Corporate Criminal Liability

Submitted To: Submitted By:

Mr. Shyamtanu Pal Shayon Chakrabarti

Assistant Professor Bcom LLB
School Of Law 6th Semester
G.D. Goenka University

_____________________

Signature
Submitted On:

27th Feb 2017

 ACKNOWLEDGEMENT

I have taken efforts in this project. However, it would not have been possible without the kind
support and help of many individuals in the organizations. I would like to extend my sincere
thanks to all of them.

I are highly indebted to G.D Goenka University for their guidance and constant supervision as
well as for providing necessary information regarding the project & also for their support in
completing the project.

I would like to express my gratitude towards my parents & faculty of G.D. Goenka University
for their kind co-operation and encouragement which help me in completion of this project.

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 TABLE OF CONTENTS

ACKNOWLEDGEMENT .............................................................................................................. 2
TABLE OF CONTENTS ................................................................................................................ 3
INTRODUCTION .......................................................................................................................... 4
RESEARCH METHODOLOGY.................................................................................................... 6
o Objectives ............................................................................................................................ 6
o Hypothesis............................................................................................................................ 6
o Research questions ............................................................................................................... 6
CHAPTER I CONCEPT OF CORPORATE CRIMINAL LIABILITY ..................................... 7
CHAPTER II CORPORATE CRIMIES UNDER THE INDIAN LAWS ................................ 12
CHAPTER III STANDARD CHARTERED CASE: A CASE STUDY ................................... 16
CONCLUSION AND SUGGESTIONS ....................................................................................... 19
BIBLIOGRAPHY ......................................................................................................................... 20
LEGISLATIONS ............................................................................................................... 20
COMMENTRIES .............................................................................................................. 20

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 INTRODUCTION
The general belief in the early sixteenth and seventeenth centuries was that corporations could
not be held criminally liable. In the early 1700s, corporate criminal liability faced at least four
obstacles. The first obstacle was 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. The second obstacle was that legal thinkers did not believe corporations could
possess the moral blameworthiness necessary to commit crimes of intent. The third obstacle was
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
courts' literal understanding of criminal procedure; for example, judges required the accused to
be brought physically before the court. The main problem about Corporate Criminal Liability is
to deal with the question how to punish a corporation with the punishment of imprisonment or
fine and how to fasten liability so that the real offender gets due punishment and others are
deterred from resorting to such a criminal behavior. The difficulty arising in imposing due
punishment on the perpetrators of such crimes is that since a company is not a natural person
having its own body and its own mind to be examined by the court for imposing liability; since
the corporate crimes require the proof of mens rea the law enforcement agencies find it difficult
to meet the requisite of mental element in crime.

A peculiar thing about business entities is that a person or an association of persons may join
together to conduct business or any form of trade with the intention of making profit. Once such
a company is formed under the Indian Companies Act, 1956, it gets for many of the purposes the
same status as a natural person, i.e., it can hold property in its own name, can enter into
contracts, can sue and be sued in its own name, incur liability just like any other person. But the
company or corporation so established is treated as a different entity, different from the persons
who actually compose it. This is known as the corporate personality of the entity. And there are
different theories regarding corporate personality; such as, the Fiction Theory, the Concession
Theory, the Purpose Theory, the Realist theory etc. all of which have lent their support to the
theory of corporate personality and have by token of the same theory lent their support to
exemption from corporate criminal liability. The company is said to be free from liability in view
of the fact that it has no soul, and no mind of its own; it cannot conceive of a crime and cannot
plead a matter before the court of law as a natural person can do; Such a theory had received the
approval of the English Court when the famous case of Solomon v. Solomon1 was decided and
the plea of a separate personality of the company was upheld. The implication of such a theory
however is that a corporate body cannot be subjected to undergo a punishment in prison as is
given to a natural person.

1
(1897) AC 22

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In many cases corporations have caused damage to the society, the Bhopal Gas Tragedy for
example where there was a gas leakage on the night of 2nd 3rd December 1984 due to which
over 500,000 people were exposed to methyl isocyanate gas and other chemicals. The death toll
had been declared as 3,787 deaths by the Maharashtra Government.

