Corporate Criminal Liablity

8/18/2019 Corporate Criminal Liablity

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Contents

1. Introduction……………………………………………………………………………

2. Corporate Criminal Liability in America: A Jurisprudential Approach ………….

3. Corporate Criminal Liability – Problems aced in its Imposition…………………..

!. "#olution o$ the corporate criminal liability in %nited &in'dom……………………

(. "#olution o$ Corporate Criminal Liability in %nited )tates o$ America…………….

*. Corporate Criminal Liability – Indian Approach……………………………………..

+. Imposin' the )entence o$ ine – Le'islati#e Intention……………………………….

,. Conclusion………………………………………………………………………………

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A-)/AC

In the recent cases, the Supreme Court has clearly meted out that a corporation can be

prosecuted as a legal entity even if the punishment imposed will be imprisonment. This paper

specifically deals with the Corporate Criminal Liability in India and the judicial interventionsinterlinked with it. It further talks about the current situation of Corporate Criminal Liability in

an International erspective. The Concept of !"o soul to kick# has become obsolete and

applicability of lifting the corporate veil has unveiled the sheath. The author has tried to

understand the concept of Corporate Criminal Liability in the Indian perspective by taking the

help of various judgments delivered by the Supreme Court of India and the $oreign Courts.

&ey0ords: Corporation, Criminal Liability, Supreme Court, Judicial Intervention, Mens Rea.

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I/%CI:

With the advent of Globaliation and !ro"in! independence in economic, social and

environmental responsibilities by corporate entities the national and !lobal economic scene is

bein! dominated by lar!e multinational corporations. #hese multinational or!aniations have!ro"n to such an astonishin! ma!nitude that they are fully comparable "ith nation states in their

economic dimensions and thus these have laid to the substantial increase in economic and "hite

collar crime.

#he Corporate Criminal Liability is the liability imposed upon a certain corporation for any

criminal act done by its employee. Liability is imposed on the corporation in order to re!ulate the

acts and affairs of the corporation. #he critical issue of corporate criminal liability is the coherent

lin$ bet"een the corpus of criminal la", "hich is developed for natural persons and the relatives

of the corporate form "hich is a comple% fabric of human actors. In the le!al perspective, the

&uestion to be ans"ered is "hether and to "hat e%tent corporation may be made liable for the

acts of its employees.

Initially, the approach to the corporate criminal liability "as focused mainly on the relationship

bet"een corporation and its employees. 'y this relationship approach a theory "as developed

that the state of mind of employees could be deemed to be the state of mind of the corporation. In

(.)., the identification theory "as developed "hich made the corporation directly liable for the

"ron!ful conduct of senior employee*s state of mind. +nd, in (.S., the vicarious liability theory

"as developed "hich made individual state of mind imputed on the corporation.

#he current situation "hich is applied by all le!al systems holds a corporation liable for the

criminal acts of its employees "hich are done "ithin the scope of employment and done "ith the

intent to benefit the corporation. #he difference is not of the criminal acts of any senior,

subordinate or menial employees. #oday, the corporation is accountable for the criminal acts of

the senior as "ell as the subordinate or menial employees done "ithin the scope of employment.

ere, the attempt is to detail out the frame"or$ of corporate criminal liability and of sentencin!.

#he la" has bound the courts to impose only fine as a form of punishment for the corporation- it

needs to be solved by evolvin! ne" forms of punishment upon the corporation such that the real

purpose of punishment is observed. #he attempt here also is to put for"ard innovative $inds of

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punishment. #hat is, to present the problems involved "ith the concepts of corporate criminal

liability from a historical perspective, follo"ed by analysis of the approaches ta$en by different

le!al systems.

#"o maor issues "hich "ere of dominance, durin! the phase of evolution of the doctrine of

Corporate Criminal Liability "ere/

0. 1ne is the failure to identify or prove corporate intent. #raditionally, the criminal la" has

been reserved for intentional violations of the la". 2et, our prosecutions of corporations

have been mar$ed by flounderin! efforts to identify the intent of intan!ible, fictional

entities.

3. + second issue is re!ardin! sanctions. In addition to proof of intent, a maor

distin!uishin! characteristic of the criminal la" has been the threat of imprisonment. It"as said that a corporation cannot be imprisoned- the criminal la" is not an appropriate

vehicle for controllin! corporate behavior. Corporate criminal liability under

environmental, antitrust, securities and other la"s has !ro"n rapidly over the last t"o

decades. #he !eneral belief in the early si%teenth and seventeenth centuries "as that

corporations could not be held criminally liable. In the early 0455s, corporate criminal

liability faced at least four obstacles.

