CORPORATE CRIMINAL LIABILITY

• It encompasses two elements: Mens Rea and Actus Reus.
• A company being an artificial person cannot have requisite Mens Rea. It is difficult to identify and prove the criminal intent of a Juristic Person.
• Corporates cannot be imprisoned; it requires the person to go behind the bars. Physical persons for proceedings are required.
• Therefore, the law was that a company cannot be prosecuted for offences that require the imposition of a Mandatory Punishment. 

DISCUSSION THROUGH CASE LAW

Iridium India Telecom Ltd. vs. Motorola Inc. & Ors.[i]

In the present case, Motorola had floated a private placement Memorandum to obtain funds and investments to finance one of the Iridium projects. Based on the information and representation made through the memorandum several financial institutions invested in the project. The project turned out to be unviable and resulted in a massive loss to the investors which was alleged by Iridium to have been caused as a result of Motorola's false representation and misstatements in the Private Placement Memorandum. Iridium filed a criminal complaint against Motorola alleged offense under S.420[ii] and S.120(b)[iii] of IPC.

The issue in the case:

Whether a company can be prosecuted for an offense for which the mandatory punishment prescribed is both imprisonment and fine. The Bombay HC quashed the proceedings stating that a company being an artificial person is incapable of committing the offense of cheating as it lacks criminal intent and only natural persons are capable of having a guilty mind to commit such offense. The SC set aside the HC findings and asserted that a corporate body can be criminally prosecuted and they can no longer claim immunity from criminal prosecution on the ground that they are incapable of possessing necessary Mens Rea.

Corporate bodies can be criminally prosecuted if a rational relationship between an employer's criminal conduct and his corporate duties is established and if the Directors, key managerial personals who are the officers in charge committed an offense with intention of benefitting the corporation in some manner against the prescribed rules or to increase his gain. Such non-disclosure of proper information would be treated as fraud and thereby constituting a criminal offense for which the company can be held liable and the directing mind of the company (the natural persons), by lifting the corporate veil can be held personally liable. 

TEST LAID DOWN BY THE APEX COURT

Attribution Test

Whose mental element shall be attributed to the company for establishing criminal liability? It shall depend on the person – in – charge, control, and degree of authority.

Directing Mind and Will Test

Rigid test of Identification of the company. People named in MOA for handling the affairs of the company. Identification of the directing minds.

VICARIOUS LIABILITY

The settled position of law is that, if a company commits a criminal offense, the liability rests with the Director in two ways:

Who perpetuated an offense on behalf of the company?

The Director is made accused along with the company. If there is sufficient evidence of the active role of the person + criminal intent, then the company, as well as the director, have to be made parties.

When statute itself attracts the Doctrine of Vicarious Liability by providing for such Liability.

Like laws of FEMA, Scams, IBC, PMLA, etc. There is the doctrine of vicarious liability established.

There are cases where even though the director is not actively involved, still based on the position is made a party to the case. It is a technical problem.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.