Thus in this era of globalization where companies have been developing at a very fast pace it
becomes important to affix not only civil liabilities but also criminal liabilities for crimes such as
frauds and homicides committed by the company. However the aim of punishment under the
Indian laws is to deter the person from doing the same act again. The personality of the company
is not clear and is still a debatable topic with four prominent theories. Through this paper we will
aim to solve the ambiguity relating to corporate criminal liability.

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 RESEARCH METHODOLOGY
o Objectives
Through this paper, I aim to achieve the following

1. To understand the concept of corporate person and theories of affixing criminal liabilities
upon it.
2. To Understand the framework provided for corporate criminal liability under Indian laws
3. To evaluate the framework of corporate criminal liability and suggest changes.

o Hypothesis
.The laws in India portray a very poor and ambiguous status of corporate crimes in India.

o Research questions
The following three questions will be answered through this paper

1. How has the concept of Corporate Criminal Liability established?

2. What does the legal framework in India provide for Corporate Criminal Liability?
3. Is the concept leading to better corporate governance?

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 CHAPTER I CONCEPT OF CORPORATE CRIMINAL LIABILITY

This study basically is concerned with the institution which is known as a company or a
corporation. The owners, the managers and employees of this institution, sometimes exploit the
situation and conduct themselves in such a way that their conduct amounts to the violation of law
and is considered to be a corporate crime. The behavior of the companies, their officers and
employees in any shady transaction is the subject matter of this study. The two major themes of
this work are the companies or corporations and the crimes which are of a particular type. Before
analyzing any particular crime of the companies it is necessary to describe the basic features of
the companies and the basic elements of the criminal conduct of the companies and their officials
which assume the character of corporate criminality.

This is because the phenomena of companies as well as the crimes under study require a
clarification as to what they were in the past and what they are at present. The conceptual study
undertaken in this chapter clearly brings out the attributes of the institution called a corporate
body and the menace with which the society is affected by their conduct, i.e., the corporate
crimes. Both the aspects of the study have been covered in detail in this chapter.

The institution of a corporation exists since good old days; originally it had its own features and
was meant for performing certain functions for the good of the society. It was an abstract entity
in the sense that the institution was considered to be different from the natural persons of whom
it consisted. The institution of a church, a college, a hospital or a charitable organization was the
examples of the corporations. In order to enable them to perform their legitimate functions they
were endowed with certain privileges and immunities. But later on the institution of corporation
assumed the role of a commercial institution. A company or corporation was the entity which
was regarded as having the same privileges and immunities as were made available to non-
commercial entities.

Yet another development with regard to the institution of a Corporation was that it assumed the
responsibility of collaborating with governmental institutions besides maintaining its original
character of a an abstract entity like a commercial institution, in that capacity it claimed the
privileges which went to a commercial institution. It is this change in the nature and functioning
of the corporations which brought the company in conflict with law in several matters. The
change n the role of a company however was to the detriment of the commercial interests of the
businessmen and the economic interests of the society; it also caused harm to the administrative
interests of the State.

In order to deal with the defects that had crept into the functioning of the companies experts in
the field of commerce, economics, business and State administration have examined the
problems that had arisen in the functioning of the companies and corporations, which activity
had come to be known as corporate governance.

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The different theories being adopted by various countries lead to the judicial and legislative
provisions related to criminal liability being applied by these countries. The theories can be the
derivative liability theory, where the corporation in itself is the sole responsible entity for the
actions of the individual, or it could be the vicarious liability approach or the respondent superior
approach that many common law countries are practicing. The theory on which a country would
establish its corporate criminality model may even be the identification theory, but the crux here
is that the company should be held accountable for the actions that the agent or the employee, the
director or any other person who holds a position in the corporate, who has acted in the course of
his duty to earn profit or benefit for the company would be held accountable for his action and it
should also be seen if his intent or guilt was a derivative of the corporate mind set or corporate
action.

To further highlight the guilty employee existing within the highly complex structure of the
company, many legal systems have adopted the theory of expanded identification.2 Whereby the
hunt is on for the exact epicenter of the criminal mind-set who has caused the damage through
the execution of a criminal wrong. Europe, South Africa, United States of America and United
Kingdom are few of the countries which have adopted one or the other approach to handle
corporate criminal liability.

