Corporate Criminal Liability in India

Corporate criminal liability in India under the criminal law provides for the extent to which a company as a legal person or a separate legal entity is liable for the acts done by the employees of the company. The corporate criminal liability in India is governed by the norms of the vicarious liability, as distinct from the scenarios in which the statutory offence specifically makes the company liable for that particular offence.

Generally, the question which is asked with respect to corporate liability (liability of corporates in case of a crime) is that a corporate being an artificial person is capable of committing a crime and whether a corporation is criminally liable for the said criminal act.  Traditionally, it was held that corporations cannot do a crime as the main test of a criminal activities lies in the intent. However, the concept of corporate criminal liability under the Companies Act has been recognized.

Corporate criminal liability in India as a concept has gained importance in preceding years especially in the spheres of social standing such as consumer protection, environmental law, occupational health, and safety norms. The concept of corporate liability is closely concerned with the corporate governance policy of an organization as if a corporate follows good governance structure then the possibility of crime negates and the question of corporate criminal liability does not arise.

Over the times even the Indian judiciary has also pointed out that a corporation can also be a part of a criminal conspiracy and can be held liable criminally. This for the first time was said in the by the Supreme Court in the case of Iridium India Telecom Limited vs. Motorola Incorporated & Ors. Thus, it can be said that corporate criminal liability has been recognized as one of the corporate liability in India under the Companies Act as well as under criminal laws.

Corporate Criminal Liability Under Companies Act, 2013

Companies Act, 2013 which has replaced the Companies Act, 1956 has increased the corporate liability of the directors. The Act has also increased the monetary penalties and imprisonment. Not only corporate criminal liability under Companies Act, 2013 is recognized but the act also recognizes civil liabilities. The Companies Act, 2013 not only makes the director criminally liable but also include officers in default under the concept of corporate criminal liability in India.

The term Officer in a default is a broad term and can include whole-time director, key managerial personnel and such other directors in the absence of KMP who has been specified by the Board of Directors and every other director who is aware of the default which is being done by virtue of receiving of board proceedings or by participating in same without raising any objection or where non-compliance has taken place with his consent or connivance.

The corporate criminal liability is recognized under the following sections of the Companies Act, 2013 -

• Section 53 - Prohibition on an issue of shares on discount - The company will be fined for the amount not less than one lakh but which may extend up to five lakhs. Further, the officer in default may be imprisoned for up to six months or fine of minimum one lakh which may extend to five lakhs or both.

• Section 118(12) - Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballot-  If a person is found tampering with the minutes of meeting then such an officer in default may be imprisoned for the term which may extend to 2 years or with fine of not less than twenty-five thousand but may extend to one lakh.

• Section 128(6) - Books of account, etc., to be kept by Company-  Officer in default- Maximum imprisonment of 1 year or Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.

• Section 129(7) - Financial statement - Officer in default- Maximum imprisonment of 1 year or Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.

• Section 134 - Financial statement, Board’s report, etc- Company-Fine- Not less than Rs. 50,000 and may extend to Rs.25 lakhs and Officer in default- Maximum imprisonment of 3 years or Fine- Not less than Rs. 50,000 and may extend to Rs. 5 lakhs or with both.

• Section 188(5) - Related party transactions- In case of unlisted Company, be punishable with fine which shall not be less than 25,000 rupees but which may extend to 5 lakh rupees.

• Section 57 - Punishment for personation of shareholder- Such person in default- Minimum 1 year to  Maximum 3 years imprisonment or Fine- Not less than Rs. 1 lakh and may extend to Rs. 5 lakhs.

• Section 58(6) - Refusal of registration and appeal against refusal- Such person in default- Minimum 1 year to  Maximum 3 years imprisonment or Fine- Not less than Rs. 1 lakh and may extend to Rs. 5 lakhs.

• Section 182(4) - Prohibitions and restrictions regarding political contributions.- Company-Fine- 5 times of the amount of contribution in contravention and Officer in default- Maximum imprisonment of 6 months and Fine- 5 times of the amount of contribution in contravention.

• Section 184(4)- Disclosure of interest by the director - Such person in default- Minimum 1-year imprisonment or Fine- Not less than Rs. 50,000 and may extend to Rs. 1 lakh or both.