6. #he first obstacle "as attributin! acts to a uristic fiction, the corporation. 7i!hteenth8

century courts and le!al thin$ers approached corporate liability "ith an obsessive focus

on theories of corporate personality- a more practical approach "as not developed until

the t"entieth century.9. #he second obstacle "as that le!al thin$ers did not believe corporations could possess

the moral blame"orthiness necessary to commit crimes of intent.

:. #he third obstacle "as the ultra vires doctrine, under "hich courts "ould not hold

corporations accountable for acts, such as crimes, that "ere not provided for in their

charters.;.


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rea essential to sustain a criminal conviction. It "as "idely prevalent and follo"ed that/ +

Corporate has =no soul to damn, and nobody to $ic$.*

#he corporation is invisible, incorporeal, and immortal- it cannot be assaulted, beaten, or

imprisoned- it cannot commit treason. So, one can find that history of >octrine of Corporate

Criminal Liability is full of problems and then solutions to it. +t present, different nations have

diverse notions re!ardin! the applicability and e%tension of the >octrine of Corporate Criminal

Liability.

C/P/A" C/I4IAL LIA-ILI5 I A4"/ICA: A J%/I)P/%"IAL APP/AC6.

+lthou!h some earlier cases too$ the position that a Corporation is not indictable, but the

particular members of it are liable, the rule is no" "ell established that a corporation may be

held criminally liable . It is immaterial that the act constitutin! the offence "as ultra virus. #he

Corporation may be held responsible, even thou!h its employees or a!ents acted contrary to

e%press instructions "hen they violated the la", so lon! as they "ere actin! for the benefit of the

corporation and "ithin the scope of their actual or apparent authority. + corporation is

accountable for its employee*s conduct if it motivated, at least in part, by desire to serve the

Corporation but this need not be the sole motivation. +nd even if, the employees "ere actin! in

their o"n interests "hen they committed a crime, the corporation may still be criminally liable

for the failure of its supervisors to detect and stop the "ron!doin!, either in intentional disre!ard

of the la" or in plain indifference to its re&uirements.

4"L P"AL C" P/7I)I)/

#he Model ?enal Code provides that a corporation may be convicted of an offence if/

0. the offence is a violation or defined by a statute other than the Code in "hich a le!islative

purpose to impose liability on corporations plainly appears and the conduct is performed by an

a!ent of the corporation actin! in behalf of the corporation "ithin the scope of his office or

employment.

3. #he offence consists of an omission to dischar!e a specific duty of affirmative performance

imposed on a corporation by la", or

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6. #he commission of the offence "as authoried, re&uested, commanded, performed or

rec$lessly tolerated by the board of directors or a hi!h mana!erial a!ent actin! in behalf of the

corporation "ithin the scope of his office or employment .

+ corporation duly dissolved under the la"s of the state of its incorporation may thereafter be

subected to criminal prosecution under a dissolution provision of the state authoriin! any

action, suit or proceedin! a!ainst the corporation "ithin a specified period after the dissolution

and the "ords action and proceedin! as used in a statute continuin! corporate e%istence include

criminal proceedin!s.

Corporations can be held criminally responsible for a "ide variety of crimes/

0. Contempt in disobeyin! decrees and other court orders, directed to it.

3. Conspiracy.6. 'ribery or conspiracy to bribe public officials.9. #he ille!al practice of medicine.

:. Maintainin! public nuisance.

;. @iolations of licensin! and re!ulatory statutes.4. @iolations of consumer protection la"s.

A. +ntitrust la" violations.

B. Li&uor la" violations.05. Larceny, if corporate officers authoried or ac&uiesced in criminal act.

00. 7%tortion, assumin! that it "as authoried, re&uested or commanded by a mana!erial

a!ent havin! supervisory responsibility.03. 1btainin! money by false pretenses.

06. Sellin! or e%hibitin! obscene matter.

09. Statutory federal crimes and such as violations of the 1ccupational Safety and ealth

+ct.

Most of the above crimes are economically motivated and it has been note that corporate liability

for criminal offences is often found "here the offence is commercial and motivated by a desire

to enhance profits. + corporation may not receive direct economic benefits from a crime a!ainst

the person, it may still receive a direct economic benefit obtained by not ta$in! e%pensive safety

precautions, and if a corporation ta$es such ris$s, the corporation becomes a proper criminal

defendant.

C/P/A" C/I4IAL LIA-ILI5 – P/-L"4) AC" I I) I4P)II

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Mainly t"o problems are faced by the court "hile imposin! criminal liability on the corporation.

#hey are

0. Corporations cannot have the Mens rea or the !uilty mind to commit offence

7very corporation has its o"n le!al entity, "hich is separate from its directors and

shareholders and officers. + corporation can sue and be sued, can hold property on its

name and enter into contracts. #he shareholders enoy the benefit of limited liability, i.e.,

they are personally not liable for the debts or obli!ations of the corporation. +nd the

corporation is perpetual in the sense its e%istence is not altered by death or retirement of

e%istin! members.0

3. Lac$ of appropriate le!islative provisions 8 #here are certain offences for "hich

punishments imposed are death, life imprisonment, ri!orous and simple imprisonment,

forfeiture of property, and fine. 'ut there are certain offences for "hich imprisonment as

a punishment is prescribed by the le!islature. #herefore, the problem arises as to ho" to

prosecute the companies for the offences "hich re&uire mandatory imprisonment, as

criminal statute needs to be strictly interpreted "herein there is no scope for corporations

to be imprisoned.

#he Supreme Court in the case of %ssistant Commissioner, %ssessment&II, 'angalore and

others vs. (elliappa Te)tiles Ltd. and others* "as of the vie" that in India, the company

"ould be prosecuted for an offence involvin! rupees one la$h or less and be punished asthe option is !iven to the court to impose a sentence of imprisonment or fine, "hereas, in

the case if an offence involvin! an amount or value e%ceedin! rupees one la$h, the court

is not !iven a discretion to impose imprisonment or fine and, therefore, the company

cannot be prosecuted as the custodial sentence cannot be imposed on it.

"7L%I 6" C/P/A" C/I4IAL LIA-ILI5 I %I" &I84

>espite an earlier reluctance to punish the corporation the first attempts to impose corporate

criminal liability "ere ta$en by common la" countries, due to the advent of industrial revolution

durin! the 0Bth century. #he reco!nition of corporate criminal liability by the 7n!lish Courts

1 Gower & Davies, ‘Principles of Modern Company Law’ ( London Swee & Ma!well

So"# $sian %diion, '', %diion ) Page *1

(''+) 1 Comp L 1 (SC)

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started in 0A93 in the case of 'irmingham and +loucester ailway Co-. In this case, the

corporation "as fined for failin! a statutory duty. #he reasons for this disinclination "ere the

corporation "as deemed to be a le!al fiction, and under the rule of (ltra @ires those act "ere to

be carried out "hich "ere specifically mentioned in the obect clause of company*s constitution.

#he other obections raised to this "ere the lac$ of the necessary Mens rea, and the ability to

appear in court personally. +nd also it "as provin! difficult to punish the corporation for lac$ of

ade&uate sanctions. 7arlier, the 7n!lish Courts follo"ed the doctrine of vicarious liability, in

"hich the acts of a subordinate are attributed to the corporation. 9

'ut durin! 0B95*s a series of cases under statutory offence provisions moved a"ay from

vicarious liability to find that corporations "ere directly liable for the offences committed by its

employees. #he first case in (.). "hich dealt "ith corporate criminal liability "as Lennards

Carrying Co Ltd v %siatic etroleum Co Ltd

/

- this case "as dealt on the basis of the =doctrine of identification*.

In 0B40, the decisions of the ouse of Lords in Tesco Supermarkets ltd v "attrass0 held that

corporations "ould be directly liable for the "ron! committed by persons sufficiently senior to

constitute the corporations directin! mind and "ill, on the basis that the actions and culpable

mindset of such individuals "ere the actions and mindset of the company.

>urin! the last decade the concept of corporate criminal liability made a sea chan!e in () after

the decision in the case of %ttorney&+enerals eference1 in "hich the company "hose

ne!li!ence had led to the Southall train disaster and seven people had died, could not be

convicted of manslau!hter by !ross ne!li!ence unless an individual "ho constituted a =directin!

mind and "ill* of the company had the re&uisite Mens rea, this case "as referred by the

+ttorney8General of the Court of +ppeal a &uestion as to "hether a non8human defendant could

- (1+) - ./ -

+ 0erg"son, Gerry ‘ Corr"pion and Corporae Criminal Lia2iliy’, ( 3anco"ver

Sandard press, %diion 1444,Canada) page +-

* (141*) $C 5'*

6 (145) $C 1*-

5 (7o of 1444)(''') - $ll %8 1

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be convicted of manslau!hter by !ross ne!li!ence in the absence of evidence establishin! a !uilt

of a $no"n individual. #he Court of +ppeal held that the =identification* model in Tesco v

"attrass still served as the basis for corporate criminal liability.

In May, 3555 the !overnment issued a consultation paper based on the La" Commission*s

recommendations $no"n as 3555 Consultation ?aper. In this paper, it "as accepted that the

liability should be biased on failures in the mana!ement or or!aniation of a corporation*s

activities.+ draft Corporate 2anslaughter 'ill 3 "as published by the Government on 36 March, 3555 in

"hich it accepted the notion of failure in the mana!ement or or!aniation of activities as a basis

for liability, but inserted a re&uirement that these failures be preferable to senior mana!ement.

In the (nited )in!dom, mass disasters such as the train crash at ?addin!ton and the capsiin! o

the ferry erald of


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liable for the ille!al acts of its employees if such acts are related to and committed "ithin the

source of employment, committed in furtherance of the business of the corporation and its

imbedded culture.0:

Initially, the courts in India did not reco!nie the corporations could not have Mens rea essential

for committin! the crime. 'ut, in the case of Standard Chartered and others vs. 9irectorate of

:nforcement and others70 , the vie" of Indian courts has totally chan!ed. #here, the court has

held that a corporation may be criminally liable for crimes "hich involve a specific element of

intent as "ell for those "hich do not, and, althou!h some crimes re&uire such a personal,

malicious intent, that a corporation is considered incapable of committin! them, nevertheless,

under the proper circumstances, the criminal intent of its a!ent may be imputed to it so as to

render it liable, the re&uisites of such imputation bein! essentially the same as those re&uired to

impute malice to corporations in civil actions.#he court in the same case further held that as in case of torts the !eneral rule prevails that a

corporation may be criminally liable for the acts of an officer or a!ent, assumed to be done by

him "hen e%ercisin! authoried po"ers, and "ithout proof that his act "as e%pressly authoried

or approved by the corporation. #he rule has been laid do"n, ho"ever, that corporations are

liable, civilly or criminally, only for the acts of the a!ents "ho are authoried to act for them in

the particular matter out of "hich the unla"ful conduct "ith "hich they are char!ed !ro"s or in

the business to "hich it relates.

#he above approach by the courts "as adopted by follo"in! the doctrine of attribution and

imputation. In other "ords, the criminal intent of =alter e!o* of the company, i.e., the person or

!roup of persons that !uide the business of the company "ould be imputed to the corporation.

#he doctrine of attribution and imputation "as e%plained by the Supreme Court in the case of

Iridium India Telecom Ltd vs. 2otorola Incorporated and others71 , "here it held =that a body

corporate is a person to "hom there should be imputed the attribute of a mind capable of

$no"in! and formin! an intention*. It can only $no" or form an intention throu!h its human

1* $ngira Sing#vi, ‘Corporae Crime and Senencing in ?ndia@ 8eA"ired $mendmens

in Law’, ?nernaional o"rnal of Criminal B"sice Sciences, 3ol1 ?ss"e, "ly ''6,

Page -

16 S"pra 7oe 16

15 ('11) Comp L (SC)@ ('11) 1 SCC 5+

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a!ents, but circumstances may be such that $no"led!e of the a!ent must be imputed to the body

corporate. + corporation is virtually in the same position as any individual and may be convicted

of common la" as "ell as statutory offences includin! those re&uirin! Mens rea. #he criminal

liability of a corporation "ould arise "hen an offence is committed in relation to the business of

the corporation by a person or body of persons in control of its affairs. In such circumstances, it

"ould be necessary to ascertain that the de!ree and control of the person or body of persons is

too intense that a corporation may be said to thin$ and act throu!h the person or the body of

persons.

P/)"C%I C4PAI") / P%I)64" 6IC6 /"9%I/" )""C"

4AA/5 I4P/I)4"

+n important &uestion of concern arises in the case "hen the punishment for the offence

committed re&uires the mandatory imprisonment. #he Supreme Court in the case of (elliappa

Te)tiles73 held that the company cannot be prosecuted for offences "hich re&uire imposition of a

mandatory term of imprisonment coupled "ith fine. It "as further held that "here punishment

provided is imprisonment and fine, the court cannot impose only a fine.

+ company re!istered under the Companies +ct, 0B:; is a uristic person and cannot possibly be

sent to prison and it is not open to court to impose a sentence of fine or allo" to a"ard any

punishment if the court finds the company !uilty for the offence "hich re&uire mandatory

imprisonment, and if the court does it, it "ould be alterin! the very scheme of the +ct and

usurpin! the le!islative function.0B

'ut the above vie" of the court that a company cannot be prosecuted for a punishment "hich

re&uires mandatory punishment "as chan!ed in the case of Standard Chartered 'ank and others

vs. 9irectorate of :nforcement and others*;. #he court held that the company cannot be

sentenced to imprisonment- the court cannot impose that punishment, but "hen imprisonment

and fine is the prescribed punishment the court can impose the punishment of fine "hich could

be enforced a!ainst a company. Such discretion is to be read so far as the uristic person is

1 (''+) 1 Comp L 1 (SC)

14 swal 3anaspai and $llied ?nd"sries v Sae of =ar Prades# (144-) 1 Comp L

15 ($ll)

' (''*) + Comp L +6+ (SC)

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concerned. #he court can al"ays impose a sentence of fine and the sentence of imprisonment can

be i!nored as it is impossible to be carried out in respect of a company.#he court further held that prosecutin! the companies for punishment of mandatory

imprisonment appears to be the intention of the le!islature. #here is not blan$et immunity for

any company from any prosecution for serious offences merely because the prosecution "ould

ultimately entail a sentence of mandatory imprisonment. #he corporate vehicle no" occupies

such a lar!e portion of the industrial, commercial and sociolo!ical sectors that amenability of the

corporation to a criminal la" is essential to have a peaceful society "ith stable economy.30

#he above vie" "as follo"ed by the Supreme Court in the case of Iridium India Telecom Ltd v

2otorola Incorporated and others, "herein the court held that as the company cannot be

sentenced to imprisonment, the court has the discretion to resort to punishment of imposition of

fine "hich is also a prescribed punishment. +s per the scheme of various enactments and also the

Indian ?enal Code, mandatory custodial sentence is prescribed for !raver offences. + company

cannot escape liability for a criminal offence, merely because the punishment prescribed is that

of imprisonment and fine.

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recommended that every case involvin! the offence only punishable "ith imprisonment or "ith

imprisonment and fine and the offender is a company or other body corporate or an association

of individuals the court "ill be competent enou!h to impose a sentence of fine on such body

corporate.

?arliament of India did not !ive any heed to the recommendations made by the La"

Commission, so a!ain in its 94th report, the La" Commission recommended that the economic

offences in "hich imprisonment is mandatory and the committed person is a corporation the

court "ill be competent enou!h to impose a sentence of fine on the offender.

+!ain, the recommendations of the La" Commission did not obtain any response from the

parliament. #his sho"s that the ?arliament does not have any intention to !ive the courts

discretion of imposin! sentence of fine on the company "hich is the offender. #his conclusion of

e%ercise of discretion by the court is "ithout any le!islative approval.

In both the above cases, the court has observed that there is le!islative intent to prosecute the

corporate bodies for the offence re&uirin! mandatory imprisonment. #he court also observed that

the le!islature does not have intention only to prosecute the corporate bodies for minor offences

and e%tend immunity to prosecution in !rave economic offences. #his conclusion of the court

can be held inappropriate from the fact that the ?arliament has not yet adopted that the

recommendation of the La" Commission.

#he role of court could be derived from the famous ma%im =udicis est just dicere, non dare* read

"ith doctrine of separation of po"er is to interpret the la" and not ma$e the la". #he court*s

hands are bound to impose the various $inds of punishments as !iven by the le!islature. So in

order to avoid the court to !o into the statute and define the la", "hich is the role of le!islature,

it is proper that the le!islature should amend the various penal statutes to brin! in various forms

of punishments for the corporations, thus maintainin! the doctrine of separation of po"er and

hence enforcin! the rule of la" "hich is part of the =basic structure* of the Indian Constitution.

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/"C44"AI) / ICL%)I I " 5P" P%I)64")


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(nder social sanctions the punishment of publication of ud!ement could be posed as

punishment as a result of this punishment the !ood"ill or reputation, "hich is the heart and the

soul of any corporate body "ill be destroyed. #his type of punishment could force the company

for fear of adverse media attention those conse&uences is difficult to determine. It "ill create a

deep sti!matiin! effect on the corporation since its business "ould come to a standstill "ith no

customers.

CCL%)I

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Corporate Criminal Liablity