This article has been written by Kumar Rajiv Ranjan pursuing the Diploma in General Corporate Practice: Transactions, Governance, and Disputes from LawSikho.
Table of Contents
Introduction
Individual defamation and mudslinging upon each other are not unnatural in our social system. Many a time it had led to a generation-defining crisis and the emergence of a new order. It was the CHEER HARAN of Draupadi by Duryodhana and other Kauravas which culminated into the Mahabharata war as Draupadi had vowed not to tie her log-flowing hairs until blood of her tormentor DUSHASHAN was put into her hair by Pandavas which was fulfilled by BHIMA after killing DUSHASHAN in the war. Not long ago, the # me too movement had rocked the country when the journalist Priya Ramani alleged former minister M J Akbar and subsequently many female actresses followed suit which had practically rocked the Film world.
As far as the corporate world is concerned, Industrialists have often sued media houses and journalists claiming crores of rupees in damages. One case which had rocked the corporate world not long ago was when Bombay Dyeing Chairperson Nusli Wadia had threatened to sue Tata Sons for defamation if his demands were not met which caused a big dent to the image of Tata Sons as a corporate entity always claiming to have been promoting the highest degree of ethical standards and it took some time for Tata Sons to come out of this rude shock.
In the era of hyperactivity, social media, various electronic platform, various malice are propagating everywhere as a result of which safeguarding the hard-earned reputation is becoming a bigger challenge every day in the corporate world in light of which the need for having effective legal tools as safeguard measures against defamation and for promoting organizational excellence has gained prominence. This paper has attempted to analyze the need for having a stronger legal system, both civil and criminal, against unwanted defamation for the corporate houses/Companies/Corporation as well as the prevalent legal system.
Defamation vis-a vis-reputation
Before analyzing DEFAMATION, I would like to dwell upon the other important aspect of a Corporate Culture which is REPUTATION- a term that is closely linked to the other term DEFAMATION and it is the attempted decimation of REPUTATION which creates grounds for DEFAMATION. It is this REPUTATION that determines the social standing of the organization as well as the persons working therein in the eyes of society. A positive reputation as an employer of organizations like Tata Steel helps attract and retain the best talent in the sector. Corporate Social Responsibility, financial performance, staff reviews, media coverage, brand values etc. are all weighed not only by the prospective employees but also by the other stakeholders while evaluating whether to work in the organization or whether to have business dealings with the said organizations etc. I would also like to refer to the historical and mythological characters of DURYODHANA and RAVANA. Their administrative competence and acumen as EFFECTIVE AND EFFICIENT RULERS were never questioned, no public rebellion was ever heard but both are permanently condemned all through their lives which was further compounded by acts of CHEER HARAN of Draupadi and APHARAN of Goddess Sita by Duryodhana and Ravana respectively. I would also like to quote the famous saying of Mark Twain about another condemned character “SATAN” wherein he stated:
“ I have no special regard for Satan but I can at least claim that I have no prejudice against him. It may even be that I lean a little his way on account of his having NEVER a fair show. All religions issue bibles against him and say most injurious things about him but we never hear his side…..”
It is under this backdrop CORPORATE REPUTATION has to be analyzed since any attempt of defamation causes an immediate dent to such reputation. CORPORATE REPUTATION is an index indicating the overall estimation in which the organization is held by its internal and external stakeholders based on its past actions and the probability of its future behavior. A positive corporate image also creates the possibility for more business opportunities just due to solid loyalty and commitment of different stakeholders including the customers. A business organization has to be extremely conscious towards building as well as retaining a positive reputation amongst its stakeholders which includes customers, opinion leaders, suppliers, etc. and any attempt to malign such an image is required to be countered ferociously. That is where the defamation suits come into the picture.
For any organization, it takes years of hard, sincere, dedicated, and committed efforts by all stakeholders working in unison with each other to earn a GOOD POSITIVE REPUTATION and gain the trust and respect of their contemporaries, customers, investors, present and future employees, general masses and every other stakeholder. It is like a prized property invaluable for the company both for the business as well as for its existence. Therefore, when that REPUTATION comes into question in the court of public scrutiny, every company does have a right to preserve it as fiercely as it could for which every possible legal action are required to be taken recourse against any attempted corporate defamation.
Defining defamation
As far as corporate defamation cases in India are concerned, one of the most publicized cases is the case of Veritas Vs. Indiabulls which was filed by Canadian Investment firm Veritas against Indiabulls in 2014 at Ontario claiming for damage of 11 million Dollars [Rs 70 crores] in damages for the alleged defamatory announcements and press releases put out by Indiabulls which led to the closure of its India Research Unit. India Bulls also moved before Delhi High Court and succeeded in obtaining an interim order against the move. Subsequently, it also filed a suit before Delhi High Court claiming Rs 200 Crores in damages from Veritas and its analyst Neeraj Monga for defamatory submission made by them against Indiabulls in the Ontario claim. The matter at present is still sub judice.
In law books or in statutes, the term DEFAMATION has not been defined. However, under the English Common Law, a corporation is entitled to sue for defamatory statements which may affect the reputation and are further also entitled to recover damages without the need to prove special damage. In the landmark judgment of the National Union of General and Municipal Workers Vs Gillian, it was held that there is a distinction between trading and non-trading corporations. It was also ruled that the trading corporation can pursue an action against defamation affecting its trading business as well as its reputation while a non-trading corporation can pursue action only in cases of reputational damage. In Jameel vs Wall Street Journal Europe Sprl., the House of Lords ruled that the corporation need not prove any special damages in a defamation suit. In Metropolitan saloon Omnibus co, Vs Hawkins, it was held that an organization is entitled to sue for defamation “by which its property is injured.”In Dixon Vs Holden, a bird’s eye review of the term PROPERTY was made and it was held that “ What is property? One has property in land, another in goods, another in business, another in skill, another in reputation, and whatever may have the effect of destroying property in any one of these things ( even in a man’s good name) is, in my opinion, destroying property of a most valuable description.”Thus, every corporation/Company does have a right to preserve its reputation. It is a jus in rem , a right enforceable against the world at large.
Types of defamation
DEFAMATION is usually of two kinds:
- LIBEL and ;
- SLANDER.
While LIBEL is “publication” of a false and defamatory statement, tending to injure the reputation of another person/corporation/company/body corporate without any justification, the presence of element of publication requires that the defamatory expression must be made in a medium, which is permanent in nature viz. in writing, printing, pictures, social media quotes, etc. which can be retrieved and presented in a defamation lawsuit whenever it is required.
On the other hand, SLANDER is a false and defamatory statement by spoken words or gestures, tending to injure the reputation of another person. In this case, just words are enough to constitute defamation.
In the Defamation Act of 1952 and Defamation Act of 1996 in England, there is a difference between libel and slander. Libel and not slander is punishable but slander is no offense. Libel is always actionable per se but if laws of Torts are given cognizance to, then slander is also actionable in exceptional cases on proof of exceptional damage.
For constituting defamation, a statement need only have a tendency to affect the person’s or Company’s/Corporate reputation and it need not necessarily lower it down. The applicable standard for filing a legal defamatory suit is that the ordinary members of the society should perceive such statements to lower down the reputation of the Company/body corporate/ members of the corporate management team/Corporation which is enough to be considered as defamatory. So the essential attributes of any defamation lawsuit are:
1) Presence of an untrue spoken/written statement/expression/sign/visible representation;
2) Referring to specific persons/company/body corporate;
3) It is published/comes to the knowledge of other persons; and
4) Deemed harmful/likely to harm the reputation of the Company/body corporate/ members of the corporate mgt team/Corporation.
Evolution of defamatory laws in India
In the Indian context, the defamation laws were conceived by Lord Macaulay in 1837 in the first draft of the Indian Penal Code[IPC] which was codified in 1860 by which the act of defamation has been criminalized under Section-499 of IPC which has remained unaltered till today. Section-499 of the Indian Penal Code reads as follows:
“Whoever, by words either spoken or intended to be read, or by signs or by visible representations, makes or publishes any imputation concerning any person intending to harm, or knowing or having reason to believe that such imputation will harm, the reputation of such persons, is said except in the cases hereinafter expected, to defame that person.”
On the other hand, Section-500 of IPC prescribes punishment for defamation as it states “Whoever defames another shall be punished with simple imprisonment for a term which may extend to two years or with fine or with both.”
The status of a company as a JURIST PERSON has long been accepted and, therefore, a Company may also sue or be sued in defamation cases. Further, the gravity of the offense of defamation under criminal law is a lot higher than in the common law. In criminal law, however, it has to be established that the statement has been made with the explicit intent to arouse the hostility of another person, then only it shall constitute a defamatory statement. In BRK Murthy Vs State of AP[Andhra Pradesh], it has been held that “in brief, the essentials of defamation are, first, the words must be defamatory. Second, they must refer to the aggrieved party and THIRD, they must be maliciously “published”.In this case, the accused had published an article in their journal regarding the conduct of Sri A Shiva Shankar, Inspector General of Police(Intelligence) in the discharge of public functions/duties which caused defamation to Sri Shiva Shankar and filing of defamation suit against the Special Correspondent of the Journal and the case was decided by the Appellate Court which came out with a broader definition of the acts which shall constitute defamation. In Union benefit Guarantee Company vs Thakarlal Thakor, a defamation suit was filed by the company against the defendant for libel action claiming that injury to its credit and reputation as well as in the way of its business has been caused by way of certain statements which according to the plaintiff were false and malicious and it was further claimed that the said false and maliciously written statements were published or caused to be written and published by the defendants which constituted cause for the defamatory suit. The claim was allowed by Bombay High Court and it was held that words used in a manner to negatively reflect upon a company in relation to its trade and business with the intent to cause harm to the company are actionable without proof of special damage. In case, a defamatory statement refers to the character or reputation of its officers, members of the corporate management team, special damage has to be proved.
Some stumbling blocks to be taken care of before filing a defamation suit
Before filing any defamatory suit, it has to be very carefully examined as to whether the suit is going to have any “chilling effect” on the rights of expression and free speech as enshrined under Article-19 of the Constitution of India. The right to fair criticism is a vital ingredient to the right of free speech. A statement based on the analysis of factual information cannot be categorized as defamatory. The defendants in defamation lawsuits are also repeatedly taking shelter to the grounds of truth or bonafide/ fair criticism which the Courts are also accepting. The question of defamation arises only when it is established that the statements are false and maliciously intended. It is this ground of “chilling effect” to the right of expression which most of the Financial Analysts on corporate affairs take recourse to whenever they are countered with a defamatory suit. However, a blanket immunity to such Financial Analysts from defamation lawsuits cannot be granted as many a time false, perverted, and biased Financial Analyst’ reports are also published causing heavy dent to a company’s reputation and in that eventuality, the company as a Jurist person shall be completely justified if it adopts a legal course of action by filing a defamation suit against such Financial Analysts/Experts.
Some significant lawsuits in defamation cases
- In 2008, Bank Atlantic, a Florida-based bank, had filed a defamatory suit against a prominent wall street analyst, Mr. Richard X Bove over a report on potential bank failures titled “Who is next?”. In the defamation suit, the bank claimed that the analyst had defamed the bank by suggesting that it might fail. During the court proceedings, the Lawyers of Mr Bove took the stand that the report had not included Bank Atlantic itself but its holding Company and claimed that Mr. Bove is fighting the lawsuit to defend the career of a financial analyst like him undermined by the constant flurry of lawsuits. The case ended in a settlement between the parties and as part of the settlement, Mr. Richard issued a statement reiterating that his rankings did not include Bank Atlantic but included its holding Company. However, he had to incur a hefty sum of money towards court fees during litigation.
- In 2009, Hertz Global Holding Inc had sued another Financial Analyst Company, Audit Integrity Inc, and its chief executive, Jack Zwingli before Bergen County Superior Court in New Jersey over a report that suggested, as per Hertz’s claim, that the world largest car rental company may go bankrupt. The case was subsequently settled between the Parties through the terms of settlement was not made public and Hertz dropped its defamation suit against the Financial Analyst.
