CRIMINAL LIABILITY OF COMPANIES IN INDIA: AN ANLYSIS

5.3 CORPORATE LAW I

SUBMITTED BY

DHYANESHWARI REHPADE

UID: UG18-28

B.A.L.LB. (Hons.) 5th SEMESTER 2020-21

SUBMITTED TO

Sumit Bamhore

(Assistant Professor of Law)

MAHARASHTRA NATIONAL LAW UNIVERSITY, NAGPUR

Introduction……………………………………………………………………….02

Aims and Objective……………………………………………………………….02

Research Questions……………………………………………………………….03

Research Methodology…………………………………………………………….03

Scope and Limitations……………………………………………………………..03

Corporation………………………………………………………………………..04

Corporate Criminal Liability……………………………………………………...04

Models of Criminal Liability……………………………………………………...05

Corporate Criminal Liability in India……………………………………………..07

Conclusion…………………………………………………………………………08

Reference…………………………………………………………………………..08

1
INTRODUCTION
“A company can only act through human beings and a human being who commits an
offence on account of or for the benefit of a company will be responsible for that offence
himself. The importance of incorporation is that it makes the company itself liable in
certain circumstances, as well as the human beings” - Glanville Williams

Every crime involves the human intervention. And that leads to the investigation for presence
of mental element or not. Therefore corporate crimes cannot take place without the
intervention of human. It has been seen a corporation enjoys a separate legal existence. At the
period of 19th century, courts began to recognise corporate criminal liability. Initially,
corporations were held liable for acts of non-feasance. In 1842, a corporation was convicted
and failed to fulfil a statutory duty. In 1846, liability was extended to acts of misfeasance as
well. The court upheld an indictment against a rail-road for illegally destroying public
property. In this case, however, it pointed out that corporations could not be held liable for
treason, felony, perjury or offences against persons since these crimes require human agents.

Corporate criminal liability was based on the principle of vicarious liability. Such liability
could be imposed on a corporation only in case of public welfare offences as this principle
did not apply to offences involving mens rea. Mens rea and actus rea are the two components
of the Crime.1

In the present situation a corporation holds functional structures in accordance with social
and economic structure. As it is permanent, large, formal, complex and goal-oriented, and has
decision making structures.2 This paper will discuss various aspects of corporation, it
evaluation and the criminal liability of companies with its theories and models. The reasoning
behind the criminal liability also varies case to case, therefore this research might help to
understand the rationale behind the topic of research.

AIMS AND OBJECTIVES

The aim of this research paper is to study the concept of criminal liability of companies
through its models and types. This will developed the idea of various crimes and liability in
current period. This aim is based on certain objectives as follows:

- To critically analyse the corporate crimes and proceedings.

1
K. I. Vibhute, P.S.A. PILLAI’S CRIMINAL LAW, ed.14th, 2019, p.2.
2
Geeta Narula, “Corporate Criminal Liability In India: An Information Technology Perspective”, Naavi.org.

2
 - To study in detail various theories governing the corporate criminal liability.
- To determine the punishments for corporate fraud and discuss the provisions.

RESEARCH QUESTIONS

1) What are the various theories governing the corporate criminal liability?
2) Which are the provisions under Companies act, which attracts the corporate criminal
liability?
3) Which difficulties Indian Courts faced while prosecuting under criminal law?

RESEARCH METHODOLOGY

This research paper is mainly based on doctrinal research. It is conclusive, descriptive and
based on non-empirical design. The researcher would collect data from different dimensions
of common law. In order to collect data on the dimensions of the study, a research instrument
was designed. The research would be beneficial for knowing what are the provisions
regarding the criminal liability of companies, theories of criminal liability and models. The
study would be conducted during a period of 1 months. The study was conducted on
secondary source of data books, articles, journals, e-sources, theories and the relevant
provision with decided case laws.

SCOPE AND LIMITATION

The scope of the research covers corporate criminal liability in India. It covers the different
elements of crimes committed within the corporate environment and what makes corporate
crime a relatively challenging issue for law-enforcing agencies. It also tackles the identity of
wrongdoers and the power of corporations to affect communal peace. The emergence of
corporate crimes and the lacks of clear guidelines for criminal liability has been a problem in
Indian courts for a long time.