A new way of understanding the liability of corporate crime is coming up as an alternative way.
This alternative way is known as the corporate culture theory,3 where by the way a company
works, its work ethics, work culture and practices along with its administrative policies are
studied in detail as a whole. The notion is to study, if the corporate culture or the working is such
that promotes wrong way of making profits. The main protagonist for the application of this
culture is Australia.4

The problem is not limited to the identification of the act and the wrong doer only. It further
trickle downs to the way the prosecutors have to handle it and the courts have to interpret it. The
English Courts become the first protagonists in applying the law of torts to the public nuisance
caused by the companies and then in the holding the corporation guilty of the criminal wrong
committed by an individual. This view of the English Courts have not been adopted or
appreciated by many countries where the prosecutor still carry the umbrella of regulatory or
statutory provisions to handle the corporate wrongs and to cover up the punishments for these
wrongs. There is another facet to this issue that now white collar or the organized crimes are
becoming more and more expanded in terms of the domains that they operate in. Many a time
they are not restricted to just one country. The courts in many countries still struggle with the
jurisdictional and implementation issues of the liability of corporate crime.

2
Charles Doyle, Corporate Criminal Liability: An Overview of federal Law, CRS Report prepared for Members and
Committee of Congress, October 30, 2013.
3 Sadhana Singh, "Corporate Crime and the Criminal Liability of Corporate Entities" Resource Material Series No.
76, 137th International Training Course Participants Papers (2010)
4
Clinton v. City of New York, 524 U.S. 417, 428 n.13 (1998)

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The reasons for inhibition can be many. The few can be outlined as; the notion that a company
being a fictions person cannot do or enact the whole sequence of a crime, the rigid constitution of
the company and how such rigidity can also one step the limits set by theory of ultra-vires etc. It
was after a lot of deliberations that the ambit of vicarious liability was getting applicable to the
damage caused by wrongful acts or omissions by the body corporates. Even though the lack of
sanctions against the criminal wrongs done by a company were still hindering the judicial
process.5

What is commendable is the thought that went behind the judicial reactions towards the acts of
damage undertaken in the name of the company. The growth of the concept of the corporate
criminal liability has seen reforms because of the interpretations and understanding of many
theories like vicarious liability of the firm by the courts. Even though the theory of vicarious
liability was being applied to a very small number of offences mainly causing public damage or
inconvenience but this approach was then traded with the identification theory. Countries like
United States of America adopted a different theory to hold the corporate guilty. There the
courts, instead of holding the corporation indirectly liable applied the direct concept of vicarious
liability. Initially the federal courts of America, made use of this doctrine mainly in cases where
the intent or guilty mind principle was not required, but gradually the courts began trying the
cases where mens rea was in question for the acts of companies too. This led to a fundamental
departure from the judicial approach of the English courts. A third approach, which is
promulgated by legal theorists, is to locate fault in the corporations organizational structure,
policies, culture and ethos, also discussed in this chapter.

France reversed its position whereby it took these associations as liable of being held guilty
under the Penal Code of 1670 to the belief that the corporation cannot be held guilty after the
French Revolution happened as these provisions of the penal law where a person was being held
guilty along with a non-living association had met with a stern dissent from the French Jurists.6
Throughout the world the journey of development of various theories of holding the company
guilty has seen many ups and downs in the legal jurisprudential history in different countries.
Like any other law, the law of implicating a company for a wrong too is territorial, even though
the bounds that it has is international in nature. The territorial area may differ and so may the
sanctions by which the liability of a corporate is acknowledged. The forms may be different in which
the concept of criminal liability of a corporate is applied by the countries but the provision of
acceptance that the company can do wrong is accepted by the majority of them.

There are various theories mentioned in the above discussion, A clear understanding of those theories
will help us evaluate the concept of corporate criminal liability and its evolution over time better.

5
Anonymous (No. 935), 88 Eng. Rep. 1518 (1701).
6
Stessens, Guy. Corporate Criminal Liability: A Comparative Perspective. International and Comparative Law
Quarterly, v. 43, July 1994, pp. 496-497.

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 Optimal Penalty Theory for Corporate Crime

The economic theory of optimal penalties has developed considerably since Beckers insight that
the penalty should equal the social harm divided by the probability of detection7. Becker further
stated that in the commission of a corporate crime there are different possible actors who play the
role in committing and preventing a crime. Fines are preferred to incarceration since the latter is
socially costly. This pure economic efficiency view states that the only time incarceration is
required is when the offender is unable to pay the optimal fine.

Theory Of Vicarious Liability

Originally this doctrine developed in the context of tortious liability which was later imported
into company liability. This particular doctrine states that a person is liable to answer for the acts
of another. In the case of companies, the company may be held liable for the acts of its
employees, agents, or any person for whom it is responsible. This was adopted in the case of
Canadian Dredge & Dock Co. v. The Queen8

The Identification Theory

This theory specifically developed to hold corporations liable in case of offences which required
the presence of mens rea. This theory stipulates that the actions and the mental stage of the
corporation found in the action stage of the employees or the directors are to be considered to be
the action and mental stage of the corporation itself. In the famous Dredge & Dock Case (1985)
the Supreme Court of Canada had characterized the Theory of Identification9:

A corporation may have several directing mind. Thus where corporate activities are wide
spread, it will be inevitable that there will be delegation and sub delegation of authority
from the center and thus leading to several directing minds.
The action and intent of the directing mind is merged with the intent of the corporate
entity, thus there exists no defense for the company to claim.
It is the Courts adopted rule the mental state of mind is equally same to that of the virtual
body that is the corporate entity.
As per the assessment of the Court if the agents directing mind and will assigned of the
duties and responsibilities of the corporation then it shall be intended to be the act of the
Company itself.
The main essence of the test is to identify the existence of the meeting of the minds of the
company with that of the agent.

7
MARK A. COHEN, Theories of Punishment and Empirical trends in corporate criminal sanctions, Pg. 400,
http://www.jstor.org/stable/2487975
8
(1985) 1SC R662
9
K AGGARWAL, Corporate Criminal Liability- The issue revisited in the context of recent Supreme Court
decision, Pg.3, http://www.icsi.edu/webmodules/Programmes

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Due to the rapid pace of globalization of business and evolution of transnational corporations, it
has become very essential to determine the concept of corporate criminal liability. In State of
Maharastra v Syndicate Transport Co. Pvt. Ltd.10 as quoted in Rachana Flour Mills Pvt. Ltd. v
Lalchand Bhanadiya11 the Andhra Pradesh High Court observed that:

Numerous corporate bodies have come into existence. These corporate bodies necessarily act
through the human agency of their directors or officers and authorized agents. These seem to be
no reason to exempt them from liability for crimes committed by their agents or servants while
purporting to act for or on behalf of the corporate bodies. The ordinary citizen is now very much
exposed to the activities of persons acting, in the name of corporate bodies.

10
AIR 1964 Bom 195
11
(1987) 62 Comp Cas 15 AP

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 CHAPTER II CORPORATE CRIMIES UNDER THE INDIAN LAWS

With regard to the provisions of law on companies and their criminal liability may be made first
to the Indian Penal Code which defines the term company or corporation; according to the Penal
Code the term person as defined in Section 11 of the Penal Code and Section 2 of the General
Clauses Act includes clearly within its fold a Company which is a juristic person. The general
law thus wipes out the distinction between natural persons and abstract entities as far as the
application of the provisions of the Penal Code is concerned. The Penal Code also contains
provisions with regard to liability of companies and corporations for certain offences defined in
the Penal Code. But there are certain principles and procedures which are relevant to the subject
of corporate liability.

The Penal Code is a general law of crimes, and with regard to certain special subjects, places or
things there are the provisions of the special laws. Thus, apart from the provisions of general law
there are a plethora of Statutes which constitute the body of special laws. These special laws deal
with specific matters; if a company is to be brought to book under the criminal law then the
provisions of the special laws need to be followed. Mention may be made at this stage of the
provisions of Companies Act which defines what a company is and what are its powers and
functions. The Act has been amended several times to introduce certain new provisions and to
cover certain new situations. The most important aspect of these special laws is the approach
adopted by it towards the functioning of regulatory agencies.

In short, the structure of law on corporate criminal liability in India is not only similar to that in
English law, but has been greatly influenced by the English Law. At one point of time,
corporations were viewed as a convenient shield to evade liability. Of all the legislative
instruments on the subject of corporate liability the fundamental law dealing with the institution
and which has been amended several times is the Companies Act, the key provisions of the
Companies Act which deal with company matters are the following:-

Chapter IVA of the Companies Act, 1956 deals with the Powers of Central Government to
remove managerial personnel from office on the recommendation of the Company Law Board.
Under section 388B the Central Government has the power to refer to the Company Law Board
(CLB) any complaint against any managerial personnel under the following circumstances;

When any person concerned with the management of the affairs of the company is guilty of fraud
misfeasance persistent negligence or default in carrying out his obligations and functions under
the law;

When the business of the company has not been conducted by the person as per sound busness
principals;

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Section 388 C of the Companies Act provides that during the pendency of the case the Company
Law Board has the power to pass an interim order on the application of the Central

Government in the interest of its members this interim order can direct the concerned managerial
person not to discharge his duties till further order. The CLB can also order an appointment of a
suitable person to perform the duties of the person concerned and can also specify the terms and
rules regarding the same.

Section 388 D provides that at the conclusion of the hearing the CLB shall record its findings
indicating whether the person is fit and proper to hold the office of director or any other office
concerned with the conduct and management of the company.

Under section 388 E, the Central Government may remove the delinquent person from his office
and after his removal he shall not hold any managerial office of any company for a period of five
years from the date of the order of removal nor will he be paid any compensation for loss of
office as a result of removal

Chapter VI deals with Prevention of Oppression and Mismanagement of Companies and the
Powers of Company Law Board. Section 397 provides that relief against the Oppression will be
provided by the CLB on application when it is under the following opinion That the companys
affairs are conducted in a manner that is oppressive to any member or members and the just
conclusion would have been to wind up the company However doing so would unfairly prejudice
such a member or members. As per section 398 reliefs against mismanagement will be provided
by the CLB on application when it is under the following opinion.

Then there are the Statutes like the Prevention of Corruption Act, the Foreign Exchange
Management Act, the Prevention of Money Laundering Act, the National Stock Exchange Act,
etc. which talk about the prevention and prosecution of corporate crimes.

The problem with corporate crimes is however not as simple as crimes committed by humans
due to the lack of physical body to identify the suspected criminal, Hence to understand the legal
framework of corporate crimes we must refer to the judicial precedencies laid down.

Tesco Supermarkets v Nattrars [1972] AC 153

In this case TESCO a company was offering washing powder at a discounted rate in a store, and
it had displayed in a poster. Once they ran out of stock the company withdrew the offer and
replaced the price stock. The manger failed to inform and the customers were charged with
higher price. Hence TESCO was charged under the Trade Description Act, 1968 for falsely
advertising the price of washing powder. In its defense Tesco stated that the company had taken
all reasonable precautions and all due diligence, and that the conduct of manager is not attached
to the corporation.

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The House of Lords gave the judgment that the manager was not the directing mind of the
corporation and therefore he was not attributable to the act of the corporation. Lord Reid held
that, in order for liability to attach to the actions of a person, it must be the case that "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"12.

Oswal Vanaspati & Allied Industries V State Of Uttar Pradesh (1993) 1 Comp. LJ
172

The appellant-company had sought to quash a criminal complaint, arguing that the company
could not be prosecuted for the particular criminal offense in question, as the sentence of
imprisonment provided under that section was mandatory.

It was held by the Allahabad High Court that A company being a juristic person cannot
obviously be sentenced to imprisonment as it cannot suffer imprisonment. . . . It is settled law
that sentence or punishment must follow conviction; and if only corporal punishment is
prescribed, a company which is a juristic person cannot be prosecuted as it cannot be punished.
If, however, both sentence of imprisonment and fine is prescribed for natural persons and juristic
persons jointly, then, though the sentence of imprisonment cannot be awarded to a company, the
sentence of fine can be imposed on it. Legal sentence is the sentence prescribed by law. A
sentence which is in excess of the sentence prescribed is always illegal; but a sentence which is
less than the sentence prescribed may not in all cases be illegal13.

Zee Telefilms Ltd. V. Sahara India Co. Corp. Ltd (2001) 3 Recent Criminal Reports
29224.

In this case the complaint alleged that Zee had telecasted a program based on falsehood and had
defamed Sahara India. Sahara had filed the complaint under Section 500 of IPC.

The Court held that to commit a crime under defamation it was required to find out the presence
of the requisite mens rea which is one of the most essential elements of the offence of criminal
defamation and in this case the company could not have the requisite mens rea. Thus it was
decided that the company will not be held liable for the criminal acts.

Assistant Commissioner V. Velliappa Textiles Ltd (2004) 1. Comp. L.J. 21.

As under the aforesaid case it was found that it violated certain provisions of the Income Tax
Act. While the Sections 276-C and 277 provided for a mandatory term of imprisonment coupled
with certain amount of fine.

12
Available at http://en.wikipedia.org/wiki/Tesco_Supermarkets_Ltd_v_Nattrass
13
Available at www.lorandoslaw.com/Publications/Corporate-Criminal-Liability-India.html

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Initially it left the Court startled because it could not impose only fine upon the company because
it was a mandatory provision of the Income Tax Act to impose both imprisonment and penalty.
As per the penal provisions are concerned it was to be strictly interpreted. It was basically
impossible to put the company behind the bars because it was impossible. The Court focused on
two of the important maxims:

Lex non cogit ad impossibilia which means the law forces not to impossibilities.
Impotentia excusat legem which means impossibilities excuses the law.

Hence it was held that a company cannot be prosecuted for offences which required imposition
of a mandatory term of imprisonment and fine. The Supreme Court stated that the legislative
mandate of the Court is to prohibit the deviation from the minimum rate of punishment. The
Court was further of the view that it is to favor the construction of a statute that exempts a
penalty rather than to impose another penalty

Iridium India Telecom Ltd. V Motorola Inc.

In this case a criminal complaint was filed under Section 420 of the Indian Penal Code along
with Section 120B against Motorola inc. by Iridium India Telecom Ltd.

It was issued that cheating was an offence which is punishable with mandatory imprisonment;
hence any further proceedings would be absurd. But the argument was refuted on the basis of the
decision given by Standard Chartered Bank Case, and finally it was held that corporations can be
made liable with mandatory punishment of imprisonment. The Court had imported the
Identification Principle in this case. On concluding the Court stated that corporations are capable
of having mens rea.

The landmark case relating to corporate crimes is Standard Chartered Bank and Ors. v.
Directorate of Enforcement14 which will be discussed in the following chapter.

14
(2005) 4 SCC 530

15
 CHAPTER III STANDARD CHARTERED CASE: A CASE STUDY

This is the landmark case in which the apex court overruled the all other laid down principles. In
this case, Standard Chartered Bank was being prosecuted for violation of certain provisions of
the Foreign Exchange Regulation Act, 1973. Ultimately, the Supreme Court held that the
corporation could be prosecuted and punished, with fines, regardless of the mandatory
punishment required under the respective statute.

The Court did not go by the literal and strict interpretation rule required to be done for the penal
statutes and went on to provide complete justice thereby imposing fine on the corporate. The
Court looked into the interpretation rule that that all penal statutes are to be strictly construed in
the sense that the Court must see that the thing charged as an offence is within the plain meaning
of the words used and must not strain the words on any notion that there has been a slip that the
thing is so clearly within the mischief that it must have been intended to be included and would
have included if thought of15.

The Court initially pointed out that, under the view expressed in Velliappa Textiles, the Bank
could be prosecuted and punished for an offense involving rupees one lakh or less as the court
had an option to impose a sentence of imprisonment or fine. However, in the case of an offense
involving an amount exceeding rupees one lakh, where the court is not given discretion to
impose imprisonment or fine that is, imprisonment is mandatory, the Bank could not be
prosecuted.

