RESEARCH ARTICLE

P.S.D.A: RESEARCH ARTICLE

CORPORATE CRIMINAL LIABILITY

SUBJECT: CORPORATE LAW

SUBMITTED TO MR DEEPESH KUMAR
SUBMITTED BY- ANIRUDH KAUSHAL
41210303815
 3-E

ACKNOWLEDGEMENT

Working on the CORPORATE CRIMINAL LIBAILITY was a very

knowledgeable experience. The documentation has actually helped me in
enriching my knowledge on the case and the subject. The concept was discussed
at deep lengths in the class which helped me in making this project.

I feel highly privileged to work under the able guidance of Sir and sincerely
acknowledge his efforts in directly and indirectly contributing to this piece of
work.

Thank you Sir!

 INTRODUCTION

Much of our lives and daily routines are affected by corporate activities. To a great
extent, companies provide the food we eat, the water we drink, the necessities and
luxuries of everyday living. Increasingly, particularly with growing privatization, it is
not the State that provides these amenities - but companies. Such companies generate
wealth for the economy and their shareholders and provide employment for much of
the population. Short of a revolutionary restructuring of the economy and the political
institutions of the country, it is certain that the power and influence of companies will
grow and not diminish in the foreseeable future.
It has been a matter of much debate, whether criminal offences were applicable
against companies in India. In the last two decades this debate over the criminal
liability of a company has grown rapidly in light of laws on securities, antitrust and
environment. It is a fact that a company cannot have mens rea and for any criminal
conviction the intention to commit the act was a pre-requisite and also a company
could not be imprisoned which were the two most important matters of discussion.
Hence, it became a huge discussion as to how hold the company responsible for the
criminal offence and punish them accordingly.

In the paper, the author has analyzed how the position of the Courts in India evolved on the
subject of criminal liability of a company. The author explores the Doctrine of Attribution
which actually governs the system of criminal liability of a company in the first part of the
paper. Then, the author has put a special emphasis on the Standard Chartered v. Directorate
of Enforcement1 case and has tried to discuss the various interpretative techniques utilized by
the courts in India to determine the Corporate Criminal Liability under the penal statutes of
India. Furthermore, the author has concluded the paper with shedding some light on the
Indian Telecom Limited v. Motorola Inc.2 case.

.CORPORATE CRIME

Corporate crimes are offenses committed by corporate officials for their corporation and the
offenses of the corporation themselves for corporate gain. Typically a corporate criminal
bribes a government, dumps toxic industrial waste into rivers. Corporate crimes are often

1
(2005) 4 SCC 405 (Hereinafter Standard Chartered).
2
(2011) 1 SCC 74 (Hereinafter Motorola)
called quiet acts because people not only dont know whom to blame but may not even know
that they have been victimized.3

Erich Goode describes the corporate crime whereby executive and officers engages in illegal
actions intend to further the interest of that corporations actions which thereby become
actions taken on the behalf of corporations. Because individuals in an organization act
within a corporate social structure, often the organization and / or industry climate plays
important role in whether an actor commits a crime on the behalf of the organization. But if
corporate culture secretly rewards such behaviour, is that behaviour actually deviant? Goode
posits that corporate crime is a form of deviant behaviour when actions include the harm of
the people, sanctions against the actor and/ or company, and the discrediting of the corporate
actor. In sum, corporate crime is an important form of the organizational deviance.4

3. Evolution of Corporate Criminal Liability

The Fiction theory propounded by Pope Innocent IV and propagated by Salmond and
Blackstone etc. stated that the corporate body is really a fiction and not an individual being
like a human. It owes its existence to law. This principle was we can say used in Salomon Vs.
A Salomon & Co. Ltd5 where the separate legal personality of a corporate body was stressed.

In the Concession theory was propounded and propagated by Savigny, Dicey etc.,
which stated that it is the sovereign which grants the approval to the corporate body to
function. This can be compared to todays Indian Companies Act, 1956 which allows
the companies authority to function. The Purpose theory is the next theory which was
propounded by Demilius, Brinz etc., which stated that entities are formed for a
specific purpose and that they cannot function beyond those rights. This can be
compared to the modern day principle of Ultra-Virus which of course has been
abolished now.
The next theory is the Symbolist theory which is also known as the Bracket
theory which was propounded by Ihering which stated that the body corporate was
just a bracket which could be lifted in order to check the actual state of affairs.

3
Retrieved from< http://www.julianhermida.com/contcorporate.htm> 280ct,2012,4.05p.m
4
PrakashTalwar, Corporate Crime, Isha Books, Delhi, 2006, p.23.
5
(1897) A.C. 22 (HL)
 The next theory is the Realist theory which is the most important and is modern and
recent in origin and was propounded by the German jurist Althusius and further
propagated by Von Gierke which says that corporations are real in nature and that
they have their own will and life and are social organisms. This can be equated with
the modern concept of Corporate Social Responsibility wherein the bodies are
imputed with certain social responsibilities as they are considered as part of the
society.6 The feature of Corporate Liability being imposed by courts can be seen as
early as in the beginning of 1800s. In Yarborough Vs. Bank of England7 Trover 8was
granted against the company; trespass was allowed against company in Maund Vs.
Monmouthshire Canal Co.9; company was held vulnerable for indictment in case of
wrongful exercise of lawful authority in R. Vs. Great North of England Railway
10
Co. Lord Lindley in the Judicial Committee of the Privy Council while
deciding Citizens Life Assurance Co. Ltd. Vs. Brown 11held that the company will be
liable for the acts of its employees based on the ordinary principles of agency because
he felt that the talk of imputing malice to corporations appears to introduce
speculative difficulties which are needless. Therefore the principles of Corporate
Liability came to be justified by reference to agency and vicarious liability.

4. Corporate Criminal Liability in India

Corporations are as much part of our society as are any other social institution.
Corporations represent a distinct and powerful force at regional, national and global
levels and they wield enormous economic powers. Besides governments and
governmental agencies, it is the corporations that are the more and more effective
agents of action in our society. But, corporations, as we understand today, have not
been same in the past. The multitude of roles the corporations play in the present day
human life have been necessitated by the demands of the society, as it kept on
developing. The development of the society, at various points of time, has had a
direct influence on the structure and functions of the corporation. This had led to an

6
See Zuhairah Ariff Abd Ghadas, Real or Artificial? Jurisprudential Theories on Corporate Personality, US-
China Law Rev. Vol.4, May, 2007
7
(1812) 16 East. 6
8
Action to recover value of goods wrongfully taken or detained
9
(1842) 4 Man. & G. 452
10
(1846) 9 Q.B. 315; 115 E.R. 1294
11
(1904) A.C. 423 at 426
 ever increasing demand for the law to recognize the change and suit its applications,
accordingly.12

Over the last few decades nature and form of a corporate sector has grown complex. In last
two decades of 20thcentury, we saw globalization and privatization of every type of business
entities all over the world and this globalization further paved the way for Global Village,
which considerably made the changes in the form of business organization. Today, a
corporation is an artificial entity that the law treats as having its own legal personality,
separate from and independent of the persons who make up the corporation.13

4.2 Criminal Liability of Corporations under Indian Law

In India and internationally, laws to hold corporations accountable are systematically being
dismantled, even as corporations and other agents of globalisation dictate policies of nations.
The corporate sector enjoys far more rights than the common people. With the onset of the
new trade regime, national laws are being changed to empower corporations with the right to
hire and fire at will, to get the first right over natural and community resources.14 Corporate
criminal liability has been an important issue on a legal agenda for a long time. Corporations
play a significant role not only in creating and managing business but also in common lives
of most people. That is why most modern criminal law systems foresee the possibility to hold
the corporation criminally liable for the perpetration of a criminal offence. The doctrine of
corporate criminal liability turned from it's infancy to almost a prevailing rule.15 But, because
a corporation is not a natural person and cannot be subject to one of the most important
sentencing options, namely, imprisonment, it requires special consideration in an inquiry into
sentencing law. Punishing a corporation undermines the theoretical foundations of criminal
law, which presupposes that crimes involve an act and a culpable mental state. Corporate
criminal liability or corporate crime is very difficult to define because this phrase in present
day scenario covers wide range of offences. However for understanding purpose it can be
defined as illegal act of omission or commission, punishable by criminal sanction committed

12
Balakrishnan. K; Corporate Criminal Liability - Evolution of the concept Cochin University, Law Review,
(1998), p.255.
13
Salomon v. Salomon (1897) AC 22.
14
Retrived from < www.legalserviceindia.com/articles/cor_dr.htm 30oct,2012,3.30pm .
15
Thiyagarajan, T. Sivananthan; Corporate Criminality-concept, available at
<http://www.manupatra.com/Articles/artlist.asp?s=Corporate/Commercia>
by individual or group of individual in course of their occupation.16 It can be even defined as
socially injurious acts committed in course of occupations by peoples who are managing the
affairs of the company to further its business interest. 17 Corporate criminality also represents
a kind of instrumentalities through which the trust of the people continues to be betrayed by
persons in positions of responsibility, authority and power in the business sector. Corporate
crime has been defined as the conduct of a corporation or of employees acting on behalf of a
corporation, which is proscribed and punishable by law.18 In this sense, Corporate criminal
Liability refers to the imposition of criminal liability on either the corporation or its
employees and agents. The latter is also referred to as white-collar crime.