The study also clarifies on the forms of corporate punishments for criminal liability. Apart
from fines, courts should also impose fines and sanctions as a way of preventing criminal
offences by companies. Also, there are several shortcomings that affect the implementation of
laws regarding criminal liability in India. The study, therefore, attempts to analyze the IPC
laws about criminal liability in the country. Also, it discusses the amendments that the
government should incorporate into the legal system to ensure corporations abide by state
laws in all their operations. The study looks at the major models of criminal liability in India

3
and the emerging trends with respect to corporate crimes. Overall, the study provided an in-
depth look at corporate criminal liability in India.

CORPORATION

Corporations is a separate legal institution. Corporations have separate rights and liabilities
different from that of the shareholders. There are various companies and corporations that
enjoys a separate legal existence from its owners and from those who manage its day to day
affairs.3 A Corporation has legal personality in itself and can accordingly sue and be sued,
hold property and transact, and incur liability4. A business is an institution owned by a group
of stakeholders. These stakeholders have limited liability which means that each of them can
be held responsible for losses only up to the limit of his or her investment5.

CORPORATE CRIMINAL LIABILITY

After the industrialisation, companies in India has increased their foundation over the
national as well as global platform. During the 16 th and 17th centuries, corporations were
grown up in the forms of hospitals, universities and many other similar associations which
was adopted in the form of corporates. Then this corporations were grown up in the form of
Joint Stock Company. Earlier the corporations were seen as non-profit-organisations but later
the corporations became profit oriented.6 After then incorporated companies increased on
large scale but the motive behind its incorporation change into profit basis and benefitted to
investors. The expansion of corporate activities and individual accountability became a
problem for courts to hold a corporation liable for crime.7

The concept of corporate criminal liability is emerging and developing in India since past
some years. According to the nature of the corporation, it is a separate legal entity from its
member, therefore it difficult to decide the crime on the basis of individual or corporation. It
is observed that the nature of corporate crimes is depend on the act. Corporate crimes are the
criminal acts of the corporate managers for the benefit of the corporation.8

3
Mihir Naniwadekar & V. Umakanth, “Corporate Criminal Liability and Securities Offerings: Rationalizing the
Iridium- Motorola Case”, NLSIR, 2011, p.4.
4
https://legal-dictionary.thefreedictionary.com/Corporations.
5
Kiranpreet Kaur, “India: Corporate Criminal Liability”, MONDAQ.com, Feb 10, 2020.
6
D. Silviya Dixina & S. Indrapriya, “A Study on Corporate Crime in India”, Vol. 2, issue 1, IJLMH, 2018, p. 2.
7
T.K. Bhaskar & V. Umakanth, “Corporate Criminality and Law”, Vol. 38, THE INDIAN LAW INSTITUTE,
p. 218.
8
Ibid, note 6.

4
The concept of corporate criminal liability in India is fundamentally the respondeat superior
doctrine which borrows ideas from tort law and incorporates them into criminal law. This
doctrine states that a corporation can be made criminally liable and convicted for the
unlawful acts of any of its agents, provided those agents were acting within the scope of their
actual or apparent authority9. Criminal liability is concerned with activities that involve
violation of the criminal laws.10 The rule of criminal liability turn around the Latin Maxim
“Actus non facit reum, nisi mens sit rea”. Which means that to make one liable it must be a
guilty state of mind to show the act or omission is forbidden in the eyes of law.11

MODELS OF CRIMINAL LIABILITY

As per new laws, any act resulting in violation of statutory laws can make a corporation
liable. Corporate criminal liability is an offence committed by a group of people for the
benefit of a corporation.12

Corporate liability in India is discussed in two models. 

1. Derivative model

2. Organization model

1) Derivative model

: Derivative model is an individual-centric model. Here corporations are held responsible for
the acts of an individual. The company will be liable for the acts of its employees. Under this
model, the liability of any organization is always a derived liability because of the existing
connection.

