Corporate Criminal Liability

September 14, 2023

A corporation is an artificial person created by a legal process known as incorporation. Its existence is distinct from the members who compose it. They have rights & liabilities separate from those of that of their shareholders. Nevertheless, a corporation though it possesses a separate legal entity can be made criminally liable for unlawful acts done by its agents when they are acting within the scope of authority. This is where the concept of corporate criminal liability comes into play.

Criminal liability encompasses two elements: actus reus (guilty act) and mens rea (guilty mind). There is no dispute that a company is liable to be prosecuted for criminal offences. However, the company being an artificial person cannot have the requisite mens rea, hence the question whether a company could be prosecuted for an offence for which the mandatory sentence is imprisonment.

The law has evolved from the position that a company cannot be prosecuted for offences that require imposition of a mandatory imprisonment[1], to the position that the mens rea of the ‘alter ego’ of the company (i.e. the person or group of people that guide the business of the company) will be imputed to the company as laid down by the Supreme Court in Iridium India Telecom v. Motorola Incorporated and Others (2011).

LIABILITY OF COMPANY VIS-A-VIS IPC

Section 11 of Indian Penal Code, 1860 (the Code) defines ‘person’. It reads “the word person includes any Company or Association or a body of persons, whether incorporated or not.” Further section 2 of the Code provides that “Every person shall be liable to punishment under this Code.” Thus, section 2 of the Code does not create any exception in favour of the company and provides for punishment of every person. Therefore, by reading of these two provision concept of corporate criminal liability can be derived though it is not the sole legislation which provides for the punishment of corporate body. Some of the other legislations are Companies Act, 2013, Income Tax Act, etc.

Today, the settled position of law is that if a company commits a criminal offence, the liability rests with the directors in two ways:

When the offence committed by the company involves mens rea, it would normally come down to the intent and action of the individual acting on behalf of the company. Thus, an individual who has perpetrated an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent.
Where the statutory regime itself attracts the doctrine of vicarious liability by specifically providing for such liability.

THEORIES OF CORPORATE CRIMINAL LIABILITY

Theory of Vicarious Liability – The concept of vicarious liability is based on two latin maxims- first, qui facit per alium facit per se, it means that he who acts through another shall deemed to have acted on his own, and second, respondeat superior . Vicarious liability generally applies to civil liability but in Commonwealth v. Beneficial Finance CO., three corporations were held criminally liable for a conspiracy to bribe.

Identification Theory– This doctrine is an English law doctrine which tries to identify certain key persons of a corporation who acts, and whose conduct and state of mind can be attributed to that of the corporation

REQUIREMENTS FOR ESTABLISHING CORPORATE CRIMINAL LIABILITY

Following are some of the requirements for establishing Corporate Criminal Liability –

Act within the scope of employment: For corporate criminal liability to arise, there are several requirements that must be met. First and foremost, the employee committing the offence must be acting within the scope of his employment, i.e. he must be performing duties authorized by his parent company.
Benefit to the Corporation: The second requirement is that the agent’s behaviour must, in some way, benefit the corporation. The corporation need not actually directly receive the benefits nor must the benefit be enjoyed completely by the company, but the illegal act must not be contrary to corporate interests.
Special problems arise in ascertaining the mental culpability of corporations and to determine the same the following doctrines have been applied :
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.
Wilful Blindness doctrine-According to this 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.

In the case of Assistant Commissioner v. Velliappa Textiles Ltd, it was held that the corporations cannot be imprisoned as they cannot be punished and prosecuted under IPC which directs imprisonment. The concept of corporate criminal liability has been established under the Companies Act. The liability of Directors under the Companies Act 2013 has been increased which has replaced the Companies Act 1956.Under the Companies Act 2013 it holds not only the Directors liable but also include the officer in default wherein it includes in broad framework a whole-time director, key managerial personnel and such other officers in absence of KMP who have been specified by the Board of directors and every other director who has information related to it or has participated to be part of that act without raising the objection under the concept of corporate criminal liability in India.

As per the Section 38 of the NDPS Act,1985 mentions Offences by Companies-

Where an offence under Chapter V has been committed by a company, every Person, who, at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

As per Section 66 of the Food and Safety Standard Act 2006 offences by Companies:

Where an offence under this Act which has been committed by a company, every person who at the time the offence was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

The corporation can be held criminally responsible for a variety of Crimes namely-

Conspiracy.
Maintaining public nuisance.
Violations of Consumer Protection laws.
The illegal practice of Medicine.
Antitrust laws Violations.

As per the P C Amendment Act Bill 2013, Section 9(1)- A commercial organisation shall be guilty of an offence and shall be punishable with fine, if any person associated with the commercial organisation offers, promises or gives a financial or other advantage to a public servant intending- (a) to obtain or retain business for such commercial organisation; and (b) to obtain or retain an advantage in the conduct of business for such commercial organisation: Provided that it shall be a defence for the commercial organisation to prove that it had in place adequate procedures designed to prevent persons associated with it from undertaking such conduct.

Conclusion

Laws relating to corporate criminal liability are vastly insufficient in our country, therefore, legislature shall play an active role in this regard in order to avoid or prevent the judiciary from defining the law in this regard. The Corporation is considered to be the alter ego of the individual. Thus, it has now become possible to hold a corporation criminally liable for acts committed through their agents and employees, and attribute mens rea to them. In the age of economic advancement where corporations have a say in almost every aspect of life, such a principle has assumed paramount importance in corporate governance. Therefore, the doctrine of corporate criminal liability has become a recognized principle in India, especially after the landmark judgment of Standard Chartered Bank v. Directorate of Enforcement.