Dr.

RAM MANOHAR LOHIA NATIONAL LAW UNIVERSITY

LUCKNOW

CORPORATE LAW

FINAL DRAFT WITH SYNOPSIS

CORPORATE CRIMINAL LIABLITY – A CRITICAL STUDY

Submitted to:- Submitted by:-

Ms Priya Anuragini Amit Singh

Faculty of Law Roll no. 12

Dr, Ram Manohar Lohiya National Law University Section -A

 TABLE OF CONTENTS
OBJECTIVE..............................................................................................................................3

RESEARCH QUESTIONS........................................................................................................3

INTRODUCTORY....................................................................................................................3

VARIOUS THEORIES THAT GOVERN CORPORATE CRIMINAL LIABILITY..............6

OPTIMAL PENALTY THEORY FOR CORPORATE CRIME...........................................6

DEEP-POCKET HYPOTHESIS............................................................................................6

THEORY OF VICARIOUS LIABILITY..............................................................................7

THE IDENTIFICATION THEORY......................................................................................7

AN OVERVIEW OF IMPORTANT JUDGMENTS GOVERNING CORPORATE

CRIMINAL LIABILITY...........................................................................................................7

VARIOUS PROVISIONS WHICH ATTRACT CORPORATE CRIMINAL LIABILITY IN

INDIA........................................................................................................................................8

CONCLUSION..........................................................................................................................9

BIBLIOGRAPHY......................................................................................................................9
 OBJECTIVE
This Project work draws on recent findings in corporate Jurisprudence in respect of corporate
criminal liability. The project work also studies various theories of criminal liability and
sheds some light on important case laws on this subject.

RESEARCH QUESTIONS
1.Whether the corporations are capable of committing crime? If so, what is the nature of such
crimes?

2. What are the developments in determining the criminal liability of corporations in different
jurisdictions?

3. What principles of fault attribution are to be applied to determine corporate criminal

liability?

4. Whether there is need to define corporate crimes separately?

INTRODUCTORY
Corporate criminality challenges or nags our criminal justice system. It is this characteristic
that makes corporate crime a tricky issue. The development of corporate criminal liability has
become a serious problem for the prosecutors and courts that have to determine the criminal
liability.

In India, the principles of vicarious liability have also been extended to criminal law in a
limited manner to certain circumstances like breach of statutory obligations of an employer or
other regulatory offences where mens rea is not essential element of crime or where there is
liability as an occupier of land as stated in Section 154 of the Indian Penal Code, 18601.

The fact that crime has shifted from almost solely individual perpetrators few years ago to
corporate entities made us to explore possibility of expansion of criminal law principles. At
the same time, crime has also become increasingly transnational with global impact with
more and more involvement of the corporate sector.2

1
Dalal Praveen, ―Corporate Entity in existing legal system-Its rights and liabilities under the Constitution and
other enactments‖, (2004)
2
Balakrishnan. K; “Corporate Criminal Liability - Evolution of the Concept” (1998)
Under legal norms company has got a separate status, which is “juristic personalities”. The
term body corporate is used as synonyms for the term “corporation”. It has got wider scope
than the term “company”. “Body Corporate” or “corporation” includes a company
incorporated outside India, but does not include3 -

i. A co-operative society registered under any law relating to co-operative societies;

and ii. Any other body corporate, which the Central Government may, by notification,
specify in this behalf.

In Salomon v Salomon & Co.4 it was held that “like any juristic person, a company is
legally an entity apart from its members, capable of rights and duties of its own, and endowed
with the potential of perpetual succession”.

In the case of State Trading Corporation of India v Commercial Tax Officer 5 the court
held that an incorporated company has separate existence and the law recognizes it as a legal
person separate and distinct from its members. When these corporations have got separate
legal entity, it can own property, can sue and can be sued. Now the main question arises that
whether these corporations can be guilty of committing a crime or not?

It dates back to 1990s when both Europe and United States was facing challenging situations
with regard to the criminal liability faced by corporations. The most prominent case which
raised an alarm in the U.S.A was the Enron case6 . In case of an individual it is absolutely
measureable to establish the requisite mens rea but it is not so when it comes to a “juristic
person” or “artificial person” like that of the company. But it is often found that a company
can be held liable for criminal acts and it becomes really difficult for the counsel to establish
the requisite mens rea for the act of the company as it is not a natural person but a juristic
person.7

In Indian business couple of fraud cases documented has been reported to increase 8 . As a
result ordinary criminal law, equipped with conceptual tools to attach responsibility on

3
Sec. 2(11), TAXMANN’S COMPANY ACT, 2013
4
(1897) AC 22 H.L
5
(1963) 33 Comp Cas 1057 (SC)
6
 235 F. Supp. 2d 549,2002 .
7
Russell, W.O.,‖Russell on Crime‖, J.W.C. Turner Ed., New Delhi; Universal Law Publishing Pvt., 2001
8
Corporate law report, Conference Alert - Corporate Crimes & Organizational Integrity Management 2013,
(19th July 2013)
individuals is also used to regulate corporate behavior. Thus, criminal jurisprudence that
based on individualism is being used to regulate the behavior of a collectivity9

For instance in India the

 Bhopal Gas Leak Case 198410

Where in due to leakage of methyl isocyanate gas and other chemicals thousands of people
lost their life and many got affected by temporary partial injuries and permanent disabling
injuries.

 Uphar Cinema Tragedy Case 199711

In this case 59 people died due to suffocation which was caused due to fire break out in the
cinema hall in DELHI. From the aforesaid instances we can chalk out the ways in which the
fault of the company leads to a mass disaster in the country and spoils several livelihoods
without any remedy at all. The criminal law jurisprudence has seen this case of mass
destructions through pollution, gross negligence of the company as the doctrine of “strict
liability”. Hence, it is an established rule that in such cases the element of mens rea does not
require. Crime is a general term, and the term offence is that crime which is made punishable
by law. For commission of every offence the requisite thing is the actus reus coupled with
mens rea, provided the statute expressly excludes it12

in the of Standard Chartered Bank Case13 the decision of the Velliappa Case was overruled
and it was established that the company can be held liable for the acts of the company and
may also be send into imprisonment, without any sort of exemption. This decision was
seconded by the famous Motorola Case14

The Supreme Court of India in Sunil Bharti Mittal  v.  Central Bureau of Investigation15 The
Apex Court in this case in no uncertain terms held that an individual who has perpetrated the
commission of an offence on behalf of a company can be made accused, along with the

9
T.K Bhaskar, V. Umakanth, ‘Corporate Criminality and Law’, 1996, Journal of the Indian Law Institute, Vol.
38.2, Pg. 220
10
1989 SCC (2) 540
11
(2011) 14 SCC 481
12
Available at http://goforthlaw.com/articles/fromlawstu/article12.doc, ( Last viewed on 7 TH March, 2018,
15:36)
13
Standard Chartered Bank & Ors. V Directorate of Enforcement & Ors. (2005) 4 SCC 530
14
Iridium India Telecom Ltd. V Motorola Inc. (2010) 160 CompCas 147 (SC)
15
((2015) 4 SCC 609).
company. However, to make an individual liable, there must be sufficient evidence of his
active role coupled with criminal intent and/or a provision must be specifically incorporated
into the statutory regime that attracts the doctrine of vicarious liability.It may thus be noted
that when the company is the offender, vicarious liability of the directors cannot be imputed
automatically, in the absence of any statutory provision to this effect.

VARIOUS THEORIES THAT GOVERN CORPORATE CRIMINAL LIABILITY

OPTIMAL PENALTY THEORY FOR CORPORATE CRIME

The economic theory of optimal penalties has developed considerably since Becker’s insight
that the penalty should equal the social harm divided by the probability of detection 16. 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.

DEEP-POCKET HYPOTHESIS
It has been found under this theory that jurists treat corporate defendants less favorable than
individual defendants. “Under the “deep pockets” theory favored by many jurists, big
companies end up subsidizing customers and lawyers.” – Barbara Hackman Franklin, U.S
Secretary of Commerce (1992)17 . “The only answer I wouldn’t believe is one that says they
didn’t [take defendant wealth into account]. I can’t imagine that people wouldn’t think about
that.” – G. Marc Whitehead, Director of the ABA Litigation Section, National Law Journal
(1993)18

THEORY OF VICARIOUS LIABILITY

Originally this doctrine developed in the context of tortious liability which was later imported
into company liability19. 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 Queen 20

16
MARK A. COHEN, Theories of Punishment and Empirical trends in corporate criminal sanctions, Pg. 400,
http://www.jstor.org/stable/2487975
17
ROBERT J. MACCOUN, Differential Treatment of Corporate Defendants by Juries: An examination of
“DeepPockets” Hypotheisis, Pg. 121, http://www.jstor.org/stable/3054036 (Last viewed on 23rd March, 2018,
20:19)
18
Ibid
19
Andrew Ashworth, Principles of Criminal Law 117 (5th ed., 2006) (1991)
20
(1985) 1SC R662)
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 itself21.

