Sanctions in corporate criminal liability and its environmental issues

INTRODUCTION

The endorsement of criminal liability on corporation is the twentieth century phenomena, as we can see that in the modern world corporation has affected the lives of people in the positive and as well as in the negative ways because individuals owe a duty to the corporations 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. In India many disasters were done by the corporations: For Instance -Uphar Cinema Tragedy[1] or thousands of scandals and white collar crimes that needed immediate concern. But despite the so many disasters the law was unwilling to impose criminal liability upon the corporations and this is because of two reasons:[2]

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

2. The corporations cannot be imprisoned.

In India the provision of corporate criminal liability was emerged in the very famous Bhopal gas tragedy and directions were issued in this.

In this paper we were discussing about the punishment given to the corporations and impacts of corporation’s criminal liability upon the environment of corporation and the country.

VARIOUS PHASES OF CONCEPTUAL DEVELOPMENT

The concept of the corporate criminal liability is not a new concept in the scenario. Actually this concept had been in the process since the time of the industrial revolution from that time the corporate entities were being exploited the public, as instance in sixteen century the Britishers exploited the small farmer’s resources and infringing their right of getting wages. So this was the starting event of the corporations for exploiting or harming the natural things and to the human beings and this strategy of those cruel associates was not being stopped from that time to till today. 

Historically, the criminal law has been the vehicle for deterrence. Corporations are increasingly significant actors in our economy and, to the extent their actions can victimize society, they too should be deterred.

Two major issues which were of dominance, during the phase of evolution of the doctrine of Corporate Criminal Liability were:

(1)One is the failure to identify or prove corporate intent: Traditionally, the criminal law has been reserved for intentional violations of the law. Yet, our prosecutions of corporations have been marked by floundering efforts to identify the intent of intangible, fictional entities.

(2)Second issue is regarding sanctions: In addition to proof of intent, a major distinguishing characteristic of the criminal law has been the threat of imprisonment. It was said that a corporation cannot be imprisoned; the criminal law is not an appropriate vehicle for controlling corporate behavior.

Corporate criminal liability under environmental, antitrust, securities and other laws has grown rapidly over the last two decades. Then also the general belief in the early sixteenth and seventeenth centuries was that corporations could not be held criminally liable. The reason for that is as follow

1. Company is an artificial person

2. It could not have the mens rea, which must be complied with act if the act to render someone guilty

But from last two centuries the concept of such liability could be taken on its peak. The reason of it is the increasing crimes in the society due to the corporations.

However this concept is not pervasive in modern legal systems.  Some countries, including Brazil, Bulgaria, Luxembourg and the Slovak Republic, do not recognize any form of corporate criminal liability.  Other countries, including Germany, Greece, Hungary, Mexico and Sweden, while not providing for criminal liability, nevertheless have in place regimes whereby administrative penalties may be imposed on corporations for the criminal acts of certain employees.[3] The countries that do impose criminal liability of some kind on corporations adopt varying approaches to the form and scope of this liability. The most common models could be characterized as involving 'derivative' liability[4], in which the corporation is liable for the acts of individual offenders.

The key conceptual problem of corporate criminal liability is forging a coherent link between the corpus of criminal law — which has been developed in the context of natural persons, and to reflect the psychology of human beings — and the realities of the corporate form, which is a complex fabric of human actors, on one hand, and corporate hierarchies, structures, policies and attitudes on the other.[5]  Corporations can only ever act through human beings, yet the actions of human employees or agents always occur within the matrix of these hierarchies, structures, policies and attitudes.  

In a legal sense, the question is whether, and to what degree, particular acts, necessarily committed by human beings, may constitute crimes committed by the corporation.

It should be noted that this discussion paper focuses on the criminal liability of "commercial" corporations. There is no detailed consideration of the kinds of entities to which this liability would extend.  In most cases, the laws discussed would apply to all entities that would be recognized as companies in the Anglo-American legal system.  However, in many countries they also apply to partnerships, unincorporated associations and even governmental and municipal agencies.  

CONTEMPORARY RELEVANCE OF CORPORATE CRIMINAL LIABILITY

The term ‘Corporate criminal liability’ means the liability imposed upon a corporation for any criminal act done by any natural person. Liability is imposed so as to regulate the acts of a corporation. As we stated earlier this concept of liability is based on the theory of the vicarious liability. So accordingly, a master held to be responsible for the acts done by his agent.

Any corporation can be made liable for act of its agent or servant if she/he:

(a)commits a crime;

(b)Acts within the scope of employment;

(c)With the intent to benefit the corporation.

So according to the common law the masters were held criminally liable for the acts of their agents, if the acts are creating the public nuisance.The imposition of criminal liability is only one means of regulating corporations. There can be civil law remedies are also be given such as the Injunctions and award for damages which have the penal element.

EXPENDED SCOPE OF CRIMINAL LIABILITY

Corporate liability took very long time to grow. The general belief in the 16th and 17h century was that corporations were incapable of being subject to criminal law. 

By the early 1600s, courts began to hold commercial corporations responsible for public nuisance. The principle underlying the ruling was that no individual agent of the company was responsible for the corporation’s omissions and that there could be no imputation of guilt from agent to principal because only the corporation was under a duty to perform the specific acts in question. As the presence of corporations grew, courts expanded corporate criminal liability from public nuisances to all offences that did not require intent. It was only in the mid 1800s that corporations were held liable for misfeasance. This led to the expansion of liability to crimes that involved intent. As Brickley[6] puts it, “once the principle that corporations could be convicted of misfeasance was established, there was no theoretical impediment to imposing liability for other acts of misfeasance.

The doctrine of respondent superior [7]was developed in common law, and this aided the growth of corporate liability.

In 1909, in New York Central & Hudson River Railroad Co. v. United States[8], the Supreme Court clearly held that a corporation could be held liable for crimes of intent.

The court based this upon the principle of respondent superior.

Following this judgment, all courts were willing to hold corporations criminally liable for almost all wrongs except rape, murder, bigamy and other crimes of malicious intent.

LEGAL SANCTIONS IN INDIA

Corporate criminal liability or corporate crime is very difficult to define because this phrase in present day scenario covers wide range of offences. However for understanding purpose it can be defined “as illegal act of omission or commission, punishable by criminal sanction committed by individual or group of individual in course of their occupation”.

Corporate criminal liability or corporate crime is very difficult to define because this phrase in present day scenario covers wide range of offences. However for understanding purpose it can be defined as ‘illegal act of omission or commission, punishable by criminal sanction committed by individual or group of individual in course of their occupation’. Actually this concept in such a vast country is very difficult to ascertain.

Basic problem with its declaration is that, the company’s, who shall be held liable, are very powerful one. So when they are presenting in the handcuff they easily realize by using their huge resources. As earlier the concept of the vicarious liability have been evolved in which the company held to liable but this liability was surrounded with many exceptions – via , Act of god, Negligence, plaintiff consent , etc. So with the advantage of the above exceptions the wrong doers or criminals being releases. Therefore for restraining such act our judiciary focused on the principle of strict liability principle. But this principle was accompanied with the concept of “Due diligence” according to this principle, everyone should be held liable for that act which creates nuisance or crimes in or against the people or society.

The above principles were for maintain generally the tortuous liability, which is not enough for the criminals. So let us come back to the criminal view:

Criminal Liability is attached only to those acts in which there is violation of Criminal Law.i.e. To say there cannot be liability without a criminal law which prohibits certain acts or omissions. The basic rule of criminal liability revolves around the basic Latin Maxim ‘actus non facit reum, nisi mens sit reat’. It means that ‘to make one liable, it must be shown that act or omission has been done which was forbidden by law and has been done with guilty mind’.

Now question arises to what extend a corporation criminally made liable?

Earlier Answer to this question was not pervasive. As our Parliament had not made the any particular law regarding this problem. But after the the recent landmark judgment of Apex Court in Standard Chartered Bank and Ors. v. Directorate of Enforcement and Ors.[9] had made the scenario crystal clear.

But before the final judgment of this above stated case various cases have come in to the light.

In Velliappa Textiles[10] case, majority view was that the corporation cannot be held to be responsible for the offence which mandatory in need of the imposition of imprisonment coupled with fine.

Further in the case of State of Maharasthra v. Syndicate Transport[11]  and in Kusum Products Limited v. S.K. Sinha, ITO, Central Circle-X, Calcutta were it was clearly stated that:

“.a Company being a juristic person cannot possibly be sent to prison and it is not open to court to impose a sentence of fine or allow awarding any punishment if the court finds the company guilty, and if the court does it, it would be altering the very scheme of the Act and usurping the legislative function.”

So the as according to the above views of the courts it made that the company may held liable for its act but not exactly. These views were extremely prevailing in the society and it creates a lot of the distraction among the scenario. But this aniexity relax after the judgment of supreme court in 2005, in the case of Standard Chartered Bank and Ors. v. Directorate Enforcement and Ors.[12] Of the law has taken a settled position and it is basically much more logical. 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. 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.

Further court remarked that “...there is no blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake series of activities that affect the life, liberty and property of the citizens and therefore on the discretion of court they held to be liable as according to law”.

Law Commission Report

The law commission in its 41st Report[13] suggested to amendment the S.62 of Indian Penal Code by adding the following line:

“In every case in which the offence is only punishable with imprisonment or with imprisonment and fine and the offender is a 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 its 47thReport,[14] 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 a 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, recommend 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 a 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 the 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 the Parliament and by suitable amendment some of the provisions in the taxation statutes were amended.

CORPORATE CRIMINAL LIABILITY IN ENVIRONMENT HASSLES

As we can see in the above discussion that if a corporation had done anything than the corporation was liable for the punishment whether it is in the form of damages, imprisonment or any other penalty . When corporations and the people working for them fail to comply with environmental laws, they are not only vulnerable to civil and administrative penalties, but increasingly to criminal sanctions as well if a corporation had done any criminal act than their criminal act had affected the environment in the negative way .here environment is not only related with the general environment in which we all live but here we are going to focus on the environment of the corporation by which a corporation was made and without them a corporation is not able to survive .so here we are going to see the impact of corporate criminal liability on corporations natural resources , employees  and also on the general environment.

1.Natural Resources: in all over the world corporations had exploit the natural resources’ of the countries because the government across the world have given a free hand to corporations to exploit the natural and community resources because corporation were helping the government in the progress of the economy and increases the revenues of the government by doing so government had depriving the right of common people to use the natural 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 are irreversible.

2.General Environments: by the general environment we mean the environment we all live peacefully and it is our fundamental right also given by our constitution to live peacefully in the environment .but because of the harmful act done by the corporations we are unable to live peacefully in the environment.

The “right to a healthy environment” as a fundamental right of Indian citizens has emerged from PIL-based judicial action. Some of the salient principles and norms evolved by the judiciary to assess environmental liability situations include[15]

1. Absolute liability of hazardous industries;

2. Polluter pays principle;

3. Precautionary principle; and

4. Constitutional “Right to Safe Environment.”

ABSOLUTE LIABILITY FOR HAZARDOUS INDUSTRY

Following the Bhopal gas leak tragedy[17], the Indian Supreme Court found this rule inadequate to deal with situations where the masses do not have the resources to enter into litigation against a powerful industrial company.

The right to compensation in environmental cases has been traditionally linked to strict liability as enunciated in Rylands v Fletcher.[16]  A portion of the ruling provides that “A person who for his own purposes, brings onto his land and collects and keeps there anything likely to mischief if it escapes, must keep it at his peril and, if he fails to do so, is prima facie liable for the damage which is the natural consequence of its escape.”

In the Bhopal gas leak case, therefore, the Supreme Court laid down a new judicial norm of “absolute liability” for a hazardous and inherently dangerous industry to pay compensation.The new rule of absolute liability developed by the court was enunciated as follows:

“The enterprise must be held to be under an obligation to provide that the hazardous or inherently dangerous activity in which it is engaged must be conducted with the highest standards of safety and if any harm results on account of such activity, the enterprise must be absolutely liable to compensate for such harm, and it should be no answer to the enterprise to say that it had taken all reasonable care and that the harm occurred without any negligence on its part .If the enterprise is permitted to carry on an hazardous or inherently dangerous activity for its profit, the law must presume that such permission is conditional on the enterprise absorbing the cost of any accident arising on account of such hazardous or inherently dangerous activity as an appropriate item of its overheads. Such hazardous or inherently dangerous activity for private profit can be tolerated only on condition that the enterprise engaged in such hazardous or inherently dangerous activity indemnifies all those who suffer on account of the carrying on of such hazardous or inherently dangerous activity regardless of whether it is carried on carefully or not. This principle is also sustainable on the ground that the enterprise alone has the resource to discover and guard against hazards or dangers and to provide warning against potential hazards.”

POLLUTER PAYS PRINCIPLE

The principle of absolute liability in cases of environmental injury has further found judicial validation in the polluter pays principle, which has become the law of the land through Supreme Court judgments.

In the Bichhri case[18], while imposing the cost of remediation on the polluter, the Supreme Court held :”Where an enterprise is engaged in a hazardous or inherently dangerous activity and causes harm to any one on account of an accident, the enterprise is strictly and absolutely liable to compensate all those who are affected by the accident and such liability is not subject to any of the exceptions as laid down in tortuous principles of strict liability under the rule laid down in Rylands Vs.Flecher.[19]”

The Supreme Court further held:

“The ‘Polluter Pays’ principle demands that the financial costs of preventing or remedying damage caused by pollution should lie with the undertakings which cause the pollution, or produce the goods which cause the pollution, Under the principle it is not the role of Government, to meet the costs involved in either prevention of such damage, or in carrying out remedial action, because the effect of this would be to shift the financial burden of the pollution incident to the taxpayer.”

Further, in the Vellore tanneries pollution case[20], the Supreme Court has elaborated on the polluter pays principle as follows: “The ‘Polluter Pays Principle’ as interpreted by this Court means that the absolute liability for harm to the environment extends not only to compensate the victims of pollution but also the cost of restoring the environmental degradation. Remediation of the damaged environment is part of the process of ‘Sustainable Development’ and as such the polluter is liable to pay the cost to the individual sufferers as well as the cost reversing the damaged ecology.”

PRECAUTIONARY PRINCIPLE

In the Vellore tanneries pollution case[21], the court has deemed the international norm of the precautionary principle as part of Indian law and considered its application mandatory in the interest of sustainable development.

As held by the Supreme Court in the Vellore tanneries pollution case:

“We are however, of the view that “The Precautionary Principle” and “The Polluter Pays Principle” is essential features of “Sustainable Development.” The “Precautionary Principle” – in the context of the law – means:

(a) Where there are threats of serious and irreversible damage, lack of scientific certainty should not be used as a reason for postponing measures to prevent environmental degradation.

(b) The “onus of proof” is on the actor or the developer/industrialist to show that his action is/was environmentally benign.

(c) We have no hesitation in holding that the precautionary principle and the Polluter Pays Principle are part of the Environmental Law of the Country.”

RIGHT TO LIFE IN ARTICLE 21 INCLUDES RIGHT TO SAFE ENVIRONMENT

Article 21 of the Indian Constitution guarantees[22]: “No person shall be deprived of his life or personal liberty except according to procedure established by law.”  This article has proved a fertile source of judicial innovation and interpretation to expand the scope of meaning of substantive constitutional rights and invest them with the force of justifiability. The right to live in a healthy environment has emerged as an inherent and implied right to life enshrined in Article 21 of the Constitution through judicial interpretation.

Therefore, under Article 32[23] of the Indian Constitution (Protection of Fundamental Rights), any citizen or concerned group can initiate a PIL with the Supreme Court of India in case a threat of (or occurrence of) environmental degradation or contamination is perceived.  In such cases, the “onus of proof” may still lie with the actor or with the developer or industrialist to show that the action is or was environmentally benign or that the entity exercised all diligence to prevent the degradation or contamination.

Conclusion

Today the issue of the corporate criminal liability is in discussion on its peak. This concept has been in the legal world since the time of industrial involution. Today, this concept is in its highlights because of its wrong. Actually industries had been evolved for the development of the society and the world. But these corporations used their power erroneously, which affects our environment, hams the public and also violates our constitutional as well as human rights. So because of the reason mention before its serious concern is necessary. Therefore,   The State formulates various laws and regulations keeping in mind its welfare state role. Thus, a balance has been maintained between social responsibilities of the company on the one hand and conferment of absolute autonomy and freedom from interference upon the company on the other.

In our paper we are discussing about the sanctions given by the courts against the corporations for their criminal act and their act which affect the environment. In this we discussed the kind of sanctions given to the corporations like imprisonment, damages and fine. Initially courts were only imposed the award of  damages and fine in the form of punishment upon the corporations but as the time passes courts were made the corporations liable for their employees act and imprisonment were given to the employee who had done the act. In environmental issues we are discussing about the procedure given by the courts for the working of the corporations.

At last in our opinion the punishment given to the corporations should be such that which as much as it would legally recoverable which satisfied as according to the act. And in case of the environment the punishment is such that which could be accepted by the sufferer without any pressure. Also we are in opinion that the public should be a participant and their decisions are also be welcomed while deciding the cases. Further to stop the violation of the public state must create awareness programmes from time to time and educate the public at large including the poor section, as they are the vulnerable group of the society.

[1] Uphar Tragedy  v UOI 104 (2003) DLT 334

[2] Zee Telifilms LTD vs Sahara India Company Corporation LTD 2001(3) recent criminal report criminal 292; Motorola Inc v UOI2004,Cri LJI 576

[3] Perrin(this volume)Pieth2003,259 Pieth 2004, 603

[4] 109 nanda citing 1US code (usc)

[5] 109(Nanda this volume) citing US Code(USC)1

[6] WELL2001,81 et  seq

[7] ibid

[8] 212 u.s. 481(1909)

[9] Standard Charted Bank v. Directorate Of Enforcement JT 2005 (5) SC 267; (2005) 4 SCC 50

[10] Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd & Anr. [ JT 2003( suppl. 2 ) SC 99] ; (2003)11 SCC 405

[11] AIR 1962 bom.195

[12] Standard Charted Bank v. Directorate Of Enforcement JT 2005 (5) SC 267; (2005) 4 SCC 50

[13] Law commission report,1969(5th law commossion report)

[14] Law commission report,1972(6th law commission report)

[15]P.S. jaiswal and NISHTHA  jaiswal Pg 123 to127 Allahabad law agency

[16] House of Lords, L.R. 3 H.L. 330 (1868)

[17] AIR 1984 SC 1086

[18]Indian Council for Enviro-Legal Action and Others Vs Union of India &  AIR 1995 SC 2252

[19] House of Lords, L.R. 3 H.L. 330 (1868)

[20] Vellore Citizens Welfare Forum v. Union of India and others,

AIR1996SC2715, 1995(5)SCALE592, (1996)5SCC647, [1996]Supp5SCR241

[21] ibid

[22] The Constitution Of India,P.M.Bakshi,Universal Law Publication Company New Delhi , Tenth Edition 2010 Pg.45-52

[23] The Constitution Of India,P.M.Bakshi,Universal Law Publication Company New Delhi , Tenth Edition 2010 Pg..75-80