The Supreme Court in Standard Chartered Bank observed that the view of different High Courts
in India was very inconsistent on this issue. For example, in State of Maharashtra v. Syndicate
Transport30, the Bombay High Court had held that the company could not be prosecuted for
offenses which necessarily entailed corporal punishment or imprisonment; prosecuting a
company for such offenses would only result in a trial with a verdict of guilty and no effective
order by way of a sentence. Justice Paranjape had stated16:

the question whether a corporate body should or should not be liable for criminal action
resulting from the acts of some individual must depend on the nature of the offence disclosed by
the allegations in the complaint or in the charge-sheet, the relative position of the officer or
agent, vis-a-vis, the corporate body and the other relevant facts and circumstances which could
show that the corporate body, as such, meant or intended to commit that act

On the other hand, in Oswal Vanaspati & Allied Industries v. State of Uttar Pradesh17, the
appellant-company had sought to quash a criminal complaint, arguing that the company could

15
Tolaram Relumal and Anr. v. The State of Bombay MANU/SC/0057/1954
16
State of Maharasthra v. Syndicate Transport (1963) Bom. L.R. 197
17
Oswal Vanaspati & Allied Industries v. State of Uttar Pradesh (1993) 1 Comp.L.J.172

16
not be prosecuted for the particular criminal offense in question, as the sentence of imprisonment
provided under that section was mandatory. The Full Bench of the Allahabad High Court had
disagreed:

A company being a juristic person cannot obviously be sentenced to imprisonment as it cannot

suffer imprisonment. It is settled law that sentence or punishment must follow conviction; and if
only corporal punishment is prescribed, a company which is a juristic person cannot be
prosecuted as it cannot be punished. If, however, both sentence of imprisonment and fine is
prescribed for natural persons and juristic persons jointly, then, though the sentence of
imprisonment cannot be awarded to a company, the sentence of fine can be imposed on it. Legal
sentence is the sentence prescribed by law. A sentence which is in excess of the sentence
prescribed is always illegal; but a sentence which is less than the sentence may not in all cases
be illegal18.

The Supreme court also take notice of contention made by the Senior Counsel Shri Ram
Jethmalani stating if a corporate body is found guilty of the offence committed, the court, though
bound to impose the sentence prescribed under law, has the discretion to impose the sentence of
imprisonment or fine as in the case of a company or corporate body the sentence of
imprisonment cannot be imposed on it and as the law never compels to do anything which is
impossible, the court has to follow the alternative and impose the sentence of fine19.

The Supreme Court in Standard Chartered Bank also referred to an old decision of the United
States Supreme Court, United States v. Union Supply20. In that case, a corporation was indicted
for willfully violating a statute that required the wholesale dealers in oleomargarine to keep
certain books and make certain returns. Any person who willfully violated this provision was
liable to be punished with a fine of not less than fifty dollars and not exceeding five hundred
dollars and imprisonment for not less than 30 days and not more than six months. It was
interesting to note that for the offense under Section 5 of the statute at issue, the Court had
discretionary power to punish by either fine or imprisonment, whereas under Section 6 of the
statute (the section that was actually violated in Union Supply), both types of punishment were to
be imposed in all cases. The corporation moved to quash the indictment, and the District Court
quashed it on the grounds that Section 6 was not applicable to the corporations. The United
States Supreme Court reversed the District Court's judgment. Justice Holmes held:

It seems to us that a reasonable interpretation of the words used does not lead to such a result.
If we compare Section 5, the application of one of the penalties rather than of both is made to
depend, not on the character of the defendant, but on the discretion of the Judge; yet, there,
corporations are mentioned in terms. And if we free our minds from the notion that criminal
statutes must be construed by some artificial and conventional rule, the natural inference, when
18
Oswal Vanaspati & Allied Industries v. State of Uttar Pradesh (1993) 1 Comp.L.J.172
19
Standard Chartered Bank and Ors. v. Directorate of Enforcement (2005) 4 SCC 530
20
Id. at 26 See also.United States v. Union Supply, 215 U.S. 50 (1909)

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a statute prescribes two independent penalties, is that it means to inflict them so far as it can,
and that, if one of them is impossible, it does not mean, on that account, to let the defendant
escape.21

