Jurisprudence

assignment

Liability of Corporation

Name- ZIAUL HAQ

B.A., LLB.(H), 5th sem

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 ACKNOWLEDGEMENT

I would like to thank my Jurisprudence teacher Victor Vaibhav

Tandon who gave me the topic ‘Liability of corporation’ for my
assignment, and without whose guidance the completion of this
project would have been difficult.

I also thank my friends who supported me and assisted me

throughout the making of this assignment

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 TABLE OF CASES
1. D.P.P. v. Kent and Sussex Contractors Ltd., [(1944) K.B. 146]
2. R. v. C.R. Haulage Ltd., [(1944) K.B. 551]
3. Moor v. Bresler Ltd., [(1944) 2 All E.R. 515]
4. The Assistant Commissioner, Assessment- II, Bangalore and Ors. v.

Velliappa Textiles Ltd. and Ors [AIR 2004 SC 86]

5. Standard Chartered Bank and Ors. v. Directorate of Enforcement and Ors

[AIR 2005 SC 2622]

6. Tolaram Relumal and Anr. v. The State of Bombay

[MANU/SC/0057/1954]
7. Girdhari Lal Gupta v. D.H. Mehta and Anr. [MANU/SC/0487/1971]
8. State of Rajasthan v. Shamsher Singh, [1985(Supp.) SCC 416]
9. Assn. of Victims of Uphaar Tragedy v. UOI, [ (2003) DLT 234]
10. Campbell v. Paddington Corp., [(1911) 1 K.B. 869]
11. Som Prakash Rekhi v. Union of India, [(1981) SCC 449]

INDEX

Topic Page no.

1. Introduction 5

2. The creation and extinction of corporations 8

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3. The agents, beneficiaries, and members of a corporation 8

4. The Acts and liabilities of a Corporation 10

5. Essential Conditions for corporate criminal liability 13

6. Corporate criminal liability- the Necessity 14

7, Corporate Mens Rea 15

8. Statutory Inadequacy 16

9. Corporate punishment 17

10. En Route new Forms 20

11. Corporate Criminal liability in India 21

12. Liability of Corporation in Contract 22

13. Liability of Corporation in Torts 23

14. Corporation and Fundamental rights 24

15. Conclusion 25

16. Bibliography 27

Introduction

Large-scale corporations are the defining force on the globe. They are
everywhere, in almost every aspect of our lives. Parallel to this subtle and
sometimes not so subtle dominance, corporations have become dangerous

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criminals as well. However, Corporations being non-human entities, their
criminal behaviour is also out of the ordinary.

Corporate criminality “challenges or nags at our sense of reality.” It is this

characteristic that makes corporate crime a tricky issue. The development of
corporate criminal liability has become a problem which a growing number of
prosecutors and courts have to deal with at the present time. In the common law
world, following standing principles in tort law, English courts began
sentencing corporations in the middle of the last century for statutory offenses.
On the other hand, a large number of European continental law countries have
not been able to or not been willing to incorporate the concept of corporate
criminal liability into their legal systems. The fact that crime has shifted from
almost solely individual perpetrators only 150 years ago, to white-collar crimes
on an ever increasing scale has not yet been taken into account in many legal
systems. At the same time, crime has also become increasingly international in
nature.

Corporations are of two kinds, distinguished in English law as

corporations aggregate and corporations sole. “Persons”, says Coke, “are of two
sorts, persons natural created of God...and persons incorporate or politique
created by the policy of man (and therefore they are called bodies politique);

and those be of two sorts, viz., either sole, or aggregate of many.” A corporation
aggregate is an incorporated group of co-existing persons, and a corporation
sole is an incorporated series of successive persons. The former is that which
has several members at a time, while the latter is that which has only one
member at a time. Corporations aggregate are by far the more numerous and
important. Examples are a registered company, consisting of all the
shareholders, and municipal corporation, consisting of the inhabitants of the

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borough. Corporation sole are found only when the successive holders of some
public office are incorporated so as to constitute a single, permanent, and legal
person. The Sovereign, for example, is said to be a corporation of this kind at
common law.

Criminal liability of corporations has become one of the most debated topics of
the 20th century. The debate became especially significant following the 1990s,
when both the United States and Europe have faced an alarming number of
environmental, antitrust, fraud, food and drug, false statements, worker death,
bribery, obstruction of justice, and financial crimes involving corporations.

Criminal Liability is what unlocks the logical structure of the Criminal Law.
Each element of a crime that the prosecutor needs to prove (beyond a
reasonable doubt) is a principle of criminal liability. There are some crimes that
only involve a subset of all the principles of liability, and these are called
“crimes of criminal conduct.”