4.2.1 Doctrine of Direct Liability (Theory of Organs)

This doctrine, which was specifically developed for the purpose of imposing liability on
corporations, seeks, in fact, to imitate the imposition of criminal liability on human beings.
The direct doctrine relies on the notion of personification of the legal body. 19 It identifies
actions and thought patterns of certain individuals within the corporation called corporate
organs who act within the scope of their authority and on behalf of the corporate body, as the
behaviour of the legal body itself. Hence, the name of the doctrine: the theory of corporate
organs or the alter ego doctrine referring to these individuals as the embodiment of the legal
body. In its wake corporation can be rendered criminally liable for the very perpetration of
the offences, resembling the liability imposed on a human perpetrator, subject to the natural
limitations that follow from the character of the corporations as a legal personality.

4.2.2 Notion of Corporate Culture as a foundation for Corporate Criminal Liability

Generally speaking, it can be said that corporate culture refers to a "pattern of shared beliefs
and values that give the members of an institution meaning and provide them with the rules
for behaviour in their organization". This rather broad notion can be used for many purposes,
and is helpful in analyzing a corporation's personality in many respects. For the purposes of
attributing criminal liability, corporate culture refers primarily to the chain of command, the
decision-making structure and the general atmosphere concerning obedience to the law. The

16
Williams, K.S.; "Text Book on Criminology", Universal Law Publishing Pvt., New Delhi, 2001, p.64.
17
Siegal, L.J.; "Criminology" Wadsworth& Thomson Learning, London, 2000, pp.398-99.
18
Braithwaite, John ; Corporate Crime in the Pharmaceutical Industry, 1st Edition, Routledge and Kegan
Paul, London, 1984, p.6.
19
Retrived from <http://supreme.justia.com/us/200/321/>, 31oct,2012,4.00pm .
following indicators are often singled out as pointing to facets of corporate culture that are
relevant in the context of criminal liability

4.2.3 Corporate Mens Rea Doctrine

It is often asserted that companies themselves cannot commit crimes; they cannot think or
have intentions.20 Only the people within a company can commit a crime (Sullivan 1995).
However, once one accepts that the entire notion of corporate personality is a fiction - but a
well-established and highly useful one - there seems no reason why the law should not
develop a concomitant corporate mensrea fiction. Most of the other doctrines - identification,
aggregation etc. - involve fictitious imputations of responsibility. The real question is not
whether the notion of a corporate mensrea involves a fiction, but whether, of all the fictions,
it is the one that most closely approximates modern-day corporate reality and perceptions.
While this inevitably will raise problems of how to assess policies and procedures to ascertain
whether they reflect the requisite culpability, such a task is not impossible. The answers
might not be easy, but at least this approach involves asking the right questions.
It is often argued in opposition to corporate criminal liability that the imposition of fines
provides no guarantee that delinquent conduct will be deterred. The fines imposed on
corporations are often minimal in comparison with the devastating effects of their wrongful
acts, and virtually amount to a cost of doing business. But there is also a concern that
excessive fines can have perverse effects that may have to be borne by innocent shareholders,
creditors, employees or consumers.

But, it should be remembered that the punishment of companies decreases their overall
wealth. Accordingly, shareholders and employees have an incentive to encourage and
monitor better corporate practices. Costs can only be passed on the public to the extent that
the company remains competitive. Arguments that shareholders and employees need
protection must be outweighed by the greater societal interest in ensuring the safety of
employees, the public and the environment.

R. Hal Williams, The Democratic Party and California Politics, 1880-1896,Stanford, Stanford University
20

Press, 1973, p. 34-36.