Finally, The Supreme Court in this particular case held: We do not think that the intention of the
Legislature is to give complete immunity from prosecution to the corporate bodies for these
grave offenses. The offenses mentioned under Section 56(1) of the FERA Act, 1973 for which the
minimum sentence of six months' imprisonment is prescribed, are serious offenses and if
committed would have serious financial consequences affecting the economy of the country. All
those offenses could be committed by company or corporate bodies. We do not think that the
legislative intent is not to prosecute the companies for these serious offenses, if these offenses
involve the amount or value of more than one lakh, and that they could be prosecuted only when
the offenses involve an amount or value less than one lakh.

The Supreme Court also pointed out that, as to criminal liability, the FERA statute does not make
any distinction between a natural person and corporations. Further, the Indian Criminal
Procedure Code, dealing with trial of offenses, contains no provision for the exemption of
corporations from prosecution when it is difficult to sentence them according to a statute. The
court held that the FERA statute was clear: corporations are vulnerable to criminal prosecution,
and allowing corporations to escape liability based on the difficulty in sentencing would do
violence to the statute. The Court did not develop its reasoning far enough so as to specifically
hold that a corporation is capable of forming mens rea and acting pursuant to it. However, the
Court held that corporations are liable for criminal offenses and can be prosecuted and punished,
at least with fines. Many of the offenses, punishable by fines, however do have mens rea as a
necessary element of the offense. By implication, it can be said that post Standard Chartered
decision, corporations are capable of possessing the requisite mens rea. As in prosecution of
other economic crimes, intention could very well be imputed to a corporation and may be
gathered from the acts and/or omissions of a corporation.

From the above the case we can infer that the well-known maxim 'judicis est just dicere, non
dare' best expounds the role of the court. It is to interpret the law, not to make it. This read with
the Doctrine of Separation of Powers has bound the Courts hands in imposing various kinds of
punishments and all that it is left with is to impose fines. In order to avoid compelling the Courts
to go out of the statute and interpret and therefore define the law which is essentially the task of
the legislature22, it is advised that the legislature amends the various penal statutes in a way so as
to bring in various forms of punishments for the corporations as well, thereby maintaining the
separation of powers regime and hence the rule of law.

21
Union Supply Case
22
Asif Hameed and others v. State of Jammu& Kashmir, AIR1989SC1899

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 CONCLUSION AND SUGGESTIONS

The study has been undertaken in the background of the developments relating to the abstract
entity of a company or corporation and the liability of the institution for its illegal transactions
and unlawful commitments.

The institution of a corporate entity which was thus recognized in the beginning in respect of a
commercial institution was recognized in respect of several other institutions also which were
engaged in non-commercial transactions. In other words, the privileges and immunities which
went to the commercial entities were claimed by non-commercial entities also. This is how the
concept of corporate bodies became a popular method in the realm of law, and the abstract
entities could avail for themselves the privileges and immunities like those of the corporate
bodies.

In India followed England company law by enacting different companies Acts. Major
developments have taken place in corporate sector with globalisation and liberalised policies
followed in India. Common law principle of no fault liability has been extended to absolute
liability by the Apex Court.

Criminal corporate liability is held to be applicable to India by the Supreme Court by following
the identification theory. Necessary mens rea is imputed to the corporation from its directions or
agents. However, the vicarious liability of directors is not accepted for corporate wrong, unless
directors are independently at fault. This raises the question that how could be possible to sustain
the complaint against the company in the absence of offence made out against individual.

The legislation of the country should however focus more on making laws regulating the
applicability of corporate crimes as under the present scenario there is little laws enforced on the
particular topic. The judicial precedence is based on interpretations of laws on the basis of the
principles of justice and equity.

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 BIBLIOGRAPHY

LEGISLATIONS

o Companies act, 1956

o Companies act, 2013
o Income Tax act, 1961
o Foreign Exchange Management Act, 1999
o Indian Penal Code, 1860

COMMENTRIES

o Company Law and practice published by taxman

o A Veritable Legal Commentary on Companies Act 2013 With Guide to
Companies (Amendment) Bill 2014
o Companies Act published by corporate professionals

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