Indian Penal Code but also there are various statutes governing the same. However, the Supreme Court of India has expressed the need to have proper laws related to corporate criminal liability in India. As of now, India imposes strict and vicarious liability on a corporate and its officers who are responsible for the management of the affairs of the company.
Legal Position in USA and England
- In the USA a corporate can be held liable for the acts done with intent. The Supreme Court of the USA held that they find no valid reason in law and every reason in public policy regarding making corporations criminally liable.
- In England “corporation is not indictable, but the particular members of it are.” A corporation is civilly and criminally liable for the acts of persons authorized to and have acted in a particular manner out of which the unlawful act has resulted. 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.
- J Macnaghten: A body corporate is a person to whom there should be imputed the attribute of a mind capable of knowing and forming an intention. A body corporate can have the intent but not criminal intent.
- 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.
- In the case of H.L Bolton (Engg) Co. Ltd v. T.J. Graham and Sons  it was held that Company may in many ways be likened to a human body. They have a brain and nerve centre which concludes what they do. They also have hands which accordance with 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.
- State of the mind of these managers is the state of mind of the company and is treated by the law as such.
- In cases where the law requires personal fault as a condition for liability in tort, the fault of the manager would be the personal fault of the company. Similarly, in the criminal law in cases where the law requires guilty mind as the condition of the offence the guilty mind of the managers or directors of the company will render them liable.
- In the case of Tesco Supermarkets Ltd v. Nattrass , stating the criminal liability of corporate, Lord Reid said, a living person has knowledge and intention, and he can act negligently the corporation has none of them. A corporation must act through living persons, though not always one or the same person. A 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.
- 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 is the guilt of the company. Any liability of the company can be a statutory or vicarious liability.
- 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. Mens rea is attributed to the principle of “alter ego” of the company.
- In Director of Public Prosecutors v. Kent and Sussex Contractors Ltd , MacNaghten J. stated that a body corporate is a ‘person’ to whom there should be imputed to the attribute of a mind capable of knowing and forming an intention. 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.
Legal Position in India
- In the case of Standard Chartered Bank v. Directorate of Enforcement , it was held that the Company is liable to be prosecuted and punished for criminal offences. The Supreme Court rejected the notion that the Company could avoid criminal prosecution in cases where a custodial sentence is mandatory.
- There are 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 a 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.
- As the company cannot be sentenced to imprisonment, the Court cannot impose that punishment, but when imprisonment and fine are prescribed punishment the court can impose the punishment of fine which could be enforced against the Company.
- As regards, company, the court can always impose a sentence of fine and a sentence of imprisonment can be ignored as it is impossible to be carried out in respect of the company.
- In the case of Anil Gupta v. Star India Pvt Limited , the Supreme Court the matter was related to dishonour of cheque under Section 138 and 141 of the Negotiable Instruments Act. The Supreme Court observed that the other categories of offences can be brought under the touchstone of the vicarious liability.
- In Gunmanla Sales Private Limited v. Anu Mehta , the Supreme Court observed that the vicarious liability contemplated in the Negotiable Instruments Act to ensure greater transparency in commercial transactions. This object has to be kept in mind while deciding on the hardships of a particular case.
- In Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd , the dispute was related to deciding the liability of a corporate in dishonour of cheque. The Supreme Court discussed the extent of vicarious liability in case of corporate. The company being a juristic person is liable for the acts of others.
- In case of Iridium India Telecom Ltd v. Motorola Inc , the Supreme Court held that in all jurisdictions across the world which are governed by the rule of Law Companies and Corporate houses can no longer claim immunity from criminal prosecution on the ground that they are not capable of possessing mens rea.
- In the case of Standard Chartered Bank v. Directorate of enforcement , the Supreme Court laid down the view that a company can be held liable and be punished for criminal offences. The case, although rejected the idea of earlier cases which held that a corporation cannot commit criminal offences. The court also held that merely the punishment for a crime is mandatory imprisonment and fine, the corporate cannot be held free from it. Though the court held that the fact that a corporation can not be imprisoned or hanged sets a limit on the criminal liability of the corporate. Therefore, a corporate can only be prosecuted for crimes which involve fine.
Theories of Criminal Liability
In vicarious liability, the accused is blamed for the offence of another. Vicarious liability is based on the principle of Respondeat Superior which means let the master answer. General rule of Law of torts where the employer can be held liable for all Acts of employees done in the course of the employment. This doctrine is applicable in criminal law as well wherein corporate may be held liable and punishment can be fine and seizure of the property. Though the application of this doctrine has been criticized on the grounds that it ignores the company’s effort to prevent illegal activity by an employee.
For vicarious liability, the act and intent of the employee must be imputed to the company and the employee should act within the course of employment. The Supreme Court, referring to Section 145 of the Negotiable instruments act, held that the person who is responsible for the conduct of the business of the company and is in charge of the company can be held liable for vicarious liability.
It requires that corporations should take responsibility for the persons having decision making authority for the policy of the corporation rather than the persons implementing such policies. The theory focuses on the directing minds of the corporation and merges the individual and corporate persons in order to assign criminal liability to the corporate. The theory focuses on the fact that the intention and action of the company are the results of the employees of the company.
The underlying principle of this theory is the detection of the guilty mind. Lord Denning has identified that a company is linked to a human body and it had a brain which controls what it does. The directors of the company control the will and the mind of the company. However, the theory has been criticized for its limited application.
This theory requires the Imposition of fine on the company with respect to criminal liability. However, the imposition of fine creates problems, mainly because it can be difficult to identify which amount for the fine would be fair while punishing a corporate for criminal liabilities. The monetary sanctions are widely used for imposing penalties on the corporations.
Direct Liability Doctrine
It seeks to imitate the imposition of criminal liability on human beings and relies on the notion of personification of the legal body. This doctrine identifies the actions of certain individuals within the company to act within the scope of their authority.
It is a well-settled principle in Criminal Law jurisprudence regarding criminal liability on corporations. A corporation may commit a crime and held liable for a criminal offence. However, the statues in India are not in pace with these developments and they don’t make corporations criminally liable. Even if they do so the statutes and judicial interpretations impose no other punishment except fine. Even the Supreme Court said that there is a need for separate law making provision for infliction of criminal liability on the corporations.
- 1946 3 ALL ER 624
- HL 31 MAR 1971
- (1944) 1 All ER 119
- AIR 2005 SC 2622
- AIR 2014 SC 3078
- AIR 2015 SC 1072
- AIR 2012 SC 2795
- AIR 2011 SC 20
- AIR 2005 SC 2622