- In 2020, Binance, one of the largest digital asset exchanges, filed a defamation lawsuit against Forbes Media and in the lawsuit, it was claimed that “Forbes published numerous false statements about Binance claiming that it created a corporate structure designed to intentionally deceive the Regulators and that an image was attempted to be created that Binance engages in activities characteristic of money laundering”. According to Binance, in the lawsuit filed, all such statements were false and highly defamatory. The Lawsuit was, however, dropped by Binance voluntarily three months’ after its filing without assigning any reasons.
- In India, recently Edelweiss filed a USD 100 million defamation suit against Moody’s Corporation, a global rating agency, before the Bombay High Court for misreporting its numbers in one of the Firm’s investor reports. It was claimed that in May’2020, Moody’s published a report titled “Economic Slowdown worsened by CoronaVirus will exacerbate liquidity stress” wherein the asset quality and liquidity of various non-banking financial companies (NBFCs) was compared and it was claimed by Plaintiff Edelweis that an incorrect report with malice prepense was published to create panic amongst its shareholders, damaged its Brand and lowered down share prices. In the report, it was claimed that the cash and cash equivalents as a percentage of total assets of Edelweiss were zero and the firm has the least balance in liquid assets compared to other NBFCs. This report was contested by Edelweiss and it was claimed by them that the company’s liquidity position was 17% of total assets as of 30th September 2019 and 22% as of December 2019 and so they alleged that Moody’s put out a wrong report with malicious intent to damage the group and create panic amongst its shareholders which created grounds for filing the lawsuit. Presently, the case is subjudice.
- Subramaniam Swamy vs Union of India is another landmark judgment wherein the TWO JUDGES bench of Hon’ble Supreme Court namely Justice Dipak Mishra and Justice PC Pant decided to maintain constitutional validity of the Country’s criminal defamation laws. The gist of the case is that in 2014, Dr. Subramaniyam Swamy, an MP, had made corruption allegations against Ms. Jayalathitha. In response thereto, the Tamil Nadu State Government filed a defamation suit against Dr. Swamy. Thereafter, Dr. Swamy and some other prominent politicians had challenged the constitutional validity of the criminal defamation laws in India and the matter came before the Apex Court which decided and upheld the constitutional validity of the defamation laws. The Court observed that the right to freedom of speech and expression cannot be “ allowed so much room that even reputation of an individual which is a constituent of Article-21 would have no entry into that Area.” It further held that Section 499 and Section 500 of IPC, being the ROOTS for prosecution under the criminal defamation laws in India, are not vaguely worded or ambiguous. This order, having been an ordain of the Supreme Court, has put to rest the repeated arguments, disagreements, and discourse on the issues pertaining to the constitutional validity of the Criminal defamation laws in India.
Conclusion
In a Harvard Business Review from its Feb’2007 issue, it was stated that “in an economy where 70% to 80% of market values comes from hard to assess intangible assets such as brand equity, intellectual capital, and goodwill, companies are especially vulnerable to anything that damages its reputation and, therefore, every company is rightfully and lawfully entitled to take legal resources, both civil and criminal, to safeguard its hard-earned reputation from attempted defamation by filing lawsuits.” However, every lawsuit does have its own “chilling effect” on the right of freedom of speech as enshrined in Indian Constitution and, therefore, every case shall be required to be very carefully examined for arriving at a fair balance between the right to reputation of a Company vis-à-vis freedom of speech in the face of public interest and corporate reputation. However, every corporation or a company does have a legal right to sue in defamation premised on the concept of corporate reputation as a hard-earned property that is to be protected from unlawful damages, and this legal protection is also needed for vindicating its reputation. As an additional remedy, the Corporation or the Company should be also entitled to recover special damages as reparation for damage to the reputation provided they are proved and established. In the era of hyper activism on social media, it is quite easy and becoming a fashion to criticize without going into depth of any matter. It is this tendency and exhibited behavior with fair regularity which is required to be curbed and controlled and judicial activism and defamation lawsuits both criminal and civil, maybe, the answers to the Corporate World in order to closely safeguard its hard-earned REPUTATION from acts of DEFAMATION with malice prepense.
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:
