A Comment on: Criminal Liability of Corporations

Introduction

Corporate liability

Large multinational corporations have come to dominate the national and global economic scene. The scale of their operations is enormous. The largest have grown into enterprises of astonishing magnitude that in their economic dimensions are fully comparable to nation states. But, with great power comes great responsibility. Just as individuals owe a duty not to harm or injure others in society without justification, so do companies owe a duty not to poison our water and food, not to pollute our rivers, beaches and air, not to allow their workplaces to endanger the lives and safety of their employees and the public, and not to sell commodities, or provide transport, that will kill or injure people. Imposing adequate controls over multinational conduct and achieving accountability by multinationals for their conduct both at home and abroad should be a major objective of every industrialized power. In the criminal law, corporate liability determines the extent to which a corporation as a fictitious person can be liable for the acts and omissions of the natural persons it employs. It is sometimes regarded as an aspect of criminal vicarious liability, as distinct from the situation in which the wording of a statutory offence specifically attaches liability to the corporation as the principal or joint principal with a human agent. Section 11 of the IPC reads:

“The word person includes any Company or Association or body of persons, whether incorporated or not.”

Section 11 seeks to define, person is firstly not exhaustive. It simply declares that it includes (a) a company or association (b) a body of persons whether incorporated or not. Secondly the definition operates unless the context warrants otherwise. Section 3 (42) General Clauses Act, 1987 which reads: person shall include any company or association or body of individuals, whether incorporated or not. Vicarious liability principle applies in case of companies also who can be held liable for acts committed by some natural persons who are indentified with it because in such a case the acts and intentions of those who control the corporation are deemed to those of the corporation itself. A company has none of features that characterize a living person, a mind that can have knowledge or intention or be negligent. [1] But company, being a body corporate can sue and be sued in its own name.

An officer in a case had committed irregularities in relation to matters of investment of the company, without the knowledge of the Board of directors. He was considered identifiable with the corporation as he was the directing mind and will of the corporation and his knowledge was attributable to the company. [2] Glanville Williams says, “The independent legal existence of a company is useful because individual shareholders may come and go; and it has the great advantage of creating limited liability”, e.g. the company is responsible for its debts in case of insolvency of the company the creditors to the company cannot proceed against the private property of the shareholders. When an offence is committed by the partners of a firm, there is no general rule that firm, an artificial person is liable. All depends on the particular facts of the case. [3] Resistance prior to the twentieth century to extension of the doctrine of corporate criminal liability was tied to the widely-held juridical belief that a corporation lacked the requisite mens rea essential to sustain a criminal conviction. It was widely prevalent and followed that: A Corporate has ‘no soul to damn, and no body to kick.’

The corporation is invisible, incorporeal, and immortal; it cannot be assaulted, beaten, or imprisoned; it cannot commit treason . . .

Ways in which Corporations commit crimes [4]

On the population as a whole: The Supreme Court of India ordered the government to pay a remaining $325.5 million (15.03 billion rupees) due to Bhopal gas tragedy victims. The U.S. based Union Carbide Company, now owned by Dow Chemical Co., paid $470 million in compensation to victims in 1989. The story goes back to the 1984 Union Carbide accident in Bhopal, India, which released a cloud of methyl isocyanate (MIC), hydrogen cyanide, and other toxins. Somewhere between 4000 and 8000 people died at the time, and victims' advocates estimate that in total over 20,000 have died as a result of this largest industrial accident ever, with 1,50,000 suffering continuing injuries and medical problems.

The cause was extreme corporate malfeasance. The plant was not up to minimal Union Carbide safety standards - large quantities of MIC were unwisely stored in a heavily populated area, the refrigeration unit for the MIC (which is supposed to kept at temperatures below 32 F) was deliberately kept turned off to save $40 per day in costs, the safety systems were dismantled, and the alarm system was turned off. This was in spite of the fact that the same plant had earlier suffered potentially lethal accidental releases of gases like the deadly nerve agent phosgene.

On the investors: One of the major havoc that is created in present times is because of mysterious disappearance of corporations. Of the 5,651 companies listed on Bombay Stock exchange, 2750 have vanished. It means that one out of two companies that come to the stock exchange to raise crores of rupees from investors, loot and run away. Many corporations came up with huge publicity stunts but after raising money, vanished into the thin air. About 11 million investors have invested Rs. 10,000 crore in these 2750 companies. We have Securities Exchange Board of India, Reserve Bank of India and Department of Companies Affairs to monitor the stock exchange transactions but none has documented the whereabouts of these 2750 odd companies suspended from the stock exchange. Many of the promoters and merchant bankers who are responsible for these are roaming scot-free. The market regulators and stock exchanges are unable to penalize them or recover their funds. The regulators have been able to identify only 229 of 2750 vanishing companies so far.

On their own Work Force: Corporations also commit a number of crimes against their own workforce. With increasing globalization workers find themselves being pushed against the wall and shrinking avenues for redressal. Take the case of public sector undertakings where many irregularities can be seen in. Factories were opened in some areas where the raw material was not available and where the location was correct, imported machinery was defective. Lavishness on the part of management was one of the factors, which led to these institutions becoming sick. No doubt that the labourers suffer the most in such cases. The plight of Mumbai’s textile workers is even worse. Legal dues have not been paid to 2 lakhs jobless mill workers. Trade unions are fighting with the reality of worker suicides and growing unemployment and the worker’s families are struggling to get over their misery, leave alone fight for dues from faceless management.

On the Natural Resources: The government across the world have given a free hand to corporations to exploit the natural and community resources, while depriving the common people of their right on these resources. For instance, in India, Corporations at Eloor, Kodaikanal and Gujarat have not only destroyed the water and land resources in these areas, but also impoverished communities by degrading their livelihood resources and health. All these communities suffer from disasters similar to Bhopal. Inaccessible to clean and safe drinking water was found to be a major problem in all these areas. The companies either pollute the water resources to an extent where it is no more portable or over exploit it till the water table goes down or dry up the wells. A befitting example could be of Coco Cola bottling plant in Kerala where the company extract excess amount of water from the ground due to which the water level has gone very low and the nearby villages are suffering from scarcity of water. It is important to note that most of the damages caused to the environment is irreversible.

Corporations in the political environment: The convicted corporations are also involved into dirty game of politics. Corporate Crime Reporter, a U.S. based legal newsletter published a report in July 2003 titled as ‘Dirty Money: Corporate Criminal Donations to the Two Major Parties.’ This report grew out of the question that how much money are common criminal corporations dumping into the Republican and Democratic parties in U.S.? 

The report found that 31 corporate criminals gave more than $9 million to the Democratic and Republican parties during the 2002 election cycle, which runs from January 1, 2001 to December 31, 2002. These corporate criminals gave $7.2 million to Republicans and $2.1 million to Democrats. Many of these corporate criminals are large, multinational corporations, with billions of dollars in assets.To get a sense of this, let's look at the top two corporate criminal donors to the Republican and Democratic parties. Archer Daniels Midland (ADM) tops the list. ADM pled guilty in 1996 to one of the largest antitrust crimes ever. The company paid a $100 million criminal fine -- at the time, the largest criminal antitrust fine ever. Same is the case in India. These corporate criminals give huge sums of money to the political parties in return of favours from these parties. Who suffers the most is the common man including the shareholders and workers.

The concept of Criminal Liability of corporations

The imposition of criminal liability is only one means of regulating corporations. There are also civil law remedies such as injunction and the award of damages which may include a penal element. Generally, criminal sanctions include imprisonment, fines and community service orders. A company has no physical existence, so it can only act vicariously through the agency of the human beings it employs. A corporation is not only devoid of mind but also of body, and therefore incapable of usual criminal punishments. “Can you hang its common seal?” asked an advocate in England during the reign of King James II. It can however be fined and till this date fining is considered to be the most apt way of imputing punishment on Corporate bodies. [5] While it is relatively uncontroversial that human beings may commit crimes for which punishment is a just desert, the extent to which the corporation should incur liability is less clear. Obviously, a company cannot be sent to jail, and if a fine is to be paid, this diminishes both the money available to pay the wages and salaries of all the remaining employees, and the profits available to pay all the existing shareholders. Thus, the effect of the only available punishment is deflected from the wrongdoer personally and distributed among all the innocent parties who supply the labour and the capital that keep the corporation solvent.

Because, at a public policy level, the growth and prosperity of society depends on the business community, governments recognize limits on the extent to which each permitted form of business entity can be held liable (including general and limited partnerships which may also have separate legal personalities). The difficulty in fixing criminal liability on the corporations gave way to the idea that they can be made liable for non-feasance, i.e. omission to act. If a statutory duty is cast upon a body incorporate, and not performed, the body incorporate can be convicted of the statutory offence. In regard to various social legislations like the essential commodities act, The Environment Protection Act, etc, it is provided that at the time of commission of the offence, the company, as also every person who was responsible for the conduct or business of the company shall be deemed to be liable for the offence, and if found guilty, they could be punished, not only with fine, but imprisonment as well. Thus, there is always a presumption of guilt in respect of persons who are in charge of the company and the burden is on the accused, to show that the offence was committed without his knowledge or that he exercised due diligence to prevent the commission of the offence. Some crimes are considered inchoate because, like a conspiracy or attempt, they anticipate the commission of the actus reus ("guilty act") of the full offence. One option for prosecution would be to treat a corporation as an accomplice or co-conspirator with the employees. Regarding the liability of corporations it is now more or less settled law that in all the special enactments, the companies as well as its officers responsible for its management are equally liable for the violation of any law. Now the Supreme Court has stated that it is open to prosecute the directors or persons in charge of the company without prosecuting the company. [6]

Mens Rea
In as much as all criminal and quasi-criminal offences are creatures of statute, the amenability of the corporation to prosecution necessarily depends upon the terminology employed in the statute. In the case of strict liability, the terminology employed by the legislature is such as to repeal an intent that guilt shall not be predicted upon the automatic breach of the statute but on the establishment of the actus reus, subject to the defence of due diligence the law is primarily based on the terms of the statute. In the case of absolute liability where the legislature by the nearest intendment establishes an offence here liability arises instantly upon the breach of the statutory prohibition, no particular state of mind is a pre requisite of guilt. Corporations and individuals persons stand on the same footing in the face of such a statutory offence. It is a case of automatic primary responsibility. It is only in the case requiring mens rea; a question arises whether the corporation could be attributed with requisite mens rea to prove the guilt.[7] 

U.S. Supreme Court in New York Central and Hudson River Rail Road Co. v. U.N [8] clearly held that a corporation is liable for crimes of intent.

In H.L BOLTON (engg.) co. ltd v. T.J Graham and sons [9] . Lord Denning Observed:
A company may in many ways be likened to a human body. They have a brain and a nerve centre, which controls what they do. They also have hands, which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company and control what they do. The state of mind of these managers is state of mind of company and it treated by law as such. So you will find that in case where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of company.

That is made clear in Lord Haldene's in Lennard's Carraying Company Ltd v. Asiatic Petroleum Co. Ltd [10] (Ac at pp. 713,714). So, also in the criminal law, in cases where the law requires a guilty mind of directors or the managers will render the company themselves guilty. [11] In Standard Charted case there was no issue of mens rea, so why it was left open. But in Velliapa Textiles case Supreme Court held that mens rea of person in charge shall be treated as mens rea of corporation. Srikrishna J. in majority on this point observed:

Though, initially, it was supposed that a corporation could not be held liable criminally for offences where mens rea of person in charge of the affairs of the corporation, the alter ago, is liable to be extrapolated to the corporation, enabling even an artificial person to be prosecuted. The alter ego doctrine relies on the notion of personification of the legal body. It identifies actions and thought patterns of certain individuals within the corporation called corporate organs who act within the scope of their authority and on behalf of the corporate body, as the behaviour of the legal body itself. Hence, the name of the doctrine: the theory of corporate organs or the alter ego doctrine referring to these individuals as the embodiment of the legal body. In its wake corporation can be rendered criminally liable for the very perpetration of the offences, resembling the liability imposed on a human perpetrator, subject to the natural limitations that follow from the character of the corporations as a legal personality. The procedure to prove corporations criminally liable is, prima facie, rather complex. If intention, knowledge or recklessness is an essential ingredient of the offence, these fault elements must be attributed to the body corporate if it expressly, tacitly or impliedly authorized or permitted the commission of the offence. First, the corporation's fault will be established (vicarious liability) if the body corporate's board of directors intentionally, knowingly or recklessly carried out the wrongful conduct, or expressly or by necessary implication authorized or permitted the commission of the offence. Second, the corporation's fault may be established by evidence that a high managerial agent of the company intentionally, knowingly or recklessly engaged in the relevant conduct or expressly, tacitly or impliedly authorized or permitted the commission of the offence. In this second case, however, the corporation will not be liable if it proves that it exercised due diligence to prevent the conduct. Third, the corporation's fault may be established by proof that a corporate culture existed within the body corporate that encouraged, tolerated or led to non- compliance with the relevant provision. Fourth, the corporation's fault may be established by proving that it failed to create and maintain a corporate culture that required compliance with the relevant provision.

Corporate Criminal Liability - The Necessity: [12] 
In the modern day world, the strong effect of activities of corporations is incredible on the society. In the day to day activities, not only do the corporations affect the lives of the people as a blessing but also many a times proves disastrous which then falls under the category of crimes. For instance, the Uphar Cinema tragedy or thousands of scandals especially the white collar and organized crimes can come within the category that requires immediate concern. Despite so many disasters, the law was unwilling to impose criminal liability upon corporations for a long time. This was for basically two reasons that are [13] :

1.      That corporations cannot have the mens rea or the guilty mind to commit an offence; and 

2.      Corporations cannot be imprisoned. 

These two obstacles were managed to survive till late 20th and very early 21st century. The general belief in the early 16th and 17th centuries was that corporations could not be held criminally liable. In the early 1700s, corporate criminal liability faced at least four obstacles, i.e.

Firstly, attributing acts to a juristic fiction, the corporation. Eighteenth-century courts and legal thinkers approached corporate liability with an obsessive focus on theories of corporate personality; a more pragmatic approach was not developed until the twentieth century.

Secondly, the legal thinkers did not believe corporations could possess the moral blameworthiness necessary to commit crimes of intent. 

Thirdly, the ultra vires doctrine, under which courts would not hold corporations accountable for acts, such as crimes, that were not provided for in their charters. 

Finally, the fourth obstacle was court’s literal understanding of criminal procedure; for example, judges required the accused to be brought physically before the court.

Use of Criminal law or Civil law, in the determination of Liability of the Corporations

Using the criminal law

§   Represents formal public disapproval and condemnation because of the failure to abide by the generally accepted social norms, codified into the criminal law. Police powers to investigate can be more effective, but the availability of relevant expertise may be limited. If successful, prosecution reinforces social values and shows the state's willingness to uphold those values in a trial likely to attract more publicity when previously respected business leaders are called to account. The judgment may also cause a loss of corporate reputation and, in turn, a loss of profitability.

§   Justifies more severe penalties because it is necessary to overcome the higher burden of proof to establish criminal liability. But the high burden means that it is more difficult to secure a judgment than in the civil courts, and many corporations are cash-rich and so can pay apparently immense fines without difficulty. Further, if the corporation knows that the fine is going to be severe, it may seek bankruptcy protection before sentencing.

§   The theoretical value of punishment is that the offender feels shame, guilt or remorse, emotional responses to a conviction that a fictitious person cannot feel.

§   If a state turns too often to the criminal law, it discourages self-regulation and may cause friction between any regulatory agencies and businesses that they are to regulate.

§    In some instances of fraud, the court may pierce the veil of incorporation. Most fraud is also a breach of the criminal law and any evidence obtained for the purposes of a criminal trial is usually admissible in civil proceedings. But criminal prosecutions take priority, so if civil proceedings uncover evidence of criminality,the civil action may be stayed pending the outcome of any criminal investigation.

Using the civil law

§   With the lower burden of proof and better case management tools, civil liability is easier to prove than criminal liability, and offers more flexible remedies which can be preventative as well as punitive.

§   But there is little moral condemnation and no real deterrent effect so the general management response may be to see civil actions as a routine cost of business which is tax deductible.