The main goals of criminal liability of corporations are similar those of

criminal law in general. The first characteristic of corporate criminal
punishment is deterrence—effective prevention of future crimes. The second
consists in retribution and reflects the society’s duty to punish those who inflict
harm in order to “affirm the victim’s real value.” The third goal is the

rehabilitation of corporate criminals. Fourth, corporate criminal liability should

achieve the goals of clarity, predictability, and consistency with the criminal law
principles in general. The fifth goal is efficiency, reflected by the first three
goals mentioned above, but also by the costs of implementing the concept.
Finally, we should not forget the goal of general fairness.

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The question of imposing criminal liability to a corporation for criminal
offences committed by directors, managers, officers and other employees of the
corporation while conducting corporate affairs has gained a lot of importance in
the jurisprudence of criminal law. The very basis for the possibility of imposing
criminal liability to a corporation is its independent legal personality.

Now the question is whether a corporation as an artificial person is capable of

committing a crime and is criminally liable by the law or not. The traditional
view was that a corporation could not be guilty of a crime, because criminal
guilt required intent and a corporation not having a mind could form no intent.
In addition, a corporation had no body that could be imprisoned.

Courts are especially likely to impose criminal liability on a corporation when

the criminal act is requested, authorized, or performed by the board of directors,
an officer or another person having responsibility for formulating company
policy or high level administrator having supervisory responsibility over the
subject matter of the offence and acting within the scope of his employment.

The creation and extinction of corporations

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 The birth and death of legal persons are determined not by nature, but by
the law. They come into existence at the will of the law, and they endure during
its good pleasure. Corporations may be established by royal charter, by statute,
by immemorial custom, and in recent years by agreement of their members
expressed in statutory forms and subject to statutory provisions and limitations.
They are in their own nature capable of infinite duration, this being indeed one
of their chief virtues as compared with humanity, but they are not incapable of
destruction. The extinction of a body corporate is called its dissolution-the
severing of that legal bond by which its members are knit together into a unity.
We have already noticed that a legal person does not of necessity lose its life
with the destruction or disappearance of its corpus or bodily substance. There is
no reason why a corporation should not continue to live, although the last of its
members is dead; and a corporation sole is merely dormant, not extinct, during
the interval between two successive occupants of the office.

The agents, beneficiaries, and members of a corporation

A corporation, having neither soul nor body, cannot act save through the
agency of some representative in the world of real men. For the same reason it
can have no interests, save those which are attributed to it as a trustee for or
otherwise on behalf of actual human beings. Whatever a company is reputed to
do in law is done in fact by the directors or the shareholders as its agents and
representatives. Whatever interests, rights, or property it possesses in law are in

fact those of its shareholders, and are held by it for their benefit. Every legal
person, therefore, has corresponding to it in the world of natural persons certain
agents or representatives by whom it acts, and certain beneficiaries on whose

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behalf it exists and fulfils it functions. Its representatives may or may not be
different persons from its beneficiaries, for these two capacities may or may not
be united in the same individuals. The shareholders of a company are not
merely the persons for whose benefit it exists; they are also those by whom it
acts. In the case of a corporation established for charitable purposes it is
otherwise, for the beneficiaries may have no share whatever in the management
of its affairs.

The representatives and beneficiaries of a corporation must not be

confounded with its members. These last are, as we have seen, the individuals
who from the group or series personified by the law, and who so constitute the
corpus or body of the legal person thus created. Membership of a corporation
does not in itself affect in any affect in any way the rights or liabilities of the
members, for it is nothing more than a matter of form. A man’s privileges and
responsibilities in respect of a corporation depend on whether he is one of its
representatives or beneficiaries, not on whether he is formally accounted by the
law as one of its members. Municipal corporations are constituted by the
incorporation of the inhabitants of boroughs; but if by statute it were declared
that they consist for the future of the mayor, aldermen, and councillors, the
change would not affect the rights, powers, or liabilities of any human being.

It is worth notice that some or all of the members of a corporation may

be corporations themselves. There is nothing to prevent the shares of a company

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from being held by other companies. In this case the idea of incorporation is
duplicated, and the law creates a legal person by the personification of a group
of persons who themselves possess a merely legal personality.

