Corporate Criminal Liability in India
Written By: Nikita Mandal
Companies Act, 2013 which has replaced the Companies Act, 1956 has increased the corporate liability of the directors. The Act has also increased the monetary penalties and imprisonment. Not only corporate criminal liability under the Companies Act, 2013 is recognized but the act also recognizes civil liabilities. The Companies Act, 2013 not only makes the director criminally liable but also includes officers in default under the concept of corporate criminal liability in India.
Section 11, 1860 (Code) of the Indian Penal Code defines a person. It reads “The term person includes any company or association or an organization of individuals.” Further Article 2 of the Code provides that “every person shall be liable for punishment under this Code.” Thus, Article 2 of the Agreement provides for the punishment of every person without exception, including corporate, which clearly includes a company. Therefore, the concept of corporate criminal liability can be gleaned by reading these two provisions, although it is not the only law that provides for penalties for corporate bodies, companies law, 2013, income tax law, etc.
Corporations have now become an integral part of our society, and with the development of corporations they have become significant actors in our economy, our society should be victimized by these corporations and therefore they should also be prevented. The imposition of punishment on any type of offender is understood by the various arguments of criminal law jurisprudence, but the prohibition is the rationale that applies to economic entities such as corporations. Corporations have their own identities, they have different legal personalities and they are different from their members and this is enough to make it possible to hold them accountable and condemn them.
The two model of corporate criminal liability
This model is a person-centered model. It can only assume liability with the corporation because a person attached to the corporation bears some liability for which the person has to be punished, but since it is attached to the corporation so the liability is imposed on the corporation to stay with that person and it bears some liability. Derivative models are understood in two sub-classes:
- vicarious liability; b) Identification doctrine.
a) Vicarious liability
The concept of viral liability is based on two Latin maxims. Every Kui Facet per Allium Facet, this means that he who works through others will feel that he has done his own thing. Lord Chelmsford LC of McGuire v. Burtonville Coal Company stated: Any work performed by an employee while performing his duties was deemed to be in accordance with the orders of his employer and as a result, it was his employer’s own work.
Variable liability generally applies to civic liability but the Commonwealth Massachusetts Court vs. Beneficial Finance Corporation blames three corporations for the conspiracy to bribe, the first company, for its employee work, the second, its director’s work, and the third, its sub-president.
For work. The court believed that corporate criminal liability was required since a corporation is a legal entity that consists only of individuals. U.S. courts are not the only courts that have incorporated the concept of virulent liability in criminal liability, but now this model has been rejected as unfair to condemn a person for another person’s misconduct.
b) Identification Doctrine
This doctrine is an English law doctrine that seeks to identify some important person in a corporation who works for it, whose behavior and state of mind can be blamed for the corporation. Salomon vs. Salomon & Co. In this case, the House of Lords said that the corporate entity is different from the people who work for it. The courts of England are DPP v. Kent and Sussex Contractors Ltd., and ICR Howlage Ltd. Such trials led to the introduction of the ‘Identification Doctrine’.
Regarding the responsibility of these important people to work for the company, it was held in Moore v. Brussels that people identified with the corporation must work under their employment or authority. The behavior must be within a designated area of the operation although details may be unauthorized. Instead of blaming the corporation for the actions of an employee, the doctrine of identification narrows it to a particular person.
Unlike the derivative model which focuses on individuals, the organizational model takes corporations into consideration. Offenses require mental state (men’s rea) to commit a crime along with a physical act (actus reus), but the problem that arises while holding corporations criminally liable is how a corporation which is a juristic person could possess the requisite mental state to commit a crime.
The derivative model was one way to attribute mental state to the corporation. Another way could be by proving that there existed an environment in the corporation which directed, tolerated, led-on, and even encouraged the non-compliance of specific law which made it an offense. Moreover, a physical act that too is required to complete the requirement of commission of an offense can be derived rather be proved from the act of its employees, officers, directors, etc. Thus, the culture of a corporation is to be seen while determining its criminal liability.
Corporate culture may help for the commission of an offense requiring mental state by- firstly, providing the environment or necessary encouragement that it was believed by the offender working in the corporation that it was perfectly alright to commit that offense, or corporation has
psychologically supported the commission of the offense; secondly, it is quite possible that the corporation created an environment which led to the commission of a crime. Both ways it was the corporation and its working culture that let the offense be committed.
Assistant Commissioner v. Veliappa Textiles Ltd
The Supreme Court by a majority held that since the corporation cannot be imprisoned, they cannot be prosecuted for such offenses under the IPC. The dissenting judge observed that just because a corporation cannot be imprisoned does not mean that the corporation cannot be judged at all in that case. The judge added that the court had two functions. The first is to determine whether the accused is guilty of the crime and to draw this conclusion on the basis of the evidence presented in court. And the second task is to punish those who are convicted of the crime.
The court will move away from the responsibility of judging that the trial of a company is not permanent just because a person cannot be sent to jail to serve his sentence because he is a judicial person. Companies are growing in size and have huge resources and money in their orders. During their business activities, they may sometimes violate the laws of the country or endanger the lives of others. It would be a complete mistake to allow a company to go without trial even after a crime has occurred because it does not have to be part of the mandatory punishment. The judge observed that corporations could face fines if convicted by a court.
It is a well-settled law principle in criminal law jurisprudence regarding criminal liability on corporations. A corporation may commit a crime and be held liable for a criminal offense. However, the statutes in India are not at pace with these developments and they don’t make corporations criminally liable. Even if they do so the statutes and judicial interpretations impose no other punishment except a fine. Even the Supreme Court said that there is a need for separate laws making provisions for the infliction of criminal liability on corporations.