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This article is written by Ms. Aporva Shekhar from KIIT School of law. This article is an analysis of criminal jurisprudence with reference to corporate liability in India.

Introduction

The corporate veil is used by many criminals to escape liability with the victim left bereft of any remedy. Despite the courts giving recognition to the fact that companies can possess mens rea, there is a lack of adequate legislative framework in this aspect. The doctrine of separate legal identity that is granted to companies by virtue of legal fiction has also made it possible for these artificial persons to commit crimes of corporate manslaughter and homicide. 

Presently the doctrine of lifting the corporate veil only extends to the crimes related to the functional aspects of the country like forgery or any other form of non-compliance. The same concept of the legal fiction that makes companies separate legal entities also gives cognizance to the fact that the will of the company is a representation of the will of the real people governing it and therefore the artificial legal entity can possess mens rea. 

Corporate Manslaughter has taken place in India due to adulterated goods, artificially caused environmental disasters, illegal trials, toxic wastes and many other reasons. Even though there is an absence of an appropriate legal framework like the UK’s Corporate Manslaughter and Homicide Act, the Indian judiciary has played an important role in interpreting the enshrined rules and principles to establish liability in corporate manslaughter cases. 

Corporate manslaughter : an insight 

The Bhopal Gas Tragedy was a direct result of corporate inadequacy and apathy which resulted in great loss of life with effects that prevailed decades after the tragedy. But this tragedy gave rise to judicial activism and introduced the concept of Public Interest Litigation which significantly altered the role of the judiciary from its primary function. 

Several statutes enacted after the tragedy aimed to make corporations more responsible for their activities and the potential harm that may be caused during the course of their operation. The Public Liability Insurance Act of 1991 sought to make proprietors of an undertaking liable for any harm caused due to pollution. But the issue remains that with the lack of specific legislation establishing liability for corporations, artificial persons can only be punished with fines and not imprisonment.

Criminal liability for corporate crimes

Liability can only be established when there is a violation of a certain law, and in the absence of specific legislation is hard to establish, criminal liability can only be established when criminal law is violated. The Latin maxim, actus non facit reum nisi mens sit rea, governs the principle of criminal liability stating that liability can only be established when an act or omission prohibited by law is done with a guilty mind. 

The autonomy of an individual is the basic principle on which the premise is based which is the mens rea, the mental element and actus reus the physical one. The above-mentioned elements are essential to prove a crime and the only exception to this principle is the doctrine of strict liability, wherein even in the absence of mens rea, or a guilty mind liability can be established. 

Which has been applied in the case of Union Carbide Corporation v. Union of India (1989) to hold the company accountable for the disaster caused due to negligence and malfunction of one of its chemical plants. 

The indispensability of criminal liability for corporates

The activities of Corporations have a significant impact on the environment and society and in the absence of appropriate legislation, it is hard to establish liability in case of an offence. The few reasons for inaction on the part of the legislature to form an appropriate law to establish criminal liability for corporations were

  • Corporate bodies cannot possess mens rea which is essential to establish criminal liability.
  • The only remedy that can be granted against corporations are fines which are civil remedies, since an artificial person cannot be imprisoned, no criminal remedy is available.

Presently, one of the reasons has been eliminated by the judiciary in India through decisions, cementing the principle that corporations can possess mens rea and therefore can be prosecuted. Generally, the illegal acts of employees committed during the course of employment for the furtherance of business may make the corporations criminally liable for the same. 

And in cases of organized crime, the company itself authorizes its employees to partake in illegal activities. Since corporations can have a mind of their own there is no obstacle in criminal law jurisprudence to impose a criminal sanction. However, this approach has not yet been considered by the legislature to make appropriate laws in this regard.

Statutory lacunae

This new facet of criminal jurisprudence that establishes corporate criminal liability has not been incorporated in the Indian statutes yet. The current system only allows civil remedies against the corporation, the provisions of the Indian Companies Act 2013 only makes the officials liable and not the corporation. The Indian Penal Code also does not account for corporations in its provisions and hence the punishments mentioned for violations are not applicable against corporations. 

But several other legislations have provisions to make corporations accountable, like Section 141 of the Negotiable Instruments Act 1881 which has been specifically incorporated to prosecute companies as stated in the case of Balaji Trading Company v. Kejriwal Paper ltd. and Anr. (2005)

Several other statutes do contain provisions to prosecute companies but irrespective there is an immediate need for reform in primary laws like the Indian Penal Code, 1860 (IPC) and the legislature needs to formulate a specific law to tackle this issue or corporate liability. 

The judicial system and its response regarding corporate manslaughter

The principle of absolute liability and deep pocket theory have made it very easy for corporations to escape liability in India. Even though the Public Liability Insurance 1991, the Environment Protection Act 1986 and other statutes impose certain penalties, but with the lack of a specific statute, the hands of the judiciary are tied to a certain extent. 

The hole created by the lack of legislation makes it extremely easy for corporations and people to hide behind a veil and commit crimes and escape liability very easily with meagre fines. But in the wake of the Bhopal Gas Tragedy, the introduction of Public Interest Litigation and judicial activism filled the gap of specific legislation by taking a more proactive approach to establishing corporate liability. 

Through precedents and interpretation of existing statutes, the judicial system has made an attempt to fill up the statutory lacunae. The judges use their discretion and interpret the penal provisions in order to hold corporations accountable. 

The courts take in a variety of factors when interpreting provisions, which differs from case to case. But since corporate manslaughter is not a statutory offence in India, the judicial system is limited in its response in many ways and judicial activism is the only recourse in the absence of specific legislation. 