Consolidation of Criminal Liability

The corporations unthoughtful actions have also victimized the society and the criminal
nature has come out very drastically. A responsible societys primary duty is to deter those
who victimize the society by their dangerous acts. The most appropriate way found, was, to
attribute criminal liability to corporations for their actions. The general belief in the 16th and
17th centuries was corporations could not be held criminally liable. It was so because the
widely held juridical belief was that a corporation lacked the essential mens-rea 21 which
could sustain a criminal conviction. In the famous words of English Lord Edward, the first
Baron Thurlow corporations were deemed to have, no soul to damn and no body to kick.22

The uncertainty on when and how to impose liability on corporations and for what sort of
default and what should be the remedy for the default are the questions or queries which
perplex the judiciary. Often in debates on criminal liability and the punishment which should
be given, the only suggestion that comes forth is that of imposing fine, which shows the lack
of imagination and ignorance regarding the kind of development and the punishments that
are being imposed in other countries in this particular area. The primary reason for this
reluctance, being the fact, that these corporations are not human individuals. This notion
regarding the non human characteristic of a company hampers the conceptualization or
creation of tools to deal with criminal liability. In this regard the English courts have shown
the way, but unlike always the courts in India have been reluctant to follow the path that the
English courts have shown and the Parliament also seems very reluctant to follow in the
footsteps of the English Legislature.

The notion that a company could be attributed with criminal liability was first propounded
in Director of Public Prosecutions Vs. Kent and Sussex Contractors 23. Here the court held
that the knowledge and intention of the servants can be imputed to the company to establish
the criminal liability of the company. The landmark case in this field is the case of Tesco
Supermarkets Ltd. Vs. Natrass24. This decision brought in, a conception of nerve center of
command in which the wrong doing of only a small no of key personnel could be imputed to
the company.

21
State of mind or Intention
22
See Jhon.C.Coffee, Jr., No Soul to Damn : No Body to Kick : An Unscandalized Inquiry into the Problem
of Corporate Punishment, Mich. L. Rev. vol.79, (1981), pg 386
23
(1944) 1 All.E.R. 119
24
[1971] 2 All E. R. 127
6. Indian Corporate Scene

The Doctrine of Attribution

For anyone to be held guilty under the criminal law, it is important to prove that he had mens
rea or the intention to commit the crime which becomes unfeasible to prove in case of
company. The Courts in England came up with the Doctrine of Attribution to pierce this
corporate veil.25 This doctrine suggests that the company can be held liable if mens rea or the
intention to commit the crime is attributed to those who are the directing mind and will of
the company.\

POSITION OF COURTS

In Sunil Chandra Bannerjee v. Krishna Chandra Nath26 the High Court of Calcutta said that
company cannot possess mens rea that is required for cheating and hence, acquitted a bank.
The High Court of Bombay in State of Maharashtra v. Syndicate Transport Co. (P) Ltd.27said
that to determine whether a company could be held responsible for an act of its employee for
criminal offence would depend upon whether company meant to commit that act and the
position held by the employee. Furthermore, in Esso Standard Inc. v. Udharam Bhagawandas
Japanwalla 28 the High Court of Bombay said that when the intention of the company is
expressed in the memorandum of the articles of association or in a meeting of the board of
directors or in a general body meeting then only it can be established. However, a company
could not be punished as it was a juristic person was held by the court in Kusum Products v.
S.K. Sinha29.

25
See Lennards Carrying Co. Ltd. v Asiatic Petroleum Co. Ltd. [1915] A.C. 705 and H.L Bolton Co. Ltd. v. T.J.
Graham and Sons [1957] 1 Q.B. 159.
26
AIR 1949 Cal 689
27
AIR 1964 Bom 195
28
1975 45 CompCas 16 Bom
29
1980 126 ITR804 Cal
THE DEBATE ON INTERPRETATION OF PENAL STATUTES

The principle of interpretation says that a penal statute must be constructed in a strict
sense and only in exceptional cases the principles of purposive construction be used in
its construction or interpretation. Before the Standard Chartered case, it was an
accepted way to interpret penal statute in a literal sense. The sense behind the strict
interpretation of the penal statute is that the cases which come under a reasonable
reading of the statute should only fall under the statute and not others.30
The question that whether a company can be held liable for criminal offences was
discussed by the Supreme Court in two major cases prior to the Standard Chartered
case. The first one was M.V. Javali v. Mahajan Borewell & Co.31 which was delivered
by a 2 judge bench of the Supreme Court.
The company was liable under sections 276 B32 and 278B of the Income Tax Act,
1961, the court adopted a liberal approach and used harmonious construction to held
that the company would be liable for the offence, but it is impossible to imprison the
company and hence, the company would be punished through fine only. 33 This shows
that the Court interpreted fine and punishment as fine or punishment and hence,
the Court imposed the punishment against the company which was possible and
practical.
Though, the decision given in the Javali case was over ruled by the Supreme
Court in the 3 judge bench judgment in Assistant Commissioner Ass. II Bangalore
v. Velliappa Textiles Ltd.34 This case was related to the applicability of Section 276
C of the Income Tax Act, 1961 to companies which provides punishment through
imprisonment and fine for evasion of tax. The Court gave a literal interpretation
to the provision and said that the mandatory punishment of imprisonment could
not be enforced against the company and hence imposed only fine as a
punishment.