This model is further divided into two doctrines.

i) Identification doctrine

: This theory was first introduced at a common law case, where a plaintiff had to prove
“actual fault or privity” of a corporate defendant. Basically this doctrine originated from
England. Firstly it is important to identify the criminal mind.  This is the traditional method,

9
V. Vijaya Lakshmi, “Corporate Criminal Liability – A Critical legal Study”, Vol.5, www.pwnacclaims.com,
Jan, 2019, p. 2.
10
Ahmad, Tabrez, et al. “Satyam Scam in the contemporary corporate world: A case study in Indian
Perspective”, IUP Journal, 2010.
11
Abhinandan Bassi, “Corporate Criminal Liability: An Analytical study with special reference to Penal Laws
in India”, A summary of thesis submitted to RGNLU, Punjab, 2016.
12
Humzah Hussaini, “Corporate Criminal Liability: An Indian Perspective”, Alliance School of Law, 2019.

5
followed by many countries to hold companies responsible. This theory equates the
corporation with certain key personnel who act on its behalf 13. This doctrine resides out of the
scope of vicarious liability. This represents the directing mind of the company. Lord Denning
explains “he likens a company to a human body with a brain, a nerve centre, and hands to
hold the tools and to act in accordance with directions from the centre.” directing mind would
be the directors and managers of a company.14

In the case of Lennard’s Carrying Co. Ltd v. Asiatic Petroleum Co. Ltd 15, it is observed that
“a corporation is an abstraction. It has no mind of its own any more than it has a body of its
own; its active and directing will must consequently be sought in the person of somebody,
who for some purposes may be called an agent, but who is really the directing mind and will
of the corporation; the very ego and centre of the personality of the corporation”. 16 An
important note would be that the act of offense must be within the scope of their employment
and must occur within an assigned area of operation. 

In the case of Tesco Supermarkets Ltd. v. Nattrass 17, it is rightly said: “the person who is
acting does not speaks for the company or act 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.”

ii) Vicarious liability

: Vicarious liability is the concept extracted from tort law. Here one person is held liable for
the misconduct of another. vicarious liability is based on two Latin maxims i.e. respondeat
superior, qui facit per alium facit per se. Respondeat superior means let the superior be
liable, in this case, a person can be vicariously liable for the acts of others due to the
relationship between master-servant, principal-agent. Qui facit per alium facit per se means
that he who acts through another shall be deemed to have acted on his own 18. According to
Indian laws, a corporation is an artificial person and a separate legal entity. Vicarious liability
is applied when some statutory offences expressly or impliedly imposed on all employers and
principals for the acts of employees and agents.

13
Matsiko Godwin Muhwezi, “The case for Corporate Criminal Liability”, May, 2016.
14
H. L. Bolton (Engineering) Co. v. T. J. Graham & Sons Ltd (1957) 1 QB 159.
15
[1915] AC 705.
16
Sheeba Sulthana & Greeshma K. V, “Corporate Criminal Liability”, ISSN 2321-4171.
17
[1972] AC 153.
18
Purswani Pratik Suresh, “Emerging trends of Criminal Liability”, SLS.

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In the landmark judgement of Iridium India Telecom Ltd. v. Motorola Inc 19, Motorola sold a
product to Iridium which was accompanied by assertions and promises by Motorola, turns out
to be false. The SC recognised the issue of a company being criminally responsible for the
actions of its employees. Iridium brought the case against the company Motorola and not the
employees. Under the provisions of IPC, the requisite element is intention to deceive, and
Motorola being an artificial person, cannot prove the mental element and be help criminally
liable. This argument was rejected by Supreme Court20.

CORPORATE CRIMINAL LIABILITY IN INDIA

Under Indian Penal Code, every person is liable to a punishment 21 including corporations or
companies, body of associations/ body of persons. The term “Person” is defined under
section 11 of the IPC “The word “person” includes any company or Association or body of
persons, whether incorporated or not.” Therefore as per section 11 and section 2 of IPC
companies can be held liable for punishment. There are certain landmark judgements that
helped in the evolution and development of corporate criminal liability.

