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ipc:article:corporate-criminal-liability

Corporate criminal liability

A corporation is considered as a separate legal entity. It is an association of persons for some common object. It is an artificial legal person. It has no strictly any legal or technical meaning. It is understood that criminal liability is attached where there is violation as per criminal law. In earlier times major issues were faced for evolution of concept of corporate criminal liability. The reasons were: There was a failure to identify presence of mens rea in corporation as there was absence of criminal intent by corporations who are fictional and artificial legal person in eyes of law;

A Corporation could not be imprisoned or given death punishment which is usually given in criminal law. The accused must be physically present in the proceedings which is not possible in case of corporations as they being artificial legal persons.

The criminal liability of any act is based on the Latin maxim Actus non facit reum mens sit rea which means that to make a person or any entity liable it must be shown that there is an act or omission which is forbidden by law and with mens rea which is legally understood as having guilty mind. Corporate criminal liability can be defined as a crime which has been committed by individual or association of individuals who for pursuing a common purpose or make business gain in course of their occupation commit such acts or omission which is forbidden by law and with guilty mind where it is for the benefit of the corporation or any individual out of the association of individuals. It could not be imprisoned as corporation not being natural person there was absence of mens rea.

Corporate crimes are those crimes which are committed by corporations or members of corporations where liability is imposed for performing any acts or omissions which are punishable by law. In Zee Tele films Ltd. v. Sahara India Co. Corp. Ltd, where a company was discharged form liability arising out of defamation as there was absence of mens rea which is considered as an implicit requirement under law. In the case of State of Maharashtra v. Syndicate the High court had held that company could not be prosecuted for offences which entail corporeal punishment or imprisonment prosecuting a company for such offences would result in trial with verdict of guilty but no effective order could have been implemented. In case of Iridium v. Motorola a different viewpoint was held. A company could be held liable for statutory offences as well as common law offences which includes those offences where there is a requirement of mens rea. Today, the directors or officers are made liable for the acts committed in actual authority to perform in when they direct their subordinates to commit any crime and failed to exercise any due care or supervise their acts which falls under the category of accomplice theory and further this theory also states that due to concept framed of responsible relation that a person will be made criminally liable due to responsible relation found regardless of whether he possessed the knowledge that the act was criminally liable. However, it can be said that apart from being an asset corporation can also be hazardous to the society. Indian social legislations like the Essential Food commodities Act 1955, The Environment Protection Act,1986, The Negotiable instruments Act,1881 state that along with the corporation also its employees shall be held liable for that offence and if pronounced guilty imprisonment shall be given as punishment to those involved in the crime. In this day of economic progress such principle has assumed importance in corporate governance.

There are certain criticisms attached to the Doctrine of Corporate Criminal Liability. The first one would be Imprisonment and second would be Mens Rea. Whenever certain crimes are committed there is mandatory imprisonment in case of punishing which also includes Companies along with natural persons. In case of Fraud under section 447 there is mandatory punishment of imprisonment wherein companies being an artificial legal person cannot be imprisoned and can be only be punished with fine and not otherwise. For the Commission of the Crime there has to be requisite Mens rea for committing the Crime, however in case of Companies there is absence of Mens rea to hold a Company liable for crime. The Courts have applied the doctrine of Alter ego in order to hold the companies/corporations liable in case of Mens Rea which is considered as an essential element of Committing a Crime.

The Supreme Court in the case of New York Central and Hudson River Railroad Co. v. United States which was 1909 case first endorsed that since the corporations were held liable for civil cases would also be liable under the criminal law. In the case of Municipal Corporation of Delhi v. J.B Bolting Company (P) Ltd, very interesting question was confronted by the Court wherein the Company can be awarded with punishment of Fine when mandatory punishment is both imprisonment and fine.

Concept of corporate criminal liability in India

Until the concept of corporate criminal liability was established, Courts in India did not punish corporations as they felt that essential ingredient ie. Mens rea is absent in corporation it being a fictitious legal entity having no physical existence so also could not be brought physically for the proceedings. Due to such concept many legal difficulties started arising. Those were noticed by the Law Commission in its 41st report of Law Commission of India where amendment was suggested in section 62 of the IPC. The bill which was made was lapsed. The concept has changed in a landmark case of Standard Chartered Bank and Ors. v. Directorate of Enforcement. The bank was prosecuted for violation of provisions of the Foreign Exchange Regulation Act, 1973. The Supreme Court did not go by the strict penal provisions. It is held that a corporation can be held liable regardless of the mandatory punishment as under the statue. When a corporation is held criminally liable, the criminal conduct of employees may make them suffer criminally and financially. Everyone in the corporate entity is held liable be its officers, directors and even corporation where the penalties include civil penalties, criminal penalties, loss of government contracts, permanent or temporary loss of deposit insurance, conservatorship etc.

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 it would include the officer in default. 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.

The concept of Corporate Criminal Liability has been recognised under the Companies Act 2013 under-

  • Section 53-Prohibition of shares at a discount.
  • Section 118(12)-Minutes of proceedings of General Meeting, Meeting of Board of Directors and other meetings and resolutions passed by Postal Ballot.
  • Section 128(6)-Books of Account, etc, to be kept by Company.
  • Section 129(7)- Financial Statement.
  • Section 134- Financial Statement, Boards report, etc.
  • Section 188(5)- Related Party transactions.
  • Section 57-Punishment for personation of Shareholder.
  • Section 58(6)- Refusal for registration and appeal against refusal.
  • Section 182(4)- Prohibitions and restrictions regarding Political Contributions.
  • Section 184(4)- Disclosure of Interest by Director.
  • Section 187(4)- Investments of the Company to be held in own name.
  • Section 447- Punishment for fraud.

Section 21 in the Transplantation of Human Organs Act 1994 states about Offences by Companies as-

  1. Where any offence, punishable under this Act, 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: Provided that nothing contained in this sub-section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.
  2. Notwithstanding anything contained in sub-section (1), where any offence punishable under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation: For the purposes of this section:
(a) “Company” means any body corporate and includes a firm or other association of individuals.
As per Section 66 of the Food and Safety Standard Act 2006 offences by Companies: (l) 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.

Provided that where a company has different establishments or branches or different units in any establishment or branch, the concerned Head or the person in-charge of such establishment, branch, unit nominated by the company as responsible for food safety shall be liable for contravention in respect of such establishment, branch or unit.

Provided further that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly. Explanation. -For the purpose of this section, - (a) “company” means anybody corporate and includes a firm or other association of individuals.

Section 305 of the Code of Criminal Procedure mentions Procedure when corporation or registered society is an accused.-

  1. In this section, Corporation means an incorporated company or other body corporate, and includes a society registered under the Societies Registration Act, 1860 (21 of 1860).
  2. Where a corporation is the accused person or one of the accused persons in an inquiry or trial, it may appoint a representative for the purpose of the inquiry or trial and such appointment need not be under the seal of the corporation.
  3. Where a representative of a corporation appears, any requirement of this Code that anything shall be done in the presence of the accused or shall be read or stated or explained to the accused, shall be construed as a requirement that that thing shall be done in the presence of the representative or read or stated or explained to the representative, and any requirement that the accused shall be examined shall be construed as a requirement that the representative shall be examined.
  4. Where a representative of a corporation does not appear, any such requirement as is referred to in subsection (3) shall not apply.
  5. Where a statement in writing purporting to be signed by the managing director of the corporation or by any person (by whatever name called) having, or being one of the persons having the management of the affairs of the corporation to the effect that the person named in the statement has been appointed as the representative of the corporation for the purposes of this section, is filed, the Court shall, unless the contrary is proved, presume that such person has been so appointed.
  6. If a question arises as to whether any person, appearing as the representative of a corporation in an inquiry or trial before a Court is or is not such representative, the question shall be determined by the Court.

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

1) 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.
Provided that nothing contained in this sub-section shall render any such person liable to any punishment if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to Prevent the commission of such offence.

2) Notwithstanding anything contained in sub-section (1), where any offence under Chapter IV has been committed by a company and it is Proved that the offence has been committed with the consent or connivance of, or is attributable to any neglect on the Part of, any director, manager/ secretary, or other officer of the company, such director, manager, secretary of other officer shall be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation-For the purposes of this section, - (a) “Company” means any body corporate and includes a firm or other association of individuals.

The corporation can be held criminally responsible for a variety of Crimes namely- a. Conspiracy. b. Maintaining public nuisance. c. Violations of Consumer Protection laws. d. The illegal practice of Medicine. e. 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-
    1. to obtain or retain business for such commercial organisation; and
    2. 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.
  2. For the purposes of this section, a person offers, promises or gives a financial or other advantage to a public servant if, and only if, such person is, or would be, guilty of an offence under section 8, whether or not the person has been prosecuted for such an offence.
  3. For the purposes of section 8 and this section, -
    1. “commercial organisation” means-
      1. a body which is incorporated in India and which carries on a business, whether in India or outside India;
      2. any other body which is incorporated outside India and which carries on a business, or part of a business, in any part of India;
      3. a partnership firm or any association of persons formed in India and which carries on a business (whether in India or outside India); or
      4. any other partnership or association of persons which is formed outside India and which carries on a business, or part of a business, in any part of India;
    2. “business” includes a trade or profession or providing service including charitable service;
    3. a person is said to be associated with the commercial organisation if, disregarding any offer, promise or giving a financial or other advantage which constitutes offence under sub-section (1), such person is a person who performs services for or on behalf of the commercial organisation.

Explanation 1: The capacity in which the person performs services for or on behalf of the commercial organisation shall not matter irrespective of whether such person is employee or agent or subsidiary of such commercial organisation.
Explanation 2: Whether or not the person is a person who performs services for or on behalf of the commercial organisation is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between such person and the commercial organisation. Explanation 3: If the person is an employee of the commercial organisation, it shall be presumed unless the contrary is proved that such person is a person who performs services for or on behalf of the commercial organisation.

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the offence under section 8 and this section shall be cognizable.

Section 10 (1): Where a commercial organisation has been guilty of an offence under section 9, every person who at the time the offence was committed was in charge of, and was responsible to, the commercial organisation for the conduct of the business of the commercial organisation shall be deemed to be guilty of the offence and shall be punishable with imprisonment which shall not be less than three years but which may extend to seven years and shall also be liable to fine Provided that nothing contained in this sub-section shall render any such person liable to any punishment, if he proves that the offence was committed without his knowledge or that he has exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), where an offence under section 9 has been committed by a commercial organisation and it is proved that the offence has been committed with the consent or connivance of, or is attributable to, any neglect on the part of any director, manager, secretary or other officer of the commercial organisation, such director, manager, secretary or other officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly under this section.

Explanation: For the purposes of this section, “director”, in relation to a firm, means a partner in the firm.

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