30
Tolaram Relumal and Anr. v. The State of Bombay, (1995) 1 SCR 158; Girdhari Lal Gupta v. D.H. Mehta and
Anr, [1971] 3 SCR 748 , cited in Supra 2 27.
31
M.V. Javali v. Mahajan Borewell & Co., (1997) 8 SCC 72 (Hereinafter Javali).
32
276B of the Income Tax Act, 1961 reads as:
Failure to pay the tax deducted at source' If a person fails to pay to the credit of the Central Government, the
tax deducted at source by him as required by or under the provisions of Chapter XVIIB, he shall be punishable
with rigorous imprisonment for a term which shall not be less than three months but which may extend to
seven years and with fine.
33
Supra note 9.
34
AIR 2004 SC 86 (Hereinafter Velliappa).
Current Position of Law

The Standard Chartered35 Case

This case dealt with the Section 56(1)36 of the Foreign Exchange Regulation Act,
1973. Standard Chartered was the accused company which had allegedly floated
the rules through its management of foreign currency deposits.37
The main issue in the case was that whether Standard Chartered, as a
corporation, could be held liable under Section 56(1) of the FERA as not less
than six months imprisonment and fine was the minimum punishment that was
given under Section 56(1) of the FERA.

Majority Opinion38

The majority interpreted on the lines of earlier case by saying that the penal
statute must be constructed in a strict sense and hence gave a purposive
interpretation of the Act. The Court said that The distinction between a strict
and a liberal construction has almost disappeared with regard to all classes of
statutes so that all statutes, whether penal or not, are now construed by
substantially the same rule39. Furthermore, the rule of strict construction would
not direct to leave loopholes for the offender to escape by giving a pedantic and
narrow construction of a section.40 The Court further stated that such purposive
interpretation involves placing oneself in the chair of a reasonable legislator and
hence, the intention of the legislature at the time of legislating must be

35
Supra note 1.
36
Section 56(1) of the Foreign Exchange Regulation Act, 1973 (hereinafter FERA) reads as;
Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes
any of the provisions of this Act[ other than section 13, clause (a) of sub- section (1) of 1[ section 18, section 18
A,] clause (a) of sub- section (1) of section 19, sub- section (2) of section 44 and sections 57 and 58], or of any
rule, direction or order made thereunder, he shall, upon conviction by a court, be punishable,-
(i) in the case of an offence the amount or value involved in which exceeds one lakh of rupees, with
imprisonment for a term which shall not be less than six months, but which may extend to seven years and with
fine: Provided that the court may, for any adequate and special reasons to be mentioned in the judgement,
impose a sentence of imprisonment for a term of less than six months;
(ii) in any other case, with imprisonment for a term which may extend to three years or with fine or with both.
37
Supra note 1 2.
38
Justice Balakrishnan, Justice Dharmadhikari and Justice Arun Kumar
39
Supra note 1 28; William Craies and S.G.G. Edgar, CRAIES ON STATUTE LAW 532 (1971).
40
Id. 55.
 considered while interpreting a provision.41 As this help in knowing what would
be the actual intention of the legislature while legislating, if they would have
acted and formulated the legislation reasonably.42 An analysis of the Section 56
was carried out to determine the subjective intention of the legislature by the
Court.
It was emphasised by the Court the legislative intended that the companies
should be prosecuted was explicit and clear for the crimes committed by them. It
is clearly provided in the Section 56 of FERA that when the amount in the
offence exceeds Rs. 1,00,000/- then it is mandatory to punish the accused by both
fine and imprisonment. To the Majority, it appeared to be impossible that the
legislature proposed that organizations to be penalized for trivial offenses, yet
not for more noteworthy offenses.43 Hence, they argued that the legislator could
never have intended such a situation as they wanted to avoid such an impractical
situation.
Hence, the court divided the offence into two parts (one where the amount in
offence exceeds Rs. 1,00,000/- and the other where it do not), so that the
imprisonment of a company can be avoided into trivial matters which would be
an impractical situation. Thus, harmonious interpretation was adopted by the
Court to provide for the company to be fined while citing Javali case.44
Under FERA there is no definition provided for the term person. Hence, the
Court sees the definition provided under the Indian Penal Code, 1860,45 and the
General Clauses Act, 1897,46was seen as another indicator of the intent of the
legislature to include the companies and corporation within the ambit of
person.47 Furthermore, the Court stated that the legislature should have been
aware that a juristic person cannot be punished with imprisonment and hence,
the legislature would have intended that for punishing companies only fine
should be used. A judgment under similar circumstances was cited of United

