Corporate Criminal Liability (Theories, Requirements and Case Laws)

I. INTRODUCTION

A corporation is an artificial person created by a legal process known as incorporation. Its existence is distinct from the members who compose it. They have rights & liabilities separate from those of that of their shareholders. Nevertheless, a corporation though it possesses a separate legal entity can be made criminally liable for unlawful acts done by its agents when they are acting within the scope of authority. This is where the concept of corporate criminal liability comes into play.

II. LIABILITY OF COMPANY VIS-A-VIS IPC

Section 11 of Indian Penal Code, 1860 (the Code) defines ‘person’. It reads “the word person includes any Company or Association or a body of persons, whether incorporated or not.” Further section 2 of the Code provides that “Every person shall be liable to punishment under this Code.” Thus, section 2 of the Code does not create any exception in favour of the company and provides for punishment of every person. Therefore, by reading of these two provision concept of corporate criminal liability can be derived though it is not the sole legislation which provides for the punishment of corporate body. Some of the other legislations are Companies Act, 2013, Income Tax Act, etc. 

III. THEORIES OF CORPORATE CRIMINAL LIABILITY

1. Theory of Vicarious Liability – The concept of vicarious liability is based on two latin maxims- first, qui facit per alium facit per se, it means that he who acts through another shall deemed to have acted on his own, and second, respondeat superior . Vicarious liability generally applies to civil liability but in Commonwealth v. Beneficial Finance CO., three corporations were held criminally liable for a conspiracy to bribe.
2. Identification Theory– This doctrine is an English law doctrine which tries to identify certain key persons of a corporation who acts, and whose conduct and state of mind can be attributed to that of the corporation. The Courts in England have in various judgments like R v. ICR Haulage Ltd., ruled that the corporate entities could be subjected to criminal liability. As to the liability of these key persons who act on behalf of company, it was held in Moore v. Brisler that the persons who are identified with the corporations must be acting within the scope of their employment or authority. 

This doctrine is narrower in scope than the vicarious liability doctrine, instead of holding corporation liable for act of any employee, identification doctrine narrows it down to certain persons.

IV. REQUIREMENTS FOR ESTABLISHING CORPORATE CRIMINAL LIABILITY

Following are some of the requirements for establishing Corporate Criminal Liability –

1. Act within the scope of employment: For corporate criminal liability to arise, there are several requirements that must be met. First and foremost, the employee committing the offence must be acting within the scope of his employment, i.e. he must be performing duties authorized by his parent company. 
2. Benefit to the Corporation: The second requirement is that the agent’s behaviour must, in some way, benefit the corporation. The corporation need not actually directly receive the benefits nor must the benefit be enjoyed completely by the company, but the illegal act must not be contrary to corporate interests. 
3. Special problems arise in ascertaining the mental culpability of corporations and to determine the same the following doctrines have been applied :

• Collective Blindness doctrine- According to this doctrine, it is not necessary that a single individual must be at fault. A group of persons also can be made liable by attributing the totality of knowledge.
• Wilful Blindness doctrine- According to this doctrine, if it is found that the corporation was in possession of the knowledge of the illegal activities that were being carried on and had turned a blind eye towards it, then it can be held liable.

IV. CORPORATE CRIMINAL LIABILITY IN INTERNATIONAL SCENARIO

Position in USA – Initially the company was not held criminally liable but after the decision in New York Central & Hudson River Railroad v. U.S, wherein the  Supreme Court concluded that criminal liability could be imputed to the corporation based on the benefit it received as a result of the criminal acts of its agents.  This case essentially imported the doctrine of respondeat superior (which means let the master answer )from tort law into criminal law. 

Position in France – There are three basic requirements for liability to be imposed on a legal entity. First, the French legislature must have enacted a substantive criminal offense which the corporation contravened. Second, actual criminal responsibility for the offense must lie in the conduct of a corporation’s representatives or its organs. Third, the acts on which criminal liability is predicated must have been committed for the benefit of the corporation 

Position in UK – Corporate Criminal Liability applies as explained above in case laws. 

IV. POSITION OF CORPORATE CRIMINAL LIABILITY IN INDIA

To have a proper understanding of the concept of criminal liability in India, division can be made into two parts :

1. Position Pre Standard Chartered Bank Case, (2005) 4 SCC 530

Initially, the courts were hesitant to attribute criminal liability to a company for an offence which required criminal intent as can be seen from a series of cases. 

Held : A corporation cannot be said to possess the necessary mens rea, nor it can be sentenced to imprisonment as it has no physical body

Held : A full bench of Allahabad High Court held that a company being a juristic person cannot obviously be sentenced to imprisonment as it cannot suffer imprisonment. 

Facts : A complaint had been filed u/s 500 of IPC against Zee tele films on the ground that it telecasted a program which was based on falsehood and thereby defamed Sahara India. 

Held : The court dismissed the complaint holding that mens rea is one of the essential elements of an offense of criminal defamation and that the company could not have the requisite mens rea. 

Also in the Assistant Commissioner, Assessment-II, Bangalore & Ors. v. Velliappa Textiles and State of Maharashtra v. Syndicate Transport wherein a ruling was given stating that the court cannot impose only a fine where the mandatory punishment laid down by the appropriate statute is both imprisonment and fine. 

2. Position Post Standard Chartered Bank Case

The doctrine of corporate criminal liability in India was made crystal clear in the recent ground breaking judgement Standard Chartered Bank Case in which all other previous views were overruled. 

Facts of SCB case : The petitioner contended that it cannot be accused u/s 50 of FERA Act since the minimum sentence u/s 6 is imprisonment for a period which is lesser than six months with fine. Therefore, it applied for SLP contending that no criminal proceeding can begin.

Held : The majority held that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment. As the company cannot be sentenced to imprisonment, therefore, the Court cannot impose that punishment, but when imprisonment and fine is the prescribed punishment, the Court can impose the punishment of fine which could be enforced against the company. 

Facts : In this case Iridium India Limited filed a criminal complaint against Motorola Inc. alleging offences under section 420 (cheating) read with section 120B (conspiracy) of the Indian Penal Code (IPC). 

Held : The Supreme Court asserted that a corporate body can be prosecuted for cheating and conspiracy under the Indian Penal Code. It allowed the prosecution to go on, stating that companies and corporate houses can no longer claim immunity from criminal prosecution on the ground that they are incapable of possessing the necessary mens rea for the commission of criminal offences. 

CONCLUSION

Laws relating to corporate criminal liability are vastly insufficient in our country, therefore, legislature shall play an active role in this regard in order to avoid or prevent the judiciary from defining the law in this regard. The Corporation is considered to be the alter ego of the individual. Thus, it has now become possible to hold a corporation criminally liable for acts committed through their agents and employees, and attribute mens rea to them. In the age of economic advancement where corporations have a say in almost every aspect of life, such a principle has assumed paramount importance in corporate governance. Therefore, the doctrine of corporate criminal liability has become a recognized principle in India, especially after the landmark judgment of Standard Chartered Bank v. Directorate of Enforcement.