Corporation Criminal Liability – An Indian Perspective

Criminal Liability of Corporation: An Indian Perspective

Manjeet Kumar Sahu

Abstract

Current Supreme Court™s decision have made the stand apparently clear in India that the Corporation can be prosecuted as a separate legal entity even in the offences where the punishment is imprisonment. This Article explains the present status of India on Corporate Criminal Liability and how judicial decision is inconsistent with the legal provisions. It further provides the current situation about the corporate criminal liability in the International scenario.  The apex court™s decision under various matters reflects the gravity of the concerned problem i.e being faced by the aggrieved parties. The Concept of No soul to kick has become obsolete and applicability of lifting the corporate veil has unveiled the sheath. The current research on this subject have been included and it is substantiated with the effect of recent Supreme Court™s judgement and also focused on the dilemmatic situation of the Court™s decision.

Keywords: Corporation, Criminal Liability, Judicial Decision, Legal provision, International Scenario, Dilemmatic Situation.

Introduction

A company can only act through human beings and a human being who commits an offence on account of or for the benefit of a company will be responsible for that offence himself. The importance of incorporation is that it makes the company itself liable in certain circumstances, as well as the human beings.                                                           

———Glanville Williams

All the Penal liabilities are generally regulated under the Indian Penal Code 1860 in India. It is this statute which needs to be pondered upon in case of criminal liability of corporation[1]. Corporations play a significant role not only in creating and managing business but also in common lives of most people. That is why most modern criminal law systems foresee the possibility to hold the corporation criminally liable for the perpetration of a criminal offence. The doctrine of corporate criminal liability turned from its infancy to almost a prevailing rule[2].

In India, the need for industrial development has led to the establishment of a number of plants and factories by the domestic companies and under-takings as well as by Transnational Corporations. Many of these industries are engaged in hazardous or inherently dangerous activities which pose potential threat to life, health and safety of persons working in the factory, or residing in the surrounding areas. Though working of such factories and plants is regulated by a 614 number of laws of our country, there is no special legislation providing for compensation and damages to outsiders who may suffer on account of any industrial accident[3].

Corporate Criminal Liability: Pre-Standard Chartered Bank Case Law

Until recently, Indian courts were of the opinion that corporations could not be criminally prosecuted for offenses requiring mens rea as they could not possess the requisite mens rea. Mens rea is an essential element for majority, if not all, of offenses that would entail imprisonment or other penalty for its violation. Adopting on overly generalized rationale, pre Standard Chartered decision, Indian courts held that corporations could not be prosecuted for offenses requiring a mandatory punishment of imprisonment, as they could not be imprisoned.

In A. K. Khosla v. S. Venkatesan[4] , two corporations were charged with having committed fraud under the IPC. The Magistrate issued process against the corporations. The Court in this case pointed out that there were two pre-requisites for the prosecution of corporate bodies, the first being that of mens rea and the other being the ability to impose the mandatory sentence of imprisonment. A corporate body could not be said to have the necessary mens rea , nor can it be sentenced to imprisonment as it has no physical body.

In Kalpanath Rai v State (Through CBI)[5], a company accused and arraigned under the Terrorists and Disruptive Activities Prevention (TADA) Act, was alleged to have harbored terrorists. The trial court convicted the company of the offense punishable under section 3(4) of the TADA Act. On appeal, the Indian Supreme Court referred to the definition of the word “harbor” as provided in Section 52A of the IPC and pointed out that there was nothing in TADA, either express or implied, to indicate that the mens rea element had been excluded from the offense under Section 3(4) of TADA Act. The Indian Supreme Court referred to its earlier decisions in State of Maharashtra v. Mayer Hans George[6] and Nathulal v. State of M.P.[7] and observed that there was a plethora of decisions by Indian courts which had settled the legal proposition that unless the statute clearly excludes mens rea in the commission of an offense, the same must be treated as an essential ingredient of the act in order for the act to be punishable with imprisonment and/or fine[8].There is uncertainty over whether a company can be convicted for an offence where the punishment prescribed by the statute is imprisonment and fine. This controversy was first addressed in MV Javali v. Mahajan Borewell & Co and Ors[9] where the Supreme Court held that mandatory sentence of imprisonment and fine is to be imposed where it can be imposed, but where it cannot be imposed ,namely on a company then fine will be the only punishment.

In Zee Tele films Ltd. v. Sahara India Co. Corp. Ltd.[10], the court dismissed a complaint filed against Zee under Section 500 of the IPC. The complaint alleged that Zee had telecasted a program based on falsehood and thereby defamed Sahara India. The court held that mens rea was one of the essential elements of the offense of criminal defamation and that a company could not have the requisite mens rea. In another case, Motorola Inc. v. Union of India[11],the Bombay High Court quashed a proceeding against a corporation for alleged cheating, as it came to the conclusion that it was impossible for a corporation to form the requisite mens rea, which was the essential ingredient of the offense. Thus, the corporation could not be prosecuted under section 420 of the IPC.

It is clear from the above stated cases that Indian court never felt about inclusion of company on certain criminal liability. But what if a corporation is accused of violating a statute that mandates imprisonment for its violation? In The Assistant Commissioner, Assessment-II, Bangalore & Ors.  v. Velliappa Textiles[12],a private company was prosecuted for violation of certain sections under the Income Tax Act (“ITA”). Sections 276-C and 277 of the ITA provided for a sentence of imprisonment and a fine in the event of a violation. The Indian Supreme Court held that the respondent company could not be prosecuted for offenses under certain sections of the Income Tax Act because each of these sections required the imposition of a mandatory term of imprisonment coupled with a fine. The sections in question left the court unable to impose only a fine. Indulging in a strict and literal analysis, the Court held that a corporation did not have a physical body to imprison and therefore could not be sentenced to imprisonment. The Court also noted that when interpreting a penal statute , if more than one view is possible, the court is obliged to lean in  favour of the construction that exempts an accused from penalty rather than the one that imposes the penalty.

Standard Chartered Bank and Ors. v. Directorate of Enforcement (2005) 4 SCC 530

This is the landmark case in which the apex court overruled the all other laid down principles. In this case, Standard Chartered Bank was being prosecuted for violation of certain provisions of the Foreign Exchange Regulation Act, 1973. Ultimately, the Supreme Court held that the corporation could be prosecuted and punished, with fines, regardless of the mandatory punishment required under the respective statute.

The Court did not go by the literal and strict interpretation rule required to be done for the penal statutes and went on to provide complete justice thereby imposing fine on the corporate. The Court looked into the interpretation rule that that all penal statutes are to be strictly construed in the sense that the Court must see that the thing charged as an offence is within the plain meaning of the words used and must not strain the words on any notion that there has been a slip that the thing is so clearly within the mischief that it must have been intended to be included and would have included if thought of[13].

Corporate Criminal Liability: Post-Standard Chartered Bank Case

There is no immunity to companies from prosecution merely because the prosecution is in respect of offences for which punishment prescribed is mandatory imprisonment. In Iridium India Telecom Ltd. v. Motorola Incorporated and Ors[14], the apex court held that a corporation is virtually in the same position as any individual and may be convicted under common law as well as statutory offences including those requiring mens rea. 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 and relied on the ratio in Standard Chartered Bank Case[15] .In Iridium, the Supreme Court held:

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. In such circumstances, it would be necessary to ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons.[16]

The apex court in this case held that corporations can no longer claim immunity from criminal prosecution on the grounds that they are incapable of possessing the necessary mens rea for the commission of criminal offences. The notion that a corporation cannot be held liable for the commission of a crime had been rejected by adopting the doctrine of attribution and imputation[17].