41
Supra note 9 at p. 127 ; New India Assurance Co. Ltd. v. Nusli Nerille Wadia, (2008) 3 SCC 279 51.
42
Id.
43
Supra Note 1 11
44
Id. 50.
45
11 of the Indian Penal Code, 1860 the "person" is defined thus:
The word "person" includes any Company or Association or body of persons, whether incorporated or not."
Therefore a corporation has an identity distinct from the members who constitute it.
46
3(42) of the General Clauses Act, 1897, defines the person as
Person" shall include any company or association or body of individuals, whether incorporated or not
47
Supra Note 1 46
 States Supreme Court in United States v. Union Supply Co. 48 by Justice
Balakrishnan wherein, the company was punished with fine.

Minority Opinion49

Justice Srikrishna collectively delivered the minority opinion by upholding the

judgment in Velliappa case and gave a strict literal interpretation to the statute while
refusing to impose a liability on Standard Chartered. This statement shows the
approach of the judges in the case:

The Court cannot act as a sympathetic caddie who nudges the ball into the hole because the
putt missed the hole. Even a caddie cannot do so without inviting censure and more. If the
legislation falls short of the mark, the Court could do nothing more than to declare it to be
thus, giving its reasons, so that the legislature may take notice and promptly remedy the
situation.50

They stated that it is not the courts duty to fill up gaps in a statute and the
interpretation given in the majority opinion will amount to a legislative act disguised
as a judicial one which is in fact out of the powers of the Court.51 Hence, it is not
permissible to read fine and imprisonment as fine or imprisonment as it would
amount to rewriting the Section 56 of FERA.52
They discredited the likelihood of interpreting the statute according to the
circumstances by imposing both the fine as well as the imprisonment on natural
persons, while refusing to impose solely a fine on companies.53

It was further stated that the use of the word 'shall' in the provision to impose a penalty in the
form of imprisonment and fine had the effect of making the dual punishment, of a prison
sentence and a fine, compulsory and binding.

48
54 Law. Ed. 87, cited with approval in Supra note 1 19
49
Justice Srikrishna and Justice Hedge
50
Supra Note 1 66
51
Id. 74
52
Id. 69
53
Id.
Finally, it was asserted that the adage 'lex non cogit ad impossibilia', literally means that the
law cannot contemplate or take cognisance of an act that is impossible. Therefore, this maxim
would only have persuasive value, in convincing the court to lay down that sentencing a
company or corporation is practically not possible to achieve. It was also stated that the above
maxim, on its own, does not grant liberty to any judicial institution to dissect the section as
per their own convenience and apply it selectively.54

The Motorola55 case

Although the Standard Chartered judgement has been a landmark ruling on deciding
how to construe penal statutes, the same failed to clarify whether a corporation could
be held liable and punished for a crime, that otherwise requires mens rea as a
necessary element to qualify as a crime. This issue was addressed and answered in the
Motorola judgement.
In this case, the apex court discussed the Doctrine of Attribution. However, what set
this particular discussion apart from others on the same issue was that the instant
discussion revolved around determination of liability of the company, and not that if
the directors. 56 It was laid down that a company would be held criminally liable only
in the situation when the offence was committed by an individual or group of
individuals who were in charge of managing the affairs of the company or controlling
it. Further, this 'control' exercised by the individual/s could be equated to them being
the 'directing mind and will' of the corporation.57 The court then discussed the 'alter
ego' principle and held that if the prior mentioned conditions were fulfilled, then such
mens rea could be assigned to the company and as a consequence, it could be held
criminally liable.58
The judges also held that the Doctrine of Attribution is not limited to the wrongful
acts committed by the Directors of a company. In fact, it could be extended to cover
acts committed by promoters, who significantly control the important affairs of a
company, hiding behind the veil of a corporation.59 The test is to identify the 'mind