AN OVERVIEW OF IMPORTANT JUDGMENTS GOVERNING CORPORATE

CRIMINAL LIABILITY
In Tesco Supermarkets Limited v. Nattrass22(“Tesco”), wherein it was held that the person
whose mens rea is to be attributed must be the directing mind and will of the company.
Interestingly, the Privy Council in a subsequent judgment in Meridian Global Funds
Management Asia Limited v. Securities Commission23 (“Meridian”) has expanded the rule
laid down in Tesco by holding that, “the company builds upon the primary rules of
attribution by using general rules of which are equally available to all natural persons,
namely, the principles of agency”  thereby making the rules of attribution a more flexible one
to be decided on a case to case basis.

The decision of Tesco has been referred by the earlier division bench decisions of the
Supreme Court in J.K Industries Limited and Others v. Chief Inspector of Factories and
Boilers and Others24 and P.C Agarwala v. Payment of Wages Inspector, M.P and
Others25 wherein it has been held that in the context of vicarious liability under strict liability
statutes, a person in charge would be deemed to be responsible for the acts of the company.

Zee Telefilms Ltd. V. Sahara India Co. Corp. Ltd (2001) 3 Recent Criminal Reports
29226 .

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.

JUDGMENT 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

21
Balakrishnan. K; ―Corporate Criminal Liability - Evolution of the concept‖ (1998)
22
[1972] AC 153
23
[1995] UKPC 5
24
(1996) 6 SCC 665
25
 (2005) 8 SCC 104
26
Available at www.supremecourtofindia.nic.in/ ( Last viewed on 24 th March, 2018, 21:55)
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 Ltd27.

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.

JUDGMENT 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. Hence it was held that a company cannot be prosecuted for
offences which required imposition of a mandatory term of imprisonment and fine.

VARIOUS PROVISIONS WHICH ATTRACT CORPORATE CRIMINAL

LIABILITY IN INDIA
Section 141 of the Negotiable Instruments Act, 1881. It states that when any sort of offence
committed under Section 138 of the Negotiable Instruments Act, then every person who ever
have committed the offence shall be charged for the criminal act and conduct of the business
of the company. If the person is the company itself even then the company shall be held to be
guilty of the offence and shall be held liable to be proceeded against and will be punish
accordingly

Section 276-B of The Income Tax Act, 1961. The section states about the failure to pay tax
deducted at source [TDS] In case of this section it attracts criminal liability if any sort of
contravention occurs in the payment of TDS then it will lead to rigorous imprisonment which
will be minimum of three months and maximum it may extend to seven years and also certain
amount of fine will be levied.

CONCLUSION
Absent the possibility of criminal liability, corporations would escape moral conviction for
wrongdoing, and the retributive import of criminal liability to the community would be lost.
For under a civil liability regime for the corporation qua corporation, there would be no moral
condemnation equivalent to a criminal conviction: if found civilly liable, a corporation might

27
(2004) 1. Comp. L.J. 21
be deemed negligent, or perhaps reckless, but no statement, in the form of a conviction,
would attest to the proper valuation of the persons or goods at issue. 

BIBLIOGRAPHY
Ashworth, Andrew. Principles of Criminal Law. 2006. Originally doctrine of vicarious
liability developed in the context of tortious liability which was later imported into company
liability

Balakrishnan. Corporate Criminal Liability - Evolution of the Concept. 1998.- Identification

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

COHEN, MARK A. " Theories of Punishment and Empirical trends in corporate criminal
sanction." JSTOR 2015.- The economic theory of optimal penalties has developed
considerably since Becker’s insight that the penalty should equal the social harm
divided by the probability of detection

MACCOUN, ROBERT J. " Differential Treatment of Corporate Defendants by Juries:, An

examination of “DeepPockets” Hypotheisis." JSTOR 2015.

Praveen, Dalal. Corporate Entity in existing legal system-Its rights and liabilities under the
Constitution and other enactments. 2004.- In India, the principles of vicarious liability
have also been extended to criminal law in a limited manner to certain circumstances
like breach of statutory obligations of an employer or other regulatory offences