Abstract”Acorporation is not indictable but the particular members of it are.”1-Lord Holt CJInthis day and age of scams, crime by corporate entities is on the rise and posesa serious threat to the functioning of society. The scale of crime may beextraordinary owing to the magnitude and reach of a corporation as opposed toan individual attempting to commit a similar offence.
Since a company is anartificial entity, it is important to ascertain whether it can possess guiltfor such an offence committed. As a general rule, Corporations were not heldliable for criminal offences due to the absence of Mens Rea or the intention to commit the offence and inability toaward imprisonment or arrest, etc. White-collar crime has been on the rise, astechnology has seen improvement. This has led to an increase in insider trading,corporate fraud as well as manipulation of balance sheets etc., authorized byhuman minds.
However,with the advent of the Companies Act, corporations are no longer immune.Directors of a company can be prosecuted and held criminally liable, along withthe company. There arose a need for creating legislations to regulate themanner in which companies function and the liability of the directors regardingthe act done by the company on its employees, environment as well as thegeneral public.
This paper attempts to portray the overall journey of corporatecriminal liabilities and gives suggestions for a fair system of doing businessin the world. Introduction”Successcan breed all kinds of other behaviour and cause companies to behave a certainway that isn’t necessarily the ingredients for achieving more success. Forinstance, with success comes arrogance, and that’s typically the death ofsuccess.”2- BobIgerWiththe turn of the 19th Century there was a tectonic shift in the rules applicableto corporate criminal liability as well as the liability of the members of acompany.3 The Courts heldcorporations liable for the actions of their agents, acknowledging that doingotherwise would lead to “incongruous” results.
4 The concept of “vicariousliability” became the precursor to holding corporations liable for actscommitted by the members and employees of the company. Thejurisprudence with respect to corporate criminal liability has developed a longway. The initial ideology was that a corporation cannot be held criminallyliable since it is not a natural persona and cannot: (1)Have a Mens Rea;(2)Neither be indicted nor tried in person; (3)Be punished corporally5;Therefore,criminal acts of a corporation would be ultra vires and thus void6. Now the stance is that thata corporation can be guilty of most, if not all, crimes. The world has nowmoved to a time where a corporation can be held criminally liable for offensesas grave as manslaughter.7 The progress of the timeshas led to the implementation of the moral code upon companies and the law hasrecognized effective means of holding corporations liable.8 Interestingly,the civil law systems (Germany) never faced this problem.
The civil law systemalways made a provision for punishment of both corporations and individuals tobe distinct9as a result, corporations were always held criminally liable, even before the industrialrevolution10,which is when the doctrine of corporate criminal liability in the common lawdeveloped. Intentof a corporation in the commission of a crime can be determined through acollective Mens Rea of the employees. The company will be liable for theactions of an employee, irrespective of rank11, as long as the act wascommitted by the employee within the scope of employment. The agent, acting onbehalf of the corporation, should possess the intent to bestow a benefit upon thecorporation through an illegal act. There are only two situations in whichcorporate criminal liability cannot be imposed12: Ø When crimes cannot bepunished by fines, which is the primary means for punishing a corporationØ When the crime, by itsnature cannot be committed by a corporation (e.
g. rape and murder). Inthe United States, in cases of strict liability, the intent of the agentbecomes irrelevant. Post the EnronScandal; the standards have been redefined through the Sarbanes–Oxley Act of 200213 which provides for aharsher punishment in cases of fraud and other corporate crimes. Developmentof Corporate Criminal Liability in IndiaUntilrecently, the Indian Legal System, did not recognize the existence of corporatecriminal liability, taking after the Colonial system which it has been breedfrom. Therewas a great emphasis placed on the requirement of Mens Rea and imprisonment toenforce liability for crimes as a result of which corporations couldn’t becriminally penalized.14. This position wasreflected in A.
K. Khosla v. T.S.Venkatesan15.Two companies were charged with fraud under the Indian Penal Code.
They escapedliability, owing to the narrow understanding of criminal law and liability ofcorporations. Similarly,in Kalpanath Rai v. State16 the Supreme Court heldthat a company could not be charged under Section 3(4) of the Terrorists and Disruptive ActivitiesPrevention Act since the law provided for an implicit Mens Rea requirement,which remained unfulfilled in the case of a corporation.
Therequirement of Mens Rea was perceived as a core factor and as a result, holdinga company liable for its criminal actions became a tedious task. Unless the lawexplicitly excluded the existence of Mens Rea, a corporation could not be heldaccountable for the offence. he Bombay High Court expressed similar notions inthe case of Motorola Inc. v. UOI17, where the former wasbarred from being charged under Section 420 of the Indian Penal Code forcheating. However,with an increase in crimes being committed by corporations and companies,courts could not continue to take such a stance. As a result, in 2005, in Standard Chartered Bank and Ors v/s Directorateof Enforcement18,the Supreme Court held that corporations could be held guilty of crimescommitted and since a corporation cannot be imprisoned, punishment will be inthe form of fines. Themost recent development with regards to the same was in 2011 when in the caseof Iridium v.
Motorola19 the Supreme Court ofIndia held that a company could be held liable for statutory and common lawoffenses, including any offences requiring Mens Rea. Thus, the company was heldliable for cheating and criminal conspiracy on account of alleged false representationsmade by its officers, who were considered to be the alter ego of the Company. Thecourt reached this decision, following the developments in the USA and UK. Thecourt also took into account the changing developments in the field of businessand technology which were fast-moving and creating more opportunity for peopleto defraud the law and get away with criminal activities.
Role of themembers of a company in corporate crimes (with Case Laws)TheDoctrine of Vicarious Liability establishes that an employer is responsible forany tortious act committed by his employee within the course of employment or aprinciple is held liable for any tortious activity committed by his agent. Vicariousliability as a doctrine of law has been recognised since the advent of tortlaw itself. TheSupreme Court in the case of IridiumIndia Telecom Ltd. v Motorola Inc.20, recently recognised the responsibilityof a company being criminally liable for the actions of its employees. Thefacts of this case are as follows- Motorola sold a technology product to Iridium that was accompanied by assertionsand promises by Motorola the allegedlyturned out to be false. Iridium brought a case of cheating against Motorola.The case was brought not againstMotorola’s employees but against Motorola itself21.
However, the IPCrequires the existence of Mens Rea in order to commit an offence of cheating.Motorola argued that a being a company and an artificial entity, the bodycannot possess the mental condition to commit the offence of cheating and hencecannot be penalized for such an offence. The Supreme Court, however, refutedthe argument and considered the application of a modern approach to the problemof corporate criminal liability, as applied by the English Courts. In the case of Tesco Supermarkets Ltd. v Nattrass22 the court opined that, inthe absence of a specific statutoryor common law exception, the principle of corporate criminal liability was notbased on the vicarious liability ofan employer for the acts of its agents and employees. Instead it was based on the concept of attribution. Being ajuristic person, a company cannot think or act on its own and is dependent uponthe thought of its employees or agents. In other words, the mental states andactions of its employees areattributed to the company.
This allow a company to sign contract, acquire property,negotiate, sue, be sued and make any public disclosures or statements. The Tescocase therefore helped establish that corporate criminal liability is not an extensionof vicarious liability but is a child of the concept of attribution. Liabilityof corporate officers on the basis of attributionTheactions and mental states of a company’s directors are attributed to thecompany such that the actions and the mental states of the companies’ directorsare deemed to be the actions and the mental states of the companies. Can thereverse be true? Suppose a company (through its employees) commits actions thathave criminal consequences. Can the directors of the company be attributedthese actions such that they can be held responsible for the criminalconsequences?Thisaspect of vicarious criminal liability was in issue in the recent Supreme Courtdecision in Sunil Bharti Mittal v Central Bureau of Investigation.
23 The government issuedtelecommunication licences to a number of companies. The license process cameunder scrutiny for certain irregularities (related to bribery of publicofficials) as a result of which a criminal investigation was launched into theactions of various companies. One of these companies was Bharti Cellular Ltd.(BCL). The special court investigating the licensing irregularities decided toattribute the actions of Bharti Cellular Ltd.
to Sunil Bharti Mittal, itsChairman cum Managing Director, and made him an accused in them proceedings.The special court’s directions to make the director of BCL the accused waschallenged in the Supreme Court as a mistake of law. The Supreme Court heldthat without statutory backing, the persons in charge of a company cannot beheld criminally liable for the actions of a company. The court was firm inapplying the proposition that there is no special vicariously liability incriminal law without a statutory exceptions in this regard.Onemight quibble with Bharti Cellular’s refusal to attribute the company’s actionsto the directing minds of the company as the Supreme Court had no suchcompunctions, when, in Iridium, the court extended the actions of the directingminds of a company to the company itself, and held that the company can be heldcriminally liable by attribution. One might argue that instead of the postIridium one way attribution, Indian jurisprudence needs a two way attributionbetween the company and persons in charge of the company to fully guarantee thereach of the criminal law. However, there are some significant problems with atwo way attribution of liability. The juristic basis for the attribution of theactions and mental states of the directing minds to their company is that thecompany cannot act otherwise.
The legal fiction of a corporate person hasnecessitated another legal fiction of attribution for otherwise the first legalfiction would be meaningless. 1 Anonymous (1701) 88 Eng Rep 1518(KB) 2 https://www.brainyquote.com/topics/companies3 John C. Coffee, Jr., Making ThePunishment Fit The Corporation: The Problems Of Finding AnOptimalCorporation Criminal Sanction, 1 N. Ill.
U. L. Rev.
3, 3 (1980)4 James R. Elkins, Corporations AndThe Criminal Law: An Uneasy Alliance, 65 Ky. L.J. 73, 91–92(1976).5 See 1 Blackstone, Commentaries476, And Citations At 1 Burdick, Law Of Crimes 223 (1946).
6 Pollock, First Book OnJurisprudence 126 (6th Ed. 1929) 8 Hall, Criminal Law And Procedure594 (1949).9 Markus D.Dubber, Theories of Crimeand Punishment in German Criminal Law, 53 AM. J.COMP.
L.679 (2005).10 Frederic William Maitland, MoralPersonality And Legal Personality, 3 The Collected PapersofFredericWilliam Maitland 304, 307 (H.
A.L. Fishered., 1911).11 See New York Cent. & HudsonRiver R.
R. v. United States, 2I2 U.S. 48, 494-95 (1909);12 See Bernd Schünemann,Unternehmenskriminalität und Strafrecht 194 (1979).
13 Sarbanes, Sarbanes-Oxley act of2002, The Public Company Accounting Reform and InvestorProtectionAct, Washington DC: US Congress. 2002.14 0ManjeetSahu, Criminal Liabilityof Corporation: An Indian Perspective, Available at SSRN 2192308(2012).15 (1992) Cr.L.
J.1448.16 (1997) 8 S.
C.C 73217 (2004) Cri.L.J.
1576.18 A.I.R. 2005 S.C.
262219 A.I.R. 2011 S.C.
2020 (2010) 14 (ADDL) SCR 59121 22 1971 1 ALL ER 12723 Criminal Appeal No. 35 of 2015(arising out of Special Leave Petition (Crl) No. 3161 of 2013)