54
Id. 76
55
Supra note 2.
56
Id
57
Id
58
Id
59
Id
 and will' of the individual with respect to the company and applied even to such cases
where there are more than one layer above the controlled company.60

CHANGE IN POSITION
Until recently, Indian courts were of the opinion that corporations could not be
criminally prosecuted for offenses requiring mens rea as they could not possess the
requisite mens rea. Mens rea is an essential element for majority, if not all, of
offenses that would entail imprisonment or other penalty for its violation. Adopting an
overly generalized rationale, pre Standard Chartered decision, Indian courts held that
corporations could not be prosecuted for offenses requiring a mandatory punishment
of imprisonment, as they could not be imprisoned.
In A.K. Khosla v. T.S. Venkatesan, 61 two corporations were charged with having
committed fraud under the IPC. The Magistrate issued process against the
corporations. In the Calcutta High Court, the counsel for the defendants argued, inter
alia, that the corporations, as juristic persons, could not be prosecuted for offenses
under the IPC for which mens rea is an essential ingredient. The court agreed. The
court pointed out that there were two prerequisites for the prosecution of corporate
bodies, the first being that of mens rea and the other being the ability to impose the
mandatory sentence of imprisonment. Each of these prerequisites rendered the
prosecution of the defendant corporations futile: a corporate body could not be said to
have the necessary mens rea, nor can it be sentenced to imprisonment as it has no
physical body.
In Kalpanath Rai v. State,62 a company, accused and arraigned under the Terrorists
and Disruptive Activities Prevention ("TADA") Act, was alleged to have harbored
terrorists. In a bench trial, the trial court convicted the company of the offense
punishable under section 3(4) of the TADA. On appeal, the Indian Supreme Court
referred to the definition of the word "harbor" ["harbour"] as provided in Section 52A
of the IPC and pointed out that there was nothing in TADA, either express or implied,
to indicate that the mens rea element had been excluded from the offense under
Section 3(4) of TADA. The Indian Supreme Court referred to its earlier decisions

60
Id
61
(1992) Cr.L.J. 1448.
62
(1997) 8 S.C.C 732.
 in State of Maharashtra v. Mayer Hans of M.P. 63 and observed that there was a
plethora of decisions by Indian George 64 and Nathulal v. State courts which had
settled the legal proposition that unless the statute clearly excludes mens rea in the
commission of an offense, the same must be treated as an essential ingredient of the
act in order for the act to be punishable with imprisonment and/or fine. Taking this
reasoning a step further, the Indian Supreme Court held that an accused corporation
could not possess the requisite mens rea, even if any terrorist had been allowed to
occupy the rooms in its hotel. The Court observed:

We are aware that in many recent penal statutes, companies or corporations are deemed to
be off enders on the strength of the acts committed by persons responsible for the
management or affairs of such company or corporations e.g. Essential Commodities Act,
Prevention of Food Adulteration Act, etc. . . . But there is no such provision in TADA which
makes the Company liable for the acts of its officers. Hence, there is no scope whatsoever to
prosecute a company for the offense under Section 3(4) of TADA.65

> Similarly, in Zee Telefi lms Ltd. v. Sahara India Co. Corp. Ltd.,66the court dismissed a
complaint filed against Zee under Section 500 of the IPC. The complaint alleged that Zee had
telecasted a program based on falsehood and thereby defamed Sahara India. The court held
that mens rea was one of the essential elements of the offense of criminal defamation and that
a company could not have the requisite mens rea.

7. Model Penal Code Provisions

The Model Penal Code provides that a corporation may be convicted of an offence if:

7.1 Variety of Crimes

1. The offence is a violation or defined by a statute other than the Code in which a legislative
purpose to impose liability on corporations plainly appears and the conduct is performed by
an agent of the corporation acting in behalf of the corporation within the scope of his office
or employment.

63
A.I.R. 1966 S.C. 43.
64
A.I.R. 1965 S.C. 722
65
(1997) 8 S.C.C. 732, 739-40.
66
(2001) 3 Recent Criminal Reports 292.
2. The offence consists of an omission to discharge a specific duty of affirmative
performance imposed on a corporation by law, or

3. The commission of the offence was authorized, requested, commanded, performed or

recklessly tolerated by the board of directors or a high managerial agent acting in behalf of
the corporation within the scope of his office or employment .

