Corporate Criminal Liability

The Indian Penal Code, 1860 defines ‘person’ under section 11. This definition provided for under section 11 includes any company or association or body of persons. Further, it extends to include all body corporates whether incorporated or not. Therefore, the criminal liability of the corporates can be traced from the Indian Penal Code. In addition to this, the corporates are held criminally liable under the provisions of the Companies Act, 2013.

The existence of special legislation like Companies Act in case of corporates do minimise the application of general law that is IPC. But the concept of criminal liability of corporates can be derived from IPC.The concept of criminal liability is based on the maxim “Actus non facitreum, nisi mens sit rea”, which means an act committed will not become a crime unless there exists a guilty mind. Therefore, in the case of corporate criminal liability, the guilty minds of the persons who are in the capacity of managing the affairs of the body corporate is considered.

Concept of Corporate Criminal Liability and Indian Penal Code-

Interpreting Section 11 of the IPC it can be understood that corporates can be prosecuted under the provisions of IPC. But while imposing punishments the courts had to discuss the scope of the same. The Courts have considered the following models in determining the corporate criminal liability.

Two Models of Corporate Criminal Liability-

Corporate Criminal Liability in India works on two models-
(1) Derivative Model and

(2) Organizational Model

(1) Derivative Model – The derivative model concentrates on individual as the centre of the corporate and relates the acts of individuals in deriving criminal liability of the corporates. Thus, this model involves two doctrines (i) Vicarious Liability and (ii) Doctrine of Identification

Vicarious Liability and Corporate Criminal Liability-

The doctrine of vicarious liability holds the master liable for the acts of the servant. Therefore, while the concept of corporate criminal liability was new, the courts held the company responsible for the acts of the employees. But this model is rejected under the criminal law jurisprudence of India.

Doctrine of Identification and Corporate Criminal Liability-

Corporations are artificial persons. Therefore, they are identified by the natural persons who are involved in managing the affairs of the corporates. But the liability of these natural persons is limited to the extent of employee and employer relationship. Therefore, the aspect of personal liability of these natural persons will not arise unless the corporate veil is lifted, which will be done by the courts in rare cases where such natural persons have acted beyond the scope of their employment.

(2) Organizational Model – The organizational model is different from the derivative model. This model concentrates on corporates. But this model has its own limitations as it is not workable when mens rea in an offence is considered.

Keeping in view the advantages and disadvantages of both the models, the courts have taken a balanced approach. Corporate Criminal Liability in India has been evolved through the judicial interpretations. Therefore, the following cases are considered to be the landmark decisions in evolving the concept of corporate criminal liability.

In the case of Assistant Commissioner v. Velliappa Textiles Ltd, the Supreme Court held that the body corporates cannot be prosecuted for the offences which mandates imprisonment as punishment. Therefore, only fine can be imposed as punishment and only such offences which prescribe fine as the punishment or alternative punishment can only be prosecuted against body corporates.
Later this decision of the Supreme Court was overruled in the case of Standard Chartered Bank v. Directorate of Enforcement where the Court held that the corporates cannot be provided with blanket immunity from being prosecuted under the provisions which mandates imprisonment as punishment.

Further, in the case of Iridium India Telecom Ltd. v. Motorola Incorporated and Others, the Supreme Court clarified the position of corporate criminal liability under the provisions of IPC. The Court observed that a corporation as similar to an individual can be prosecuted in the offences involving “mens rea”. The “mens rea” of the persons controlling the affairs of the body corporate is considered in prosecuting such offences.

Punishment for Corporate Crimes-

The concept of criminal liability is established in cases of corporate crimes. But the imposition of punishment is not completely settled as a concept. The corporates cannot be punished with imprisonment, the only punishment that can be imposed is fine. The legislature had proposed a Bill in 1972, which prescribed amendment of criminal law to the extent where the corporates should be made liable to pay additional fine in lieu of imprisonment. But this Bill lapsed.

Therefore, it is indeed necessary to incorporate certain provisions in the IPC to prosecute the corporates even in cases where the sections attracted have mandatory punishment of imprisonment. Further, the Companies Act has recognized the concept of criminal liability and the doctrine of lifting the corporate veil. These concepts under the Companies Act have provided an alternative to punish the corporates who are not held liable under IPC due to the shortcomings in imposing punishments.