In this blogpost, Harsha Asnani, student, NIRMA University, Ahmedabad writes about Corporate Criminal Responsibility in India. The author also writes about the problems associated with the fixing of Corporate Criminal Responsibility and the manner in which corporations can be held liable for criminal conduct.
After the adoption of globalisation regime, there has been a steep increase in the emergence of corporations as a form of business. A peculiar feature of such type of business entities is that their scale of operation is enormous, and so are its beneficiaries and stakeholders. Due to increase in the magnitude of the operational area of such corporations, it is necessary to keep a check on operations and the class of people it affects.
Unlike civil liability, in the Indian regime, it is difficult to set criminal liability on companies. In the recent past due to a multitude of activities of corporations, their actions are victimizing the society also. Therefore, it becomes important that such actions of theirs should be deterred.
What are the problems with fixing Corporate Criminal Liability
One of the key challenges that come up with fixing criminal liability is the fulfilment of the ingredients of a crime i.e. actus reus and mens rea. Firstly, in order to constitute a crime, it is important that the intentional element is identified. Corporations being fictional entities, it becomes difficult to ascertain, identify or proving the criminal intent. Therefore, juristic fiction proves to be a crucial hurdle. The second failure arises with the imposition of sanctions. Thirdly, for a very long period of time, it was considered that corporations cannot be held liable for moral blameworthiness. Fourthly, in the eighteenth and nineteenth century, it was considered that the corporations cannot be held liable for those acts which are not contained in their respective memorandums or charters. Fifthly, the application of criminal procedure mandates that the accused needs to be present in the trial procedure. Since this cannot be fulfilled in the case of corporations, therefore it is difficult to hold them criminally liable. Due to the above-mentioned reasons, it was held that since corporate are intangible, incorporeal, invisible and immortal, therefore they cannot be punished or imprisoned.
Corporate Criminal Liability as a concept
Corporate Criminal liability is based on the doctrine of respondeat superior which means that a corporation can be held liable only for the acts of its agents or employees who act under its authority either inferred or actual authority. In simple words, if there is a nexus between the criminal acts of the agent and his corresponding corporate duties, the corporation can be held liable for the agent’s conduct. The directors can be held liable under the ‘accomplice theory’ which states that it is they who either directed or encouraged to commit the criminal act or failed to exercise due care and caution during the supervision of the activities of their subordinates. According to this theory, a person is liable in light of his responsible relation irrespective of whether he is in possession of knowledge in relation to the criminal activity.
For imposing criminal liability, it is essential that the act of the employee is committed with the intention of incurring benefit to the corporation directly and indirectly. Also, if it is found that the act was committed with the intention of obtaining some personal benefit but has resulted into benefitting the corporation as well.
Requirements for establishing Corporate Criminal Liability
For fixing Corporate Criminal Liability, following prerequisites need to be followed:
- Act within the scope of employment- The first and foremost criteria that need to be fulfilled is that the employee must act within his course of employment i.e. while the act was committed he or she must be performing duties assigned by the parent company. According to the common law system, a corporation is liable for the actions of its agents’ activities irrespective of his position in the bureaucratic setup.
- Benefit to the Corporation- Another requirement that needs to be fulfilled is that the act of the agent or employee must result in some benefit to the company. It is not necessary that the benefit must be received or experienced by the company. The illegal act must be contrary to the interests of the corporate setup.
Manner in which corporations can be made liable
Following are the ways and methods through which corporations can also be made liable by imputing on them employees’ actions[1]–
- Collective Blindness doctrine- According to this doctrine, it is not necessary that a single individual must be at fault. A group of persons also can be made liable by attributing the totality of knowledge.
- Willful Blindness doctrine- According to the willful blindness doctrine, if it is found that the corporation was in possession of the knowledge of the illegal activities that were being carried on and had turned a blind eye towards it, then it can be held liable.
- Conspiracy- A criminal conspiracy between two or more employees of a company or between one employee and non-employees can render the corporation liable as well.
- Mergers, Dissolutions and liability– After a company has merged with or dissolved or has been acquired by some other company, any illegalities committed by the employees of the earlier company shall be imputed on the new or acquiring company. Thus, it is yet another way recognised by the courts to implicate criminal responsibility on corporations.
- Misprision of felony– If in a court of law it is proved that a felony has been committed, and the corporation had the knowledge of its commission and further the corporation failed to notify about it to the concerned authorities and acted in such a manner or took steps for its concealment then the corporation can also be held criminally liable. In order to make a corporation criminally liable under this method, it is important that all the conditions are met. Fulfilment of all is necessary.
Corporate Criminal Liability in India
The Indian law recognises three types of offences in respect of creating corporate criminal liability. Firstly, to those persons who are or who were in charge of or were responsible for the affairs of the company unless proved that the commission of the offence was not within their knowledge. Secondly, if it is proved that the offence has been committed with the approval of any officer of the company or has occurred due to his or her neglect. Thirdly, the company can be held liable irrespective of the individual liability.
Prior to 2005, Corporate Criminal Responsibility was not recognised in the Indian legislative scheme. In the case of The Assistant Commissioner, Assessment-II, Bangalore & Ors. v. M/s. Velliappa Textiles Ltd. & Anr.,[2] it was held that a corporation can neither be held liable for criminal activities nor can be prosecuted.
Further, the case of State of Maharashtra v. Syndicate Transport[3] upheld the decision of Velliappa textiles and held that a corporation cannot be held criminally liable and prosecuted for the offences that may result in corporal punishment or imprisonment as they would result in no effective trial and enforcement of punishment.These decisions were upheld in various cases, for example, the Calcutta High Court in the case of Kusum Products Limited v. S.K. Sinha, ITO, Central Circle-X substantiated this legal stand by holding that the company being a juristic person cannot be sent to jail, and it is impossible for the court to impose a punishment that cannot be enforced. Taking a different stand from the present status quo would result in going against the legislative scheme.
In the year 2005, a very drastic change had come to this status quo, through the judgement of Apex Court in the case of Standard Chartered Bank and Ors. etc. v. Directorate of Enforcement and Ors. etc.[4] It was held that a company can be prosecuted and held liable for criminal offences even for the offences which are punishable with imprisonment and fine. In case if the company is found guilty, although the sentence of imprisonment cannot be passed but fine can be imposed. In case if along with the company an individual is also found liable then both sentence of imprisonment and fine can be imposed. There would be no bar to this rule. Although it is assumed that the corporations lack any personal malicious intent of their own but a corporation can be subject to indictment or any other criminal process irrespective of the fact that the actual crime has been committed by or with its agents.
Due to this judicial pronouncement, the blanket immunity from criminal prosecutions has been taken away from corporations. If any of the corporation is held liable, although it can be prosecuted but the judge cannot exercise their discretion in the choice of kind punishment. This discretion can be used only in cases of natural persons and not juristic persons.
Post Standard Chartered Bank case, it has become a trend that the corporations can be prosecuted for offences that are punishable with imprisonment and fine. In the case of Iridium India Telecom Ltd. v. Motorola Incorporated and Ors.,[5] the Hon’ble Supreme Court virtually placed a corporation on the same footing as that of any individual who can be prosecuted for both statutory and common law offences. Also, while holding the corporations liable, it is necessary that the intensity of degree and control be adjusted and liability should be inflicted only if the relationship is so intense that the corporation could be said to think or act through the offender. This is known as the doctrine of attribution and imputation.
[1] http://www.lawctopus.com/academike/corporate-criminal-liability/
[2] 2003 132 TAXMAN 165 SC
[3] AIR 1964 Bom 195
[4] AIR 2005 SC 2622
[5] (2011) 1 SCC 74