Corporations can be held criminally responsible for a wide variety of crimes:

a. Contempt in disobeying decrees and other court orders, directed to it.

b. Conspiracy.
c. Bribery or conspiracy to bribe public officials.
d. The illegal practice of medicine.
e. Maintaining public nuisance.
f. Violations of licensing and regulatory statutes.
g. Violations of consumer protection laws.
h. Antitrust law violations.
i. Liquor law violations.
j. Larceny, if corporate officers authorized or acquiesced in criminal act.
k. Extortion, assuming that it was authorized, requested or commanded by a managerial
agent having supervisory responsibility.
l. Obtaining money by false pretenses.
m. Selling or exhibiting obscene matter.
n. Statutory federal crimes and such as violations of the Occupational Safety and Health
Act.

7.2 Punishments

A corporation may be punishment by fine, indeed the only punishment that can be inflicted
on a corporation for a criminal offence, is a fine or seizure of its property which can be levied
by an execution issued by the court . A corporation cannot be imprisoned and is not amenable
to prosecution for a criminal offence which is only punishable by death or imprisonment.
However, the fact that the penalty provided for the violation of a statute is a fine or
imprisonment, or both in the discretion of the court, does not render it inapplicable to a
corporation, and the same rule applies where the statute creating the offence provides for
imprisonment if the fine imposed not paid. Sometimes, a statute providing that the penalty for
a particular crime is imprisonment may be read in conjunction with a general statute allowing
the imposition of a fine, and the fine may be imposed on the corporation in lieu of
imprisonment.

8. Liability under Information Technology Act, 2002

For instance, Section 85(1) of the Information Technology Act, 2000 (IT Act, 2000) provides
that where a person committing a contravention of any of the provisions of this Act or of any
rule, direction or order made there under is a Company, every person who, at the time the
contravention was committed, was in charge of, and was responsible to, the company for the
conduct of business of the company as well as the company, shall be guilty of the
contravention and shall be liable to be proceeded against and punished accordingly. The
proviso to section 85 (1) provides that such person will not be liable for punishment if he
proves that the contravention took place without his knowledge or that he exercised all due
diligence to prevent such contravention. Section 85(2) provides that where a contravention of
any of the provisions of this Act or of any rule, direction or order made there under has been
committed by a company and it is proved that the contravention has taken place with the
consent or connivance of, or is attributable to any neglect on the part of, any director,
manager, secretary or other officer of the company, such director, manager, secretary or other
officer shall also be deemed to be guilty of the contravention and shall be liable to be
proceeded against and punished accordingly

There are certain well-recognised cardinal principles of criminal laws, which need to be
discussed before proceeding further. These are:

(1) The ignorance of law is no excuse,

(2) The presumption of innocence continues until the guilt of the accused is proved,

(3) The guilt of the accused must be proved beyond reasonable doubt,

(4) No person is guilty of an offence unless it is accompanied by both an act/ omission and
the guilty intention for the same,

(5) The law may presume the guilty intention if the commission of the act is proved. This is
known as strict liability offences, and
(6) The law may fix the liability of certain individuals on a notional basis.

9. Conclusion & Suggestions

Today, corporate criminal liability is a subject of concern for a wide range of groups
campaigning on issues including human rights, environment, development and labour.
Corporate crimes committed on all continents across a range of industrial activities in various
sectors (e.g. chemicals, forestry, oil, mining, genetic engineering, nuclear, military, fishing,
etc.) clearly point towards the need for greater control, monitoring and accountability of
corporate activity in a globalised economy.

Corporate criminal liability is complementary to individual liability. The present liability

regime that makes both corporate and individual prosecutions available to regulatory
authorities has undeniable advantages over one that does not. Where crime arises from intra-
organisational defects, the dismissal or discipline of a few individuals is clearly an inadequate
response. Further, where individual liability is difficult to determine, prosecution of the
corporation is an attractive alternative. There are many other situations where the prosecution
of the corporation may be the only way to allocate responsibility for white-collar crime.
Where both a corporation and its officers can be prosecuted, the prosecution of one over the
other, or both, is a matter that is largely left to the discretion of the prosecuting authority. The
prosecutions choice should be aimed at achieving the effective regulation of corporate
activities, as well as the general objectives of sentencing.