Advantage of using Criminal laws over Civil laws

Most states use criminal and civil systems in parallel, making the political judgment on how infrequently to use the criminal law to maximize the publicity of those cases that are prosecuted. Some states enact specific legislation covering health and safety, and product safety issues which lay down general protections for the public and for the employees. The difficulty of proving a mens rea is avoided in the less serious offences by imposing absolute, strict liability, or vicarious liability which does not require proof that the accused knew or could reasonably have known that its act was wrong, and which does not recognise any excuse of honest and reasonable mistake. But, most legislatures require some element of fault, either by way of an intention to commit the offence or recklessness resulting in the offence, or some knowledge of the relevant circumstances. Thus, companies are held liable when the acts and omissions, and the knowledge of the employees can be attributed to the corporation. This is usually filtered through identification, directing mind or alter ego test which proves that the employee has sufficient status to be considered the company when acting.

Extent of liability imposed on the Corporations

In Halsbury’s Laws of England which lays down. “In general, a corporation is in the same position in relation to criminal liability as a natural person and may be convicted in common law for statutory offences including those requiring Mens Rea. There are, however, crimes which a corporation is incapable of committing or of which a corporation cannot be found guilty as a principal; nor can a corporation be convicted of a crime for which death or imprisonment are the only punishment.” This view has been adopted in various Indian cases. [14] Kenny lies down: Corporations formerly lay outside the ambit of criminal law due to technical rules, these expected prisoners to stand at their bar, and did not allow appearance by attorney. A corporation could not have a guilty will and even if by legal fiction, a will is created it must be such as to cover those activities which can be consistently ascribed to the fictitious will thus  created with the purposes which it was created to accomplish. The House of Lords have held that, a company will be liable if the action of the defaulting person is the very action of the company itself. [15] With the increasing involvement of corporations in the daily life of the people it was considered important that the immunity available to the corporations should be taken away as it hindered the interests of the people, thus an innovation was introduced by drawing a distinction between misfeasance and non-feasance , on the ground that, whilst in the case of a criminal misfeasance the servant or agent who actually did the criminal act could always be himself indicted, no such indictment would be available in the case of non-feasance; for the omission would not be imputable to any individual agent but solely to the corporation itself. Hence, in 1840, an indictment for non-feasnace in omitting to repair highway, was allowed against a corporation in R. v. Birmingham & Gloucester Ry. Co [16] ., soon afterwards, in the case of R. v. The Great North of England Railway Co [17] , an indictment was allowed for misfeasance, that of actually obstructing a highway. The principle has obtained legislative approval. For Interpretation Act, 1889, provides that in the construction of every statutory enactment relating to an offence, the expression ‘person’ shall, unless a contrary intention appears, include a body corporate.

Liability of Corporations in case of statutory offences

There is no controversy when fine is only punishment given under any statute. There is also no lis when statute entrusts the court with discretion to inflict fine or imprisonment, as in this case court shall inflict only fine on company. Because a company being a Juristic person cannot obviously be sentenced to imprisonment as cannot suffer imprisonment. Judicial controversy lies in that situation when statute prescribes mandatory imprisonment with fine as a punishment for an offence. In Municipal Corporation of Delhi vs. J.B. Bolting Company (P) Ltd. [18] ,the court was confronted with a very interesting question: whether a company can be awarded a punishment of fine when the mandatory punishment is both imprisonment and fine. The company had been found guilty of committing an offence under Prevention of Food Adulteration Act, 1954. The Court held the company guilty of the offence under the said act, declared that it could be punished with fine only. [19] In 2003 Supreme Court in Assistant Commissioner, Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd & Anr. [20] took the view that since an artificial person like a company could not be physically punished to a term of imprisonment, such a section, which makes it mandatory to impose minimum term of imprisonment, cannot apply to the case of artificial person. The majority was of the view that the legislative mandate is to prohibit the courts from deviating from the minimum mandatory punishment prescribed by the Statute and that while interpreting a penal statute, if more than one view is possible, the court is obliged to lean in favour of the construction which exempts a citizen from penalty than the one which imposes the penalty. In this case B.N. Srikrishna and G.P. Mathur held that a company can be attributed with mens rea on the basis that those who work or are working for it have committed a crime and can be convicted in a criminal case, the judges held that the corporations are liable even where the offence requires a criminal intent. The other question raised in this case was, “ whether a company is liable for punishment of fine if the provision of law contemplates punishment by way of imprisonment only or a minimum period of punishment by imprisonment plus fine whether fine alone can be imposed?”, to this question Mathur J., was of the view that the courts would be shirking their responsibility of imparting justice by holding that prosecution of a company is unsustainable merely on the ground that being a juristic person it cannot be sent to jail to undergo the sentence, R.Babu J. , agreed with SriKrishna J. , in holding that corporate criminal liability cannot be imposed without making corresponding legislative changes. This includes the imposition of fines on corporate bodies, to bring such a fundamental change in criminal jurisprudence the legislative function would have to be applied and the parliament would have to step in. [21]However, Supreme Court in 2005 in Standard Charted Bank v. Directorate Of Enforcement [22] in majority decision of 3:2 expressly overruled the Velliapa Textiles case on this issue. K.J Balkrishanan J. in majority opinion held:

“We hold that there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which punishment prescribed is mandatory imprisonment. We overrule the views expressed by the majority in Velliappa Textiles on this point.

The intention of the legislature is to give complete immunity from prosecution to the corporate bodies for grave offences could not be the intention of the legislature. In Standard Charted Bank v. Directorate Of Enforcement appellant filed a writ petition before High Court Of Bombay challenging various notices issued under section 50 read with section 51 of Foreign Exchange Regulation Act, 1973 & contended that the appellant company was not liable to be prosecuted for an offence under section 56 of FERA Act, 1973, against the decision of High Court appellant filed a special leave before Supreme Court, contended that no criminal proceeding can be initiated against appellant company under section 56(1) of FERA Act, 1973 as the minimum punishment prescribed under section 6(1) (i) is imprisonment for a term which shall not be less than six months and with fine. Section 56 of FERA Act, 1973 read as follow:

56. Offences and prosecutions (1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes any of the provisions of this Act (other than section 13, clause (a) of subsection (1) of section 18, section 18A, clause (a) of subsection (1) of section 19, sub-section (2) of section 44 and sections 57 and 58, or of any rule, direction or order made thereunder, he shall, upon conviction by a court, be punishable, -

(i) In the case of an offence the amount or value involved in which exceeds one lakh of rupees, with imprisonment for a tern not less than six months, but which may extend to seven years and with fine:

Provided that the court may, for any adequate and special reasons to be mentioned in the Judgment, impose a sentence of imprisonment for a term of less than six months.

The question for consideration before court was:
Whether a company or a corporation being a juristic person, can be prosecuted for an offence for which mandatory punishment prescribed is imprisonment & fine.

Prosecution is pre-requisite for inflicting any punishment. But it is natural when no punishment can be inflicted, no prosecution can be launched. So it is clear from Standard Charted case that prosecution can be initiated and fine can be imposed even when imprisonment is given as mandatory punishment with fine, the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of the company, this can be construed as the true intention of the legislature.

Lex non cogit ad impossibilia 
The maxim lex non cogit ad impossibilia only tells us that law does not contemplate something, which cannot be done. This maxim is used by both sides (majority and minority) in Standard charted case. As Srikrishna J. in minority observed:

The maxim lex non cogit ad impossibilia like all maxims, only tells us that law does not contemplate something which cannot be done. The maxim applies, in so far persuading the court to hold that it is impossible to send a company to prison. The maxim by itself does not empower the court to break up the section into convenient parts and apply them selectively nor does the maximum potentia excusat legem apply here for the same reason. Au contraire (to the contrary), the application of these maxims could equally persuade the court to ignore the language of the statutory provision in the case of juristic person, there being no warrant for the dissecting of the section and treating only one part as capable implementation when the mandate of the section is to impose the whole of the prescribed punishment.

K.J Balkrishanan J. in majority opinion held:
It is an acceptable legal maxim that law does not compel man to do that which cannot possibly be performed [impotentia excusat legem]. This principle can be found in Bennion's statutory interpretation 4th edn. At page 969. All civilized systems of law import the principle that lex non cogit ad impossibilia. As Patternson, J. said, the law compels on impossibility. Bennion discussing about legal impossibility at page 970 states that, if an enactment requires what is legally impossible it will be presumed that parliament intended it to be modified so as to remove the impossibility element. This court applied doctrine of impossibility of performance [Lex non cogit ad impossibilia] in numerous cases….

It was expressly stated in this case that the company is liable to be prosecuted even if the offence is punishable both with a term of imprisonment and fine. In case the company is found guilty, the sentence of imprisonment cannot be imposed on the company and then the sentence of fine is to be imposed and the court has got the judicial discretion to do so. The courts have followed this judgment and have denied any blanket immunity to corporations from criminal liability. [23] This course is open only in the case where the company is found guilty but if a natural person is so found guilty, both sentence of imprisonment and fine are to be imposed on such person. 

Identification Tests to Determine Criminal Liability of Corporations

Identification test in English law

In Tesco Supermarkets Ltd v Nattrass [24]  , is a leading case in corporate liability:

 Tesco was offering a discount on washing powder which was advertised on posters displayed in stores. Once they ran out of the lower priced product the stores began to replace it with the regularly priced stock. The manager failed to take the signs down and a customer was charged at the higher price. Tesco was charged under the Trade Descriptions Act 1968 for falsely advertising the price of washing powder. In its defence Tesco argued that the manager had taken all reasonable precautions and all due diligence, and that the conduct of the manager could not attach liability to the corporation.

The House of Lords accepted the defence and found that the manager was not a "directing mind" of the corporation and therefore his conduct was not attributable to the corporation. The corporation had done all it could to enforce the rules regarding advertising.

In this case Lord Reid said:

The person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company.

The identification theory relies on an individual to attribute liability to a corporation. Furthermore, the identification theory introduces the personification of the corporate body. According to this theory, the solution for the problem of attributing fault to a corporation for offences that require intention was to merge the individual within the corporation with the corporation itself. The individual employee is assumed to be acting as the company and not for the company. The theory de-emphasized the need for the development of vicarious liability.

This approach has been criticised because it restricts corporate liability to the acts of directors and a few high-level managers. This unfairly favours larger corporations because they will escape criminal liability for the acts of all the employees who manage the day-to-day activities of the corporations. This has proved problematic as in the cases involving corporate manslaughter.

Aggregation test in the United States

By “aggregating” the acts and omissions of two or more natural persons acting as the corporation, the actus reus and mens rea can be constructed out of the conduct and knowledge of several individuals. This is termed the Doctrine of Collective Knowledge. In United States v Bank of New England [25] , where the bank was found guilty of having failed to file CTRs (currency transactions reports), for cash withdrawals higher than $10, 000. The client made thirty-one withdrawals on separate occasions between May 1983 and July 1984. Each time, he used several checks, each for a sum lower than the required total, none of which amounted to $10, 000. Each check was reported separately as a singular item on the Bank’s settlement sheets. Once the checks were processed the client would receive in a single transfer from the teller, one lump sum of cash which always amounted to over $10,000. On each of the charged occasions, the cash was withdrawn from one account. The Bank did not file CTRs on any of these transactions. Each group of checks was presented to a different teller at different times.

In this case, the question was if any knowledge and will could be attributed to the corporate entity. The trial judge found that the collective knowledge model was entirely appropriate in such context, and stated as much in addition, however, you have to look at the bank as an institution. As such, its knowledge is the sum of all the knowledge of all its employees. That is, the bank’s knowledge is the totality of what all of the employees knew within the scope of their employment. So, if employee A knows of one facet of the currency reporting requirement, B knows another facet of it, and C a third facet of it, the banks know them all. So, if you find that an employee within the scope of his employment knew that the [reports] had to be filed, even if multiple checks are used, the bank is deemed to know it if each of the several employees knew a part of the requirement and the sum of what the separate employees knew amounted to the knowledge that such a requirement existed. The partisans of collective knowledge explain that the difficulty of proving knowledge and willfulness in a compartmentalized structure such as a corporation should not be an impediment to the formation of the corporation’s knowledge as a whole. According to these positions, it is not essential that one part be aware of the intention and act of the other part for the formation of aggregate knowledge. In Bank of New England, it was explained that:

“Corporations compartmentalize knowledge, subdividing the elements of specific duties and operations into smaller components. The aggregate of those components constitutes the corporation’s knowledge of a particular operation. It is irrelevant whether employees administering one component of an operation know the specific activities of employees administering another aspect of the operation.”

Law Commission Report 
Law commission in its 41st report suggested amendment to section 62 of the Indian penal code by adding the following lines:

In every case in which the offence is only punishable with imprisonment or imprisonment and fine and the offender is the company or other body corporate or an association of individuals, it shall be competent to the court to sentence such offender to fine only.

This recommendation got no response from the parliament and again in the 47th report, the law commission in paragraph 8(3) made the following recommendation:

In many of the acts relating to economic offences, imprisonment is mandatory. Where the convicted person is corporation, this provision becomes unworkable and it is desirable to provide that in such cases, it shall be competent to the court to impose a fine. This difficulty can arise under the penal code also, but it is likely to arise more frequently in the case of economic laws. We, therefore, recommended that the following provision should be inserted in the penal code as, say, Section 62:

(1) In every case in which the offence is punishable with imprisonment only or with imprisonment and fine, and the offender is the corporation, it shall be competent to the court to sentence such offender to fine only.

(2) In every case in which the offence is punishable with imprisonment and any other punishment not being fine and the offender is a corporation, it shall be competent to the court to sentence such offender to fine.

(3) In this section, corporation means an incorporated company or other body corporate, and includes a firm and other association of individuals.

But this bill prepared on the basis of the recommendations of the law commission lapsed and it did not become law. However few of these recommendations were accepted by parliament and by suitable amendment some of the provisions in the taxation statutes were amended. The Law Commission has tried consistently to find a formula which would solve the problem of fixing appropriate punishment for the Corporations which commit offences; this has been done with a view to punish a corporation where mandatory minimum punishment is both punishment and fine, in such a case it needs to be fixed as to how the law courts would advance if this question comes up before them.

Conclusion

It can safely be concluded that laws relating to corporate criminal liability in India are vastly insufficient. The legislature needs to be active in this regard and form certain concrete laws which would ensure that the corporations do not go unpunished and a better social order is established. Certain Provisions relating to procedural law also need to be created and modified so that the corporations can be adequately dealt with.

Bibliography

Books

Ratanlal & Dhirajlal, The Indian Penal Code, Justice Y.V. Chandrachud, V.R. Manohar. 31st Enlarged Edn. , Reprint 2009, Lexus Nexis Butterworths Wadhwa Nagpur Publications.

P S A Pillai, Criminal Law, 9th Edition, V Suresh, D Nagasaila (ed.), Butterworths Publications

Websites

Wikipaedia.org

[1] Lord Reid in Tesco Supermarkets Ltd. v. Natrass [1971] All ER 127

[2] Meridian Global Funds Management Asia ltd. V. Securities Commission, (1995) 2 AC 500 (PC)

[3] (1975) 2 Andh WR 46

[4] Corporate Crimes, Kunal Mehta, NLU, Jodhpur

[5] R. v. I.C.R. Haudage Ltd., (1944) KB 551

[6]   M/s Bilakchand Gyanchand Co v A Chinnaswami 1999 Cri LJ 3498 (SC)

[7] Standard Charted Bank v Director of Enforcement (2005) 4 SCC 50

[8] 212 US 481 (1908)

[9] (1956) 3 ALL ER 624 at p.632

[10] 1915 AC 705

[11] (1956) 3 ALL ER 624 at p.632 

[12] Corporate Criminal Liability-An Analysis, Sowmya Suman,5th Year, Faculty of Law, Jamia Millia Islamia, New Delhi

[13] Motorola Inc. v. UOI, 2004CriLJ1576

[14] Anath Bandhu Samanta v. Corporation of Calcutta, (1954) 1 Cal 403

[15] Lennard’s Carrying Co. Ltd. v. Asiatic Petroleum Co. Ltd., (1915) AC 705.

[16] (1840) 2 QB 47.

[17] (1846) 9 QB 315.

[18] (1975) CrLJ 1148.

[19] Corporate Criminal Liability: Rethinking the Law, K.A. Pandey

[20] (2003)11 SCC 405

[21] Supra n.19

[22] (2005) 4 SCC 50

[23] Madumilan Syntex Ltd. & Others. V. Union of India & another, AIR 2007 SC 1481.

[24] [1972] AC 153

[25] 1987) 821 F. 2d 844 (1st Cir.)