INTRODUCTION
Corporations have been considered a separate legal entity and therefore separate legal sanctions are imposed on corporations. Previously, companies could not be held liable for any criminal offences. However, through various decisions upheld by courts, corporations are now liable for criminal charges and can be held accountable for such acts. Organizations can be held accountable for offences such as failure to take or perform adequate safety mechanisms or breach of any acts that the company was supposed to perform. Therefore, this article discusses the concept of criminal charges on corporations and how it has evolved through various judicial pronouncements in India.
CONCEPT OF CRIMINAL LIABILITY ON CORPORATE LAW
Criminal liability holds two elements, that is, actus reus and mens rea, meaning guilty act and guilty mind, respectively. But in the case of corporate criminal liabilities, the court found it difficult to assign mens rea to separate legal entities such as corporations. Hence, this created the challenge of offences requiring mandatory imprisonment. The court concerning offences that required no mens rea, came up with the test of Vicarious Liability, where individuals acting on the company’s behalf shall be held accountable[1]. Where an offence holds mens rea, the individual who has committed the offence on behalf of the corporation and the company shall be deemed to be liable for the criminal act.
As seen in the test of Vicarious Liability, a person would be liable for the act committed by another person. It is founded on the principle that the master shall be answerable for the acts of his subordinate. A few other doctrines established under corporate criminal liability are[2]:
The doctrine of Attribution: Under this, the corporation would be held liable for a criminal offence by its agent or employees. In the case of Iridium India Telecom Ltd v. Motorola Incorporated & Others[3], it was observed by the Supreme Court that the criminal intent of the “alter ego” of the company would be attributed to the corporation. Thus, in simple words, it is the identification of a guilty mind.
The doctrine of Identification: In this, the managers/ directors of the company would be held responsible for the crimes committed by the corporation. By this doctrine, those people are held responsible who are involved in committing the crime.
The doctrine of Collective Blindness: Under this doctrine, corporations would be liable even if a single person was not at fault and took into account the total of all employees for the corporation to be held liable.
The doctrine of Willful Blindness: Corporations would be held liable if they don’t take any action or any preventive measure for ongoing criminal activity.
EVOLUTION OF CORPORATE CRIMINAL LIABILITY IN INDIA
The need for criminal charges on corporations came up as individuals would commit illegal activities in the name of the corporation. These activities would go unpunished as the corporations could not be prosecuted for any criminal offences. In Assistant Commissioner v. Velliappa Textiles Ltd[4], it was held by the court that, since companies cannot be imprisoned, they could not be held liable for any offence in IPC that requires imprisonment. Thus, corporations could not be held liable for any criminal offence.
However, this issue took a turn in the case of Standard Chartered Bank v. Directorate of Enforcement[5], which overruled the Velliappa case. In this case, it was held that corporations cannot be exempted from prosecution of offences just because it demands imprisonment. In a case where both fine and imprisonment are required, the corporation would be liable to pay a fine. Therefore, a corporation could be charged with a crime, which requires imprisonment. In the case of M.V. Javali v. Mahajan Borewell & Co. and Others[6], the company committed an offence under Section 276B r/w 278B of the Income Tax Act. The punishment for this required imprisonment for at least three months. The court held that Harmonious Construction must be given to 276B and further said that imprisonment and fine should be imposed where they could be imposed. However, in cases where imprisonment can’t be imposed, corporates would be liable to pay fines as punishment.
Another case of liability of companies for criminal offences came up in Iridium India Telecom Ltd. v. Motorola Inc.[7] In this said case, the court observed that for the offences requiring mens rea, the court would hold a company liable by applying the directing mind and will test, i.e., the doctrine of attribution will be applicable. In the case U.P Pollution Control Board v. Modi Distillery[8], the industry had violated the Water (Prevention and Control of Pollution) Act of 1974. The court observed that the people accountable for this act on behalf of the company could be prosecuted and held liable.
Through these doctrines, the Companies Act has provided provisions where corporations would be held liable for criminal offences, which was earlier not possible.
NECESSITY AND RECOMMENDATIONS
Large business corporations hold an integral position in our country. But because it is difficult to hold them criminally liable, they can also cause a threat to our society. Through the years, this situation has changed and courts started charging companies with criminal offenses. In today’s era, the need for corporate criminal liability is paramount, and as such big corporations take advantage of their power and position.
Though the government has taken some consideration into punishing corporations criminally, there is still a need for stricter laws and precautions to come up. Some of the steps that the legislature can take are that the court can appoint certain experts who can analyze reports on corporations and come up with new laws and take strict actions like the dissolution of corporations, higher penalties on crimes, social sanctions etc. can be imposed on corporations.
CONCLUSION
The evolution of corporate criminal liability in India highlights the shift from corporations being protected from criminal charges to their increased liability. It inspects the challenges in reserving mens rea to corporations which led to the development of various doctrines like Vicarious Liability, Identification, Attribution, Collective Blindness and Willful Blindness.
Therefore, it is necessary not only to hold individuals and agents responsible but also to hold corporations accountable for illegal acts. Though this concept is being developed over time, there is a further need for legislatures to step in and take strict actions. The existing laws relating to corporate criminal liability have been criticized to some extent and therefore the need to adopt changes to this system is necessary. Large corporations having significant powers, have to be subjected to more strict laws and precautions.
Author(s) Name: Ektaa Chatterjee (Ramaiah College of Law, Bangalore)
Reference(s):
[1] Bhumika Indulia, ‘Corporations: Legal Fiction Or An Unborn Predator’ (13 July 2020) <https://www.scconline.com/blog/post/2020/07/13/corporations-legal-fiction-or-an-unborn-predator/#:~:text=In%20India%2C%20the%20corporate%20criminal,Negotiable%20Instruments%20Act%2C%201881%20and> accessed 5 December 2023
[2] Kiranpreet Kaur, ‘Corporate Criminal Liability’ (Mondaq, 10 February 2020) <https://www.mondaq.com/india/crime/882614/corporate-criminal-liability> accessed 5 December 2023
[3] Iridium India Telecom Ltd v. Motorola Incorporated & Others (2003) 11 SCC 405
[4] Assistant Commissioner v. Velliappa Textiles Ltd (2003)11 SCC 405
[5] Standard Chartered Bank v. Directorate of Enforcement AIR (2005) SC 2622
[6] M.V. Javali v. Mahajan Borewell & Co. and Others (1997) 8 SCC 72
[7] Iridium India Telecom Ltd. v. Motorola Inc (2004)1 Mh.L.J. 532
[8] U.P Pollution Control Board v. Modi Distillery AIR (1988) SC 1128
