corporation is not indictable but the particular members of it are.”1
Lord Holt CJ
this day and age of scams, crime by corporate entities is on the rise and poses
a serious threat to the functioning of society. The scale of crime may be
extraordinary owing to the magnitude and reach of a corporation as opposed to
an individual attempting to commit a similar offence. Since a company is an
artificial entity, it is important to ascertain whether it can possess guilt
for such an offence committed. As a general rule, Corporations were not held
liable for criminal offences due to the absence of Mens Rea or the intention to commit the offence and inability to
award imprisonment or arrest, etc. White-collar crime has been on the rise, as
technology has seen improvement. This has led to an increase in insider trading,
corporate fraud as well as manipulation of balance sheets etc., authorized by
with the advent of the Companies Act, corporations are no longer immune.
Directors of a company can be prosecuted and held criminally liable, along with
the company. There arose a need for creating legislations to regulate the
manner in which companies function and the liability of the directors regarding
the act done by the company on its employees, environment as well as the
general public. This paper attempts to portray the overall journey of corporate
criminal liabilities and gives suggestions for a fair system of doing business
in the world.
can breed all kinds of other behaviour and cause companies to behave a certain
way that isn’t necessarily the ingredients for achieving more success. For
instance, with success comes arrogance, and that’s typically the death of
the turn of the 19th Century there was a tectonic shift in the rules applicable
to corporate criminal liability as well as the liability of the members of a
company.3 The Courts held
corporations liable for the actions of their agents, acknowledging that doing
otherwise would lead to “incongruous” results.4 The concept of “vicarious
liability” became the precursor to holding corporations liable for acts
committed by the members and employees of the company.
jurisprudence with respect to corporate criminal liability has developed a long
way. The initial ideology was that a corporation cannot be held criminally
liable since it is not a natural persona and cannot:
Have a Mens Rea;
Neither be indicted nor tried in person;
Be punished corporally5;
criminal acts of a corporation would be ultra vires and thus void6. Now the stance is that that
a corporation can be guilty of most, if not all, crimes. The world has now
moved to a time where a corporation can be held criminally liable for offenses
as grave as manslaughter.7 The progress of the times
has led to the implementation of the moral code upon companies and the law has
recognized effective means of holding corporations liable.8
the civil law systems (Germany) never faced this problem. The civil law system
always made a provision for punishment of both corporations and individuals to
as a result, corporations were always held criminally liable, even before the industrial
which is when the doctrine of corporate criminal liability in the common law
of a corporation in the commission of a crime can be determined through a
collective Mens Rea of the employees. The company will be liable for the
actions of an employee, irrespective of rank11, as long as the act was
committed by the employee within the scope of employment. The agent, acting on
behalf of the corporation, should possess the intent to bestow a benefit upon the
corporation through an illegal act. There are only two situations in which
corporate criminal liability cannot be imposed12:
Ø When crimes cannot be
punished by fines, which is the primary means for punishing a corporation
Ø When the crime, by its
nature cannot be committed by a corporation (e.g. rape and murder).
the United States, in cases of strict liability, the intent of the agent
becomes irrelevant. Post the Enron
Scandal; the standards have been redefined through the Sarbanes–Oxley Act of 200213 which provides for a
harsher punishment in cases of fraud and other corporate crimes.
of Corporate Criminal Liability in India
recently, the Indian Legal System, did not recognize the existence of corporate
criminal liability, taking after the Colonial system which it has been breed
was a great emphasis placed on the requirement of Mens Rea and imprisonment to
enforce liability for crimes as a result of which corporations couldn’t be
criminally penalized.14. This position was
reflected in A.K. Khosla v. T.S.
Two companies were charged with fraud under the Indian Penal Code. They escaped
liability, owing to the narrow understanding of criminal law and liability of
in Kalpanath Rai v. State16 the Supreme Court held
that a company could not be charged under Section 3(4) of the Terrorists and Disruptive Activities
Prevention Act since the law provided for an implicit Mens Rea requirement,
which remained unfulfilled in the case of a corporation.
requirement of Mens Rea was perceived as a core factor and as a result, holding
a company liable for its criminal actions became a tedious task. Unless the law
explicitly excluded the existence of Mens Rea, a corporation could not be held
accountable for the offence. he Bombay High Court expressed similar notions in
the case of Motorola Inc. v. UOI17, where the former was
barred from being charged under Section 420 of the Indian Penal Code for
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 Directorate
the Supreme Court held that corporations could be held guilty of crimes
committed and since a corporation cannot be imprisoned, punishment will be in
the form of fines.
most recent development with regards to the same was in 2011 when in the case
of Iridium v. Motorola19 the Supreme Court of
India held that a company could be held liable for statutory and common law
offenses, including any offences requiring Mens Rea. Thus, the company was held
liable for cheating and criminal conspiracy on account of alleged false representations
made by its officers, who were considered to be the alter ego of the Company. The
court reached this decision, following the developments in the USA and UK. The
court also took into account the changing developments in the field of business
and technology which were fast-moving and creating more opportunity for people
to defraud the law and get away with criminal activities.