The case Assistant Commissioner v. Velliappa Textiles Ltd22, here the private company was
prosecuted for violation of certain sections under the Income Tax Act. Where it provides the
punishment of Imprisonment and Fine. Then court held that a corporation did not have a
physical body to imprison and therefore could not be sentenced to imprisonment. There was a
discussion on 41st Report of Law Commission of India, where section 62 of IPC added “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.”23

The most effective decision of Standard Chartered Bank and Ors. v. Directorate of
Enforcement and Ors.24 the case relied on the maxim lex non cogit ad imposibilia, means that
law does not contemplate something which cannot be done. This had overruled the previous
doctrine of criminal liability. And said that the corporation does not have any blanket

19
(2010) 14 (ADDL) SCR 591.
20
Nigam Nuggehalli, “Vicarious Criminal Liability for Corporate Officers in India: Problems and Prospects”, p.
2.
21
Section 2 of Indian Penal Code, 1860.
22
(2004) 1 Comp. L.J.21.
23
V. Vijaya Lakshmi, “Corporate Criminal Liability – A Critical Legal Study”, Vol. 5, www.penacclaims.com,
Jan, 2019, p. 8.
24
(2005) 4 SCC 530.

7
immunity. The apex court held that in the cases of mandatory punishment of both
imprisonment and fine, the corporations should be punished with a fine.

CONCLUSION

It is judicially interpreted that corporations may commit an offence and can be held liable for
criminal liability. In the current developing period the importance of criminal liability gained
the importance and social concern. It have also seen that the criminal liability of a company
may impact on society. To the betterment of society and protection of innocent public, these
crimes should be controlled and punished. With recent judgments in Iridium case and Sunil
Bharti Mittal Case, we have seen a paradigm shift in the decisions of the court compared to
earlier judgments and can conclude that this emerging trend of criminal liability is near a
valid and just solution. Corporate crime is not a problem faced by India alone. It is a global
problem and international co-operation and co-ordination with other countries is important
and needs to be strengthened.

REFERENCES

 BOOKS

K. I. Vibhute, P.S.A. PILLAI’S CRIMINAL LAW, ed.14th, 2019

 ARTICLES

Geeta Narula, “Corporate Criminal Liability In India: An Information Technology

Mihir Naniwadekar & V. Umakanth, “Corporate Criminal Liability and Securities Offerings:
Rationalizing the Iridium- Motorola Case”, NLSIR, 2011.

D. Silviya Dixina & S. Indrapriya, “A Study on Corporate Crime in India”, Vol. 2, issue 1,
IJLMH, 2018.

T.K. Bhaskar & V. Umakanth, “Corporate Criminality and Law”, Vol. 38, THE INDIAN
LAW INSTITUTE.
V. Vijaya Lakshmi, “Corporate Criminal Liability – A Critical legal Study”, Vol.5,
www.pwnacclaims.com, Jan, 2019.
Ahmad, Tabrez, et al. “Satyam Scam in the contemporary corporate world: A case study in
Indian Perspective”, IUP Journal, 2010.

8
Abhinandan Bassi, “Corporate Criminal Liability: An Analytical study with special reference
to Penal Laws in India”, A summary of thesis submitted to RGNLU, Punjab, 2016.
Humzah Hussaini, “Corporate Criminal Liability: An Indian Perspective”, Alliance School of
Law, 2019.
Matsiko Godwin Muhwezi, “The case for Corporate Criminal Liability”, May, 2016.
Sheeba Sulthana & Greeshma K. V, “Corporate Criminal Liability”, ISSN 2321-4171.
Purswani Pratik Suresh, “Emerging trends of Criminal Liability”, SLS.
Nigam Nuggehalli, “Vicarious Criminal Liability for Corporate Officers in India: Problems
and Prospects”.
 WEBSITES
https://legal-dictionary.thefreedictionary.com/Corporations.
Kiranpreet Kaur, “India: Corporate Criminal Liability”, MONDAQ.com, Feb 10, 2020.