In another judgment in July 2011 of CBI v. M/s Blue-Sky Tie-up Ltd and Ors[18], the apex court reiterated the position of law held that companies are liable to be prosecuted for criminal offences and fines may be imposed on the companies.

This case appeal arose from criminal applications quashed by the Calcutta High Court . The Appellant filed criminal applications against the Respondents for committing criminal offences under the provisions of the Indian Penal Code and under Section 13(2) read with 13(1)(c) and (d) of the Prevention of Corruption Act, 1988. Pursuant to that, the Respondents filed applications under Section 482 of the Criminal Procedure Code for quashing of the said proceedings.

The Calcutta HC quashed the proceedings against the Respondent No. 1 on the false premise that the company being a body corporate cannot be prosecuted. The Supreme Court relying on the Standard Chartered Bank Case has held that offences committed by the Respondent No. 1 being grave in nature, fines may be imposed upon them and set aside the quashing of the proceedings.

Can Criminal Liability of Corporation be determined through Imprisonment?

It is always a debatable issue and almost agreeable that Corporation cannot be sentenced for imprisonment. Imprisonment, transportation, banishment, solitude, compelled labour are not equally disagreeable to all person under the penal code. It totally depends upon the circumstances of the person for the imposition of punishment. But, in case of corporation, Imprisonment cannot be recognised even for serious offences mentioned under the IPC. Since, there is no explicit provision relating to it, Hence the apex court in various cases have held that it is better to impose fine upon the corporation even in the cases where there is a punishment for imprisonment. The imposition of fines may be made in four different ways as provided in the IPC. It is the sole punishment for certain offences and the limit of maximum fine has been laid down; in certain cases it is an alternative punishment but the amount is limited; in certain offences it is imperative to impose fine in addition to some other punishment and in some it is obligatory to impose fine but no pecuniary limit is laid down[19] . However, Section 357, CrPC, empowers a Court imposing a sentence of fine or a sentence (including a sentence of death) of which fine forms a part, in its discretion, inter alia, to order payment of compensation, out of the fine recovered, to a person for any loss or injury caused to him by the offence[20].

The argument that a corporation has no soul to damn and no body to imprison[21] cuts both ways. Critics use it to argue that there is no reason to prosecute a corporation. Supporters of corporate criminal liability might turn the argument around and ask what™s the big deal, since the corporation can™t go to jail[22]? Corporate liability may appear incompatible with the aim of deterrence because a corporation is a fictional legal entity and thus cannot itself be deterred. In reality, the law aims to deter the unlawful acts or omissions of a corporation™s agents. To defend corporate liability in deterrence terms, one must show that it deters corporate managers or employees better than does direct individual liability[23].

The legal difficulty arising out of the above situation was noticed by the Law Commission and in its 41st Report, the Law Commission suggested amendment to Section 62 of the Indian Penal Code by adding the following lines:

In every case in which the offence is only punishable with imprisonment or with imprisonment and fine and the offender is a company or other body corporate or an association of individuals, it shall be competent to the court to sentence such offender to fine only.”

As per the jurisprudence evolved till then, under the present Indian law it is difficult to impose fine in lieu of imprisonment though the definition of ‘person’ in the Indian Penal Code Includes ‘company’. It is also worthwhile to mention that our Parliament has also understood this problem and proposed to amend the IPC in this regard by including fine as an alternate to imprisonment where corporations are involved in 1972[24]. However, the Bill was not passed but lapsed. Such a fundamental change in the criminal jurisprudence is a legislative function and hence the Parliament should perform it as soon as possible by also considering the following arguments.

Till now, the Courts in India have been able to impose only fine as a form of punishment because of statutory inadequacy and lack of new forms of punishments which could be imposed upon corporates[25]. But the recent judgments in India make it clear that corporations are liable to be prosecuted for offences under Indian Penal Code. With this, India is now in same platform with other jurisdictions such as the US and the UK when it comes to law in relation to criminal liability on corporation.

Conclusion

It must be stated that environmental degradation resulting from industrial pollution in recent years has become a positive danger to social security. Legal provisions are therefore incorporated in the Indian Penal Code[26], to punish industrial and business organizations which create danger to public life by polluting water[27], and District Magistrate can initiate proceedings against them under Section 133 of the code of Criminal Procedure, 1973.

Section 16 of Environment (Protection) Act, 1986 and Clause 2 of Section 47 of Water (Prevention and Control Pollution) Act, 1974 also explicitly lays down provision for the offences by companies. It states companies can be prosecuted under certain circumstances and thus, reflect the concept of vicarious criminal liability.

Although considerable debate surrounds society™s increasing reliance on criminal liability to regulate corporate conduct, few have questioned in depth the fundamental basis for imposing criminal liability on corporations. Accordingly Courts is based on the maxim lex non cogit ad impossibilia, which tells us that law does not contemplate something which cannot be done[28]. The statutes in India are not in pace with these developments and the above analysis shows that they do not make corporations criminally liable and even if they do so, the statutes and judicial interpretations impose no other punishments except for fines.

It is apparent from the current action that some serious measures must be taken in relation to the criminal liability of corporation of India so that it could be stopped from the multiple dimensions of the court™s decision.


[1] Indian Penal Code, 45 of 1860, Sec.11: The word Person includes any Company or Association or body of persons, whether incorporated or not.

[2]Thiyagarajan, T. Sivanathan; Corporate Criminal-concept, available at http://www.manupatra.com/Articles /artlist.asp?s=Corporate/Commercial accessed on 7th Nov,2012

[3] Singh.K.N.J, in Charan Lal Sahu v. Union of India,  AIR 1990 SC 1480.

[4] A. K. Khosla v. S. Venkatesan  (1992) Cr.L.J. 1448

[5] Kalpanath Rai v State (Through CBI), (1997) 8 SCC 732

[6] State of Maharashtra v. Mayer Hans George,, A.I.R. 1965 S.C. 722

[7] Nathulal v. State of M.P., A.I.R. 1966 S.C. 43

[8] Id.

[9] MV Javali v. Mahajan Borewell & Co and Ors.,AIR 1997 SC 3964

[10] Zee Telefilms Ltd. v. Sahara India Co. Corp. Ltd., (2001) 3 Recent Criminal Reports 292

[11] Motorola Inc. v. Union of India,(2004) Cri.L.J. 1576

[12] The Assistant Commissioner, Assessment-II, Bangalore & Ors.  V. Velliappa Textiles, (2004) 1 Comp. L.J. 21

[13] Tolaram Relumal and Anr. v. The State of Bombay MANU/SC/0057/1954 and Girdhari Lal Gupta v. D.H. Mehta and Anr. MANU/SC/0487/1971. mentioned under ¶ 27 of above mentioned case.

[14] Iridium India Telecom Ltd. v. Motorola Incorporated and Ors ,AIR 2011 SC 20

[15]Standard Chartered Bank and Ors. v. Directorate of Enforcement (2005) 4 SCC 530

[16] Iridium India Telecom Ltd. v. Motorola Incorporated and Ors ,AIR 2011 SC 20 at ¶ 38

[17]Vivek Sadhale & Vikas Agarwal, Criminal liability catches up with companies, available at http://articles. economictimes.indiatimes.com/2011-12-03/news/30471809_1_criminal-liability-criminal-offences-imprisonment accessed on 16th Nov,2012

[18] CBI v. M/s Blue-Sky Tie-up Ltd and Ors ,Crl. Appeal No(s). 950 of 2004

[19] Angira Singhvi ,Corporate Crime and Sentencing in India: Required Amendments in Law, International Journal of Criminal Justice Sciences ,Vol 1 Issue.2 July 2006 ISSN:0973 available at http://www.sascv.org/ijcjs/angira.html accessed on 16th Nov,2012

[20] Sub-section (1) of the section reads: When a Court imposes a sentence or fine or a sentence (including a sentence of death) of which fine forms a part, the Court may, when passing judgement, order the whole or any part of the fine recovered to be applied

a. in defraying the expenses properly incurred in the prosecution;

b. in the payment to any person of compensation for any loss or injury caused by the offence, when compensation is, in the opinion of the Court, recoverable by such person in a Civil Court;

c. when any person is convicted of any offence for having caused death of another person or of having abetted the commission of such an offence, in paying compensation to the persons who are, under the Fatal Accidents Act, 1855 (13 of 1855), entitled to recover damages from the person sentenced for the loss resulting to them from such death; when any person is convicted of any offence which includes theft, criminal misappropriation, criminal breach of trust, or cheating or of having dishonestly assisted in disposing of, stolen property knowing or having reason to believe the same to be stolen, in compensation any bonafide purchaser of such property for the loss of the same if such property is restored to the possession of the person entitled thereto.

[21] Cf. John C. Coffee, Jr., No Soul To Damn, No Body To Kick: An Unscandalized Inquiry into the Problem of Corporate Punishment, 79 MICH. L. REV. 386 (1981), available at http://digitalcommons.law.Umaryland .edu/cgi/viewcontent.cgi?article=2497&context=mlr&seiredir=1&referer=http%3A%2F%2F.htm accessed on 18th Nov,2012

[22] Sara Sun Beale, A Response To The Critics Of Corporate Criminal Liability, 46 AM. CRIM. L. REV. 1481 available at http://www.law.yale.edu/documents/pdf/cbl/Beale_paper.pdf accessed on 17th Nov,2012

[23] Lewis A. Kornhauser , An Economic Analysis of the Choice Between Enterprise and Personal Liability for Accidents, 70 CAL. L. REV. 1345 passim (1982)

[24] The proposed Indian Penal Code (Amendment) Bill, 1972, Clause 72(a) reads as hereunder:

“Clause 72(a)(1) – In every case in which the offences is punishable with imprisonment and fine, and the offender is a company, it shall be competent for the Court to sentence such offender to fine only. (2) – In every case in which the offence is punishable with imprisonment and any other punishment not being fine, and the offender is a company, it shall be competent for the Court to sentence such offender to fine only. Explanation: – For the purpose of this section, ‘company’ means any body corporate and includes a firm or other association of individuals.”

[25] Supra, note 19

[26] Indian Penal Code,1860 §277. Fouling water of public spring or reservoir: Whoever voluntarily corrupts or fouls the water of any public spring or reservoir, so as to render it less fit for the purpose for which it is ordinarily used, shall be punished with imprisonment of either description for a term which may extend to three months, or with fine which may extend to five hundred rupees, or with both.

§ 278. Making atmosphere noxious to health: Whoever voluntarily vitiates the atmosphere in any place so as to make it noxious to the health of persons in general dwelling or carrying on business in the neighbourhood or passing along a public way, shall be punished with fine which may extend to five hundred rupees.

[27] Water Pollution (Amendment) Act,1978

[28] Kartick Chandra v.Harsha M. Dasi, AIR 1943 Calcutta 35 at 354; Edmund N. Schuster v. Assistant Collector of Customs, New Delhi, AIR 1967 Punjab 189; State of Maharashtra v. Syndicate Transport, AIR 63 (1966) Bom 197; Knightsbridge Estates Trust Ltd. v. Byrne and Ors. 1940 (2) All ER 401 .

Tags: CrimeGlanville WilliamsIndiaIndian Penal CodeIndian Supreme CourtMaharashtraStandard CharteredSupreme CourtSupreme Court of IndiaTADA

profile image

About Manjeet381

Manjeet381 | Student

Comments

  1. samidha kulkarni says:

    good articles…informative

Corporate Law Referencer

Recent Articles

Recent Legal updates

Recent Gst Updates