Role of the
members of a company in corporate crimes (with Case Laws)
Doctrine of Vicarious Liability establishes that an employer is responsible for
any tortious act committed by his employee within the course of employment or a
principle is held liable for any tortious activity committed by his agent. Vicarious
liability as a doctrine of law has been recognised since the advent of tort
Supreme Court in the case of Iridium
India Telecom Ltd. v Motorola Inc.20, recently recognised the responsibility
of a company being criminally liable for the actions of its employees. The
facts of this case are as follows- Motorola sold a technology product to Iridium that was accompanied by assertions
and promises by Motorola the allegedly
turned out to be false. Iridium brought a case of cheating against Motorola.
The case was brought not against
Motorola’s employees but against Motorola itself21. However, the IPC
requires 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 body
cannot possess the mental condition to commit the offence of cheating and hence
cannot be penalized for such an offence. The Supreme Court, however, refuted
the argument and considered the application of a modern approach to the problem
of corporate criminal liability, as applied by the English Courts.
In the case of Tesco Supermarkets Ltd. v Nattrass22 the court opined that, in
the absence of a specific statutory
or common law exception, the principle of corporate criminal liability was not
based on the vicarious liability of
an employer for the acts of its agents and employees. Instead it was based on the concept of attribution. Being a
juristic person, a company cannot think or act on its own and is dependent upon
the thought of its employees or agents. In other words, the mental states and
actions of its employees are
attributed to the company. This allow a company to sign contract, acquire property,
negotiate, sue, be sued and make any public disclosures or statements. The Tesco
case therefore helped establish that corporate criminal liability is not an extension
of vicarious liability but is a child of the concept of attribution.
of corporate officers on the basis of attribution
actions and mental states of a company’s directors are attributed to the
company such that the actions and the mental states of the companies’ directors
are deemed to be the actions and the mental states of the companies. Can the
reverse be true? Suppose a company (through its employees) commits actions that
have criminal consequences. Can the directors of the company be attributed
these actions such that they can be held responsible for the criminal
aspect of vicarious criminal liability was in issue in the recent Supreme Court
decision in Sunil Bharti Mittal v Central Bureau of Investigation.23 The government issued
telecommunication licences to a number of companies. The license process came
under scrutiny for certain irregularities (related to bribery of public
officials) as a result of which a criminal investigation was launched into the
actions of various companies. One of these companies was Bharti Cellular Ltd.
(BCL). The special court investigating the licensing irregularities decided to
attribute the actions of Bharti Cellular Ltd. to Sunil Bharti Mittal, its
Chairman cum Managing Director, and made him an accused in them proceedings.
The special court’s directions to make the director of BCL the accused was
challenged in the Supreme Court as a mistake of law. The Supreme Court held
that without statutory backing, the persons in charge of a company cannot be
held criminally liable for the actions of a company. The court was firm in
applying the proposition that there is no special vicariously liability in
criminal law without a statutory exceptions in this regard.
might quibble with Bharti Cellular’s refusal to attribute the company’s actions
to the directing minds of the company as the Supreme Court had no such
compunctions, when, in Iridium, the court extended the actions of the directing
minds of a company to the company itself, and held that the company can be held
criminally liable by attribution. One might argue that instead of the post
Iridium one way attribution, Indian jurisprudence needs a two way attribution
between the company and persons in charge of the company to fully guarantee the
reach of the criminal law. However, there are some significant problems with a
two way attribution of liability. The juristic basis for the attribution of the
actions and mental states of the directing minds to their company is that the
company cannot act otherwise. The legal fiction of a corporate person has
necessitated another legal fiction of attribution for otherwise the first legal
fiction would be meaningless.
1 Anonymous (1701) 88 Eng Rep 1518
3 John C. Coffee, Jr., Making The
Punishment Fit The Corporation: The Problems Of Finding An
Corporation Criminal Sanction, 1 N. Ill. U. L. Rev. 3, 3 (1980)
4 James R. Elkins, Corporations And
The Criminal Law: An Uneasy Alliance, 65 Ky. L.J. 73, 91–92
5 See 1 Blackstone, Commentaries
476, And Citations At 1 Burdick, Law Of Crimes 223 (1946).
6 Pollock, First Book On
Jurisprudence 126 (6th Ed. 1929)
8 Hall, Criminal Law And Procedure
9 Markus D.Dubber, Theories of Crime
and Punishment in German Criminal Law, 53 AM. J.COMP.
10 Frederic William Maitland, Moral
Personality And Legal Personality, 3 The Collected Papersof
William Maitland 304, 307 (H.A.L. Fishered., 1911).
11 See New York Cent. & Hudson
River 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 of
2002, The Public Company Accounting Reform and Investor
Act, Washington DC: US Congress. 2002.
14 0ManjeetSahu, Criminal Liability
of Corporation: An Indian Perspective, Available at SSRN 2192308
15 (1992) Cr.L.J.1448.
16 (1997) 8 S.C.C 732
17 (2004) Cri.L.J. 1576.
18 A.I.R. 2005 S.C. 2622
19 A.I.R. 2011 S.C. 20
20 (2010) 14 (ADDL) SCR 591
1971 1 ALL ER 127
23 Criminal Appeal No. 35 of 2015
(arising out of Special Leave Petition (Crl) No. 3161 of 2013)