The Latin maxim judicis est just dicere, non dare effectively explains the role of the courts, this maxim states that the courts must interpret the laws and not make them. And the Doctrine of Separation of Powers further restricts the courts in possible actions that they could take in response to corporate crime.

Prospective penalties that can be imposed other than fines

Since most of the present laws do not account for artificial personalities when we consider penalties, fines are the only feasible alternative that can be imposed on companies. The Latin maxim lex non cogit ad impossibilia states that the law does not contemplate that which is not possible, and the same is reflected in the restrictive thinking of the reforms introduced by the 41st Law Commission Report which only introduced fines as a penalty to be levied on the corporations. 

Our current legal system lacks the concept of corporate criminal liability and the courts have played an important role in developing the concept of criminal liability for corporations. The legislature must now formulate a legal framework to govern this aspect of criminal liability so that the courts may do their job. Including fines, the legislature may introduce economic and social sanctions as penalties to deter corporations since reformation is not an option for artificial persons.

Economic sanctions

Since the main objective of most companies is profit-making, economic sanctions would be the most appropriate form of deterrent.

  • Winding up –  in cases of continued criminal offences in the field the corporations can be penalized by sanctioning a compulsory wind up
  • Temporary closure- depending on the gravity of the violation the court may order the corporation to cease its operation temporarily till such time that compliance of norms can be ensured.
  • Welfare activities- in cases where the operations of a corporation cause bodily injury and loss of life, the court may mandate that such corporations should undertake the task of rehabilitating the victims.
  • Compensation- payment of adequate compensation to the people affected by the crimes of the corporation should be introduced.
  • Delisting- the court may adopt this penalty to delist corporations that perpetrate crimes.

Social sanctions

Apart from economic aspects the social stature of a company is an equally important asset, the goodwill of a company is an intangible asset that is the driving force for its operations. In case of loss of reputation, it has two-fold consequences for that is individual infamy which results in the reluctance of other entities to engage in future business with the discredited corporation. 

This social penalty can only be imposed by way of making it mandatory for the corporation to publish its crimes which would create a stigmatizing effect. This would be a strong deterrent for corporations to not commit any illegal acts and this would also motivate the human members of the corporations to play an active role in avoiding such illegal acts.

Landmark judgments 

Iridium India Telecom ltd. v. Motorola Incorporated & Ors (2010) 

The Supreme Court reiterated the principles established in the case of Standard Chartered Banks and Ors v. Directorate of Enforcement and Ors (2006), in this case of cheating and criminal conspiracy. The Supreme Court quashed the order of the Bombay High Court stating that a company could not be a perpetrator of conspiracy since it has no mind. The Supreme court asserted in its decision that a company can be prosecuted under the Indian Penal Code since companies and body corporates cannot claim immunity on the grounds that they are incapable of possessing mens rea.

Standard Chartered Banks and Ors v. Directorate of Enforcement and Ors (2006)

The appellant, in this case, was appealing against the order of Bombay High Court, contending that criminal proceedings cannot be initiated against the appellant company for offences under Section 56(1) of the FERA (Foreign Exchange and Regulation Act) for which the prescribed punishment is imprisonment for a term extending to six months and a fine. The main issues identified by the court, in this case, were whether a company or body corporate could be prosecuted for offences that had a mandatory punishment of imprisonment and whether it was possible for the court to exercise its discretion to impose the penalty of fine alone. 

The Court, in its decision, gave importance to the definition of the word ’person’ given under Section 11 of the Indian Penal Code 1860 which includes companies and associations whether incorporated or not. The court also referred to the reports of the 41st and 47th law commission, which clearly stated that in case of companies and body corporates where the punishment of an offence is imprisonment and fine, the courts are competent to use their discretion to only sentence the offender to the payment of fine. 

The Supreme Court stated that companies were capable of constituting the ingredients of a crime like mens rea and actus reus and should be sentenced accordingly.

Balaji Trading Company v. Kejriwal Paper ltd. and Anr. (2005)

The revision case was filed by the complainant u/s 138 of the Negotiable Instruments Act 1881, in this case, the cheques issued by the company in favour of the complainant were dishonoured due to insufficient funds and the accused company failed to pay the amount. The issue in the present case as identified by the court was the maintainability of the complaint against the respondent company. 

The Court stated in its decision that Section 141 of the above-mentioned act was specifically incorporated for the purpose of prosecuting companies when a cheque is issued on their behalf and bounced on presentation of the same. And when such a situation occurs the company becomes liable and the non-prosecution of any of its directors does not bar the company from being prosecuted.

M.V. Javali v. Mahajan Borewell Co. & Ors. (1997)

The main issue as identified by the courts, in this case, was whether a juristic person, incapable of being imprisoned could be prosecuted. The court decided that a company can be prosecuted and can be punished u/s 276B of the Part B State Laws Act 1951, stressing again on the 47th Law Commission report. Which states that in case of a juristic personality where reformative punishments are not applicable, the punishment should be levied upon its respectability by way of stigma, the court opined that the corporation itself needs to be punished so that the offence would be linked to the corporation and not just its employees like the directors or managers.

Conclusion

Criminal Law Jurisprudence recognizes the principle of imposing liability on corporations for offences, the judiciary has also incorporated this principle into its decision-making process but the legislature has fallen behind in adopting the same. And with the lack of statutory law the judiciary is unable to impose penalties other than fines. There is an immediate need for reform in the criminal justice system of India to account for corporate bodies and the legislature must make efforts to establish an adequate legal framework to establish criminal liability for offences committed by corporate bodies.  

References 

 

 


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