• Section 187(4)- Investments of Company to be held in its own name - Company-Fine- Not less than Rs.25,000 and may extend to Rs.25 lakhs and Officer in default- Maximum imprisonment of 6 months or Fine- Not less than Rs. 25,000  and may extend to Rs. 1 lakh or with both.

• Section 447- Punishment for fraud - Any person who is found to be guilty of fraud- Maximum imprisonment of 6 months may extend to 10 years. Such person also liable to fine which may extend up to 3 times the amount involved.

A corporate can approach a top corporate lawyer in case of an issue of corporate criminal liability has arisen against him.

Models of Corporate Criminal Liability 

There are twin models of corporate criminal liability in India which are discussed below -

• Derivative Model - As the name suggests under this model of corporate criminal liability in India the liability of an organization is a derived liability. The liability of a corporation is derived from the actions of an individual who has been employed or connected with the organization and commits a wrongful act. The liability is put on the organization because of the connection of the individual with it. The derivative model of the corporate criminal liability is further subdivided into two categories - Vicarious Liability and Identification Doctrine.

1. Vicarious Liability - The doctrine of vicarious liability is based on the two legal latin maxims the first maxim mean that he who acts through another shall be deemed to have acted on his own, and second, respondeat superior which means let the master answer. Vicarious liability is the concept which is generally applicable in the cases of civil liability but the Courts have said that because a corporation is an artificial person and a separate legal entity thus it is necessary to bring the applicability of vicarious liability in the case of corporate criminal liability.

2. Identification Doctrine - This doctrine is an English law doctrine which tries to identify certain key persons of a corporation who acts in its behalf, and whose conduct and state of mind can be attributed to that of the corporation. As to the liability of these key persons who act on behalf of a company, it was held in Moore v. Brisler that the persons who are identified with the corporations must be acting within the scope of their employment or authority. The conduct must occur within an assigned area of operation even though particulars may be unauthorized. The scope of identification doctrine is narrower than that of the vicarious liability.

• Organizational Model - This model of corporate criminal liability in India focuses on the model of the organization while defining the corporate liability of an organization in criminal cases. A crime is said to be committed when there is a presence of men's rea (intent to commit a crime) and actus reus (criminal act or omission) but the problem which arises while holding a corporate criminally liable is that how an artificial person can have a mental intent to commit a crime. The culture of the corporate may help for commission of an offence requiring mental state by- firstly,providing the environment or necessary encouragement that it was believed by the offender working in the corporation that it was perfectly alright to commit that offence, or corporation has psychologically supported the commission of offence; secondly, it is quite possible that the corporation created an environment which led to commission of crime. Both ways it was the corporation and its working culture that let the offence committed

Establishing Corporate Criminal Liability in India

To establish corporate criminal liability in India following requirements should be fulfilled :

• Criminal act has to be in the scope of employment : the employee who has committed the criminal act or is accused to have been committed a criminal act it is necessary that such action has to be committed in the scope of his employment i.e., the act must be done while performing his official duties which he has been authorized by the company to do. It is said that an act when performed under the scope of employment the company becomes the principal of the person committing the act and thus by virtue of agent-principal relationship the corporate criminal liability can be invoked.

• The benefit to corporation: the next requirement to establish the corporate criminal liability in India is that the criminal act of the employee must have given some benefit to the organization. It is not necessary that the organization gets the direct benefit from such acts of the employee nor it is necessary that benefit is completely enjoyed by the organization. It is just that the illegal or unlawful act of the employee is not contrary to the organization.

The Necessity of Corporate Criminal Liability in India

The need and necessity of corporate criminal liability in India have been questioned time and again. It has been asked that while dealing corporate criminal liability are we dealing with the ‘corporate criminals’ or the ‘criminal organizations’. There is no general correct answer to this question. Each case has to be carefully examined and then a decision has to be taken regarding the corporation's liability.

The critics of the corporate criminal liability has been criticised on two grounds by the critics of this theory - Firstly, it has been criticized on the ground that providing punishments and other penal sanctions against the corporates is of no value as it is not the corporates who commit the crime it is the individuals in the company law who commits the crime. 

The second objection raised by the critics of the corporate criminal liability is that the cost of corporate criminal fines and sanctions is borne by shareholders and consumers, and this too seems baseless.

However, even after the objections and critics, the theory of corporate criminal liability is well subsisting under the Indian criminal laws.

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