Criminal Liability Of Corporations

lawzmag.ocmNowadays, it is well established fact that corporations cannot escape lia-bility for offences on the ground that they have neither body nor soul and cannot possess any mental state. The statutes in India do not make cor-porations criminally liable and even if they do so, the statutes impose no other punishments except for fines

Nowadays, organisations have become an integral part of the society. They have become an important actor in our economy. Sometimes, our society gets victimized by these corporations and so they should be prohibited from doing so. Our general public keeps running in the danger of getting deceived by these partnership firms or companies. Corporations have their own identity, they have separate legal personality and they are different from their members, and this is sufficient to makes it possible to held them liable and censure them.

Criminal Liability is the state of being obligated or responsible to one another in the society. Now, if any criminal act is done by the company, then it will be liable for criminal punishment. This article tries to  understand the basics of Corporate Criminal Liability. The Supreme Court recently in the case of Sunil Bharti Mittal v. Central Bureau of Investigation (“CBI”) and Others held that the principle of alter ego can be only applied to make the corporations liable for an act committed by a person or group of persons under whose control the affairs of the company vests in as  they represent the alter ego of the company; however it cannot be applied in reverse direction to make the directors of the company liable for an offence committed by the company. The Supreme Court has clarified that the application of the principle of vicarious liability to make the directors of the company liable for an offence committed by the company can be only  applied if the statute provides to do so. The Court has set aside the order of the Special Court in which the Special Court had issued summons to the directors of the companies by stating that they represent the alter ego of the companies.

BACKGROUND

The growth of Corporate criminal liability can be traced in the terms of the following four stages. This is also a synchronized account of how the courts overcame the following obstacles:

Public Nuisance- Courts in England and the United States first imposed corporate criminal liability in cases involving non-feasances of quasi-public corporations such as municipalities, that resulted in public nuisances.

Crimes not requiring Criminal Intent- In the case of Queen v. Great North of England Railways Co. Lord Denman ruled that corporations could be criminally liable for misfeasance and American courts soon began following this trend.  Crimes of Intent- Courts were quite reluctant to extend the criminal liability to the crime requiring intent. Eventually in the case of New York Central and Hudson River Rail Road Co. v. United States in 1909 did the Supreme Court clearly hold a corporation liable for crimes of intent. According to the directions given by the apex court in the case of Centre for Public Interest Litigation and Ors. V. UOI and Ors., the Cbi conducted investigations  to expose the malpractises in the grant of licenses and allocation of spectrum in the 2g band and also the chargesheet was filed before the special judge Mr. Shyamal Ghosh. Following companies were held to be accused

M/s. Bharti Cellular Limited.

M/s Hutchison Max Telecom(Pvt.) Ltd

M/s.Sterling Cellular Limited.

The above mentioned companies were held to be liable under section 13(2) read along with section 13(1) of the Prevention of Corruption Act, 1988). The special judge also directed the summons to be issued to the following MD’s

Mr. Sunil Bharti Mittal (Chairman cum Managing Director of Bharti Cellular Limited)Mr. Asim Ghosh (Managing Director of Hutchison Max

Telecom (P) Limited)Mr. Ravi Ruia (Director – Chairman of Sterling Cellular Ltd.)

THEORIES

VICARIOUS LIABILITY

According to this doctrine, the company shall be accountable and made liable for the acts of its employees or agents. This doctrine is based on two maxims. They are:- Qui facit per alium facit per se- It means that he who acts through another shall deemed to have acted on his own.

Respondent Superior- It means that the superior/master shall be made liable for the acts of its servant.In the case of Bartonshill Coal Co. v. McGuire, Lord Chelmsford LC opined that: “every act which is done by an employee in the course of his duty is regarded as done by his employer’s orders, and consequently is the same as if it were his employer’s own act.” The concept of vicarious liability is generally applicable to civil liability but the court in the case of Commonwealth Beneficial Finance CO., held the three corporations criminally liable for the acts of company, its employees, directors and vice- president.

IDENTIFICATION DOCTRINE

This doctrine is an English law doctrine which tries to identify certain key persons of a company who acts in its behalf, and whose conduct and state of mind can be attributed to that of the corporation. In case of  Solomon v. Solomon & Co. House of Lords held that corporate entity is separate from the persons who act on its behalf. The persons who are associated with the corporations must be acting within the ambit of employment. This Identification doctrine is narrower in scope as compared with the vicarious liability doctrine, which means that instead of holding corporation liable for act of any employee, this doctrine narrows it down to certain persons.

Generally companies desire to have a domain name which is similar to name of the company itself like McDonalds.com, Tata. com for Tata group of business, Coca-cola.com for beverage and soft drinks products, Yahoo.com, the American Internet Corporation, etc. These companies try to have a domain name which can be easily identifiable with the established trademarks

CORE ISSUES

The important issues which crops up in order to assess the liability of corporations and its employees are as follows:-

Whether the principle of attribution/alter ego can be applied to make the directors of the company liable for an offence committed by the company? When can a director/person in charge of the affairs of the company be prosecuted for an offence committed by the company?

JUDICIAL REASONING

The three judge bench of the Supreme Court through Hon’ble Justice AK Sikri struck down the summons which were issued by of the Special Court and  held that the Special Court had wrongly applied the doctrine of alter ego to make the directors of the companies liable for offences committed by the companies. The Apex Court relied on its judgement in the case of Iridium India Telecom v. Motorola Incorporated and Others. Where the court dealt with the question whether a company could be held liable for an offence which requires mens rea. In this case it was held that the corporations can no longer claim immunity from prosecution on the ground that there was no mens rea for the commission of the offence. The court therefore held that the principle of attribution cannot be applied in the scenario where the directors can be made liable for the offence committed by the companies or corporations. The court accordingly observed that in the following two circumstances, the  directors can be prosecuted for the offences committed by the companies. If there is sufficient evidence of his active role coupled with criminal intent; Where the statute specifically imposes liability.

ANALYSIS

Nowadays, it is well established fact that corporations cannot escape liability for offences on the ground that they have neither body nor soul and cannot possess any mental state. The statutes in India do not make corporations criminally liable and even if they do so, the statutes impose no other punishments except for fines. The laws relating to corporate criminal liability in India are not sufficient. The need of the hour is active steps taken by the legislature in this regard and form certain concrete laws which would ensure that the corporations do not go unpunished. Certain Provisions relating to procedural law also needs to be created and modified so that the corporations can be adequately dealt with. It is therefore recommended that amendments should be carried out by the legislature to avoid the judiciary from defining the laws. The Court while deciding the liability of corporations relied on the decision of the House of Lords in the case of Tesco Supermarkets Limited v. Nattrass (“Tesco”), wherein it was held that the person whose mens rea is to be attributed must be the directing mind and will of the company. The decision of the three judge bench in the case of P.C Agarwala v. Payment of Wages  Inspector, M.P and Others has clearly brought some clarity on the principles of attribution and vicarious liability in the context of corporate criminal liability vis-à-vis strict liability under a statute. Also, it will be important to note whether the government can sustain the complaint only against the three companies, in the absence of the offence being made against a person or body of persons in control of its affairs, or more particularly when such kind of offences requires mens rea.

Ankit Kumar

5 thoughts on “Criminal Liability Of Corporations”

  1. deepanshu says:

    Thanks for sharing

  2. veena says:

    Very informative

  3. anurag says:

    Well written

  4. fagun says:

    Good article

  5. vimal says:

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