The acts and liabilities of a corporation

When a natural person acts by an agent, the authority of the agent is

conferred, and its limits are determined, by the will and consent of the principal.
In general only those acts of the agent are imputed by the law to the principal,
which are within the limits of the agent’s authority as thus created and
circumscribed. But in the case of a corporation it is necessarily otherwise. A
legal person is as incapable of conferring authority upon an agent to act on its
behalf as of doing the act in propria persona. The authority of the agents and
representatives of a corporation is therefore conferred, limited, and determined,
not by the will of the principal, but either by (1) the wills of some human beings
who are for this purpose identified in law with the corporation, or by (2) the law
itself. A good illustration of (1) is afforded by companies incorporated under the
Companies Acts. The first directors may be appointed by or in accordance with
the articles of association, which may be drawn up by the promoters of the
company; or they may be appointed at a meeting of the shareholders. The
volition of the promoters, or of the persons empowered to appoint directors by
the articles, or of the shareholders, is therefore the volition of the company for
this purpose. When the directors are appointed they are themselves regarded for
many purposes as the alter ego of the company, and their wills are, within the
limits of the rules of law, regarded as the will of the company.

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 Speaking generally, we may say that such corporations can do those things
only which are incidental to the fulfilment of the purposes for which the law
created it. All its acts must be directed to its legally appointed end. Thus a
company incorporated by special statute and those reasonably incidental thereto.
The memorandum of association of a company registered under the Companies
Acts must set forth the purposes for which it is established; and even the
unanimous consent of the whole body of shareholders cannot effectively enable
the company to act beyond the limits so marked out for its activity.

It is well settled in the law of England that a corporation may be held

liable for wrongful acts, and that this liability extends even to those cases in
which malice, fraud, or other wrongful motive or intent is a necessary element.
A company may be sued for libel, malicious prosecution, or deceit. Nor is this
responsibility civil only. Corporations, no less than men, are within reach of the
arm of the criminal law. They may be indicted or otherwise prosecuted for a
breach of their statutory or common law duties, and punished by way of fine
and forfeiture.

A more serious difficulty in imposing liability upon bodies corporate

arises from the following consideration. The wrongful acts so attributed by the
law to legal persons are in reality the acts of their agents. Expect possibly in the
case of chartered corporations, the limits of the authority of those agents are
determined by the law itself, and that acts beyond those limits will not be
deemed in law to be the acts of the corporation. In the first place, it may be said

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that the argument does not extend to wrongful acts of omission, for these are
doen by the body politic in person, and not merely by its representatives. No
legal person can do in person what by law it ought. And in the second place, the
liability of a corporation for the acts of its representatives is a perfectly logical
application of the law as to an employer’s liability for his servants. The
responsibility of a master does not depend on any authority given to his servant
to commit the wrongful act. It is the outcome of an absolute rule of law that the
employer is himself answerable for all wrongs committed by his servant in the
course and process of doing that which he is employed to do. I am liable for the
negligence of my servant in driving my carriage, not because I authorised him
to be negligent, but because I authorised him to drive the carriage. So in the
case of the agents of a corporation: the law imputes to the corporation not only
all acts which its agents are lawfully authorised to do, but all unlawful acts
which they do in or about the business so authorised. The corporation is
responsible not only for what its agents do, being thereunto lawfully authorised,
but also for the manner in which they do it. If its agents do negligently or
fraudulently that which they might have done lawfully and with authority, the
law will hold the corporation answerable. This justification, however, applies
only in the law of tort. In general the criminal law knows no such doctrine as
respondent superior, and the criminal liability of corporations must therefore be
looked upon as exceptional.

But thirdly, the difficulty arises from a misunderstanding. When the law
creates legal persons by bestowing upon them rights and duties, it can perfectly
reasonably provide that where those person’s agents overstep the powers
allowed by law their acts should count as ultra vires and fail to achieve their

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objective. As a result of such a provision the corporation and its beneficiaries
will derive no benefit or advantage from such acts. But, as we saw, the law
could provide otherwise; and no rule of logic prevents it from dispensing with
the ultra vires doctrine in the case of a corporation’s liabilities. If the
consequence the law lacks symmetry and consistency, we should remember that
symmetry is not a necessary feature of law nor yet its sole objective. And in any
case the reasons behind the rules are different in the two cases: it is only
reasonable that the beneficiaries of a corporation should derive no gain if the
corporation does something not allowed by the law, yet equally reasonable that
a corporation should be liable, like any other employer, for the injurious act of
its servants or agents.

ESSENTIAL CONDITIONS FOR CORPORATE

CRIMINAL LIABILITY

Criminal liability of corporations has been the subject of vigorous debates

for the last century. International congresses, studies, articles, and notes have
addressed this issue and have been the ground for doctrinal confrontations
among the partisans and adversaries of this concept. Every element of corporate
criminal liability has been discussed, attacked, or defended. Most of the
arguments were built on the principle societas delinquere non potest and on the
belief that alternative forms of liability (like civil or administrative liability of
corporations or criminal liability of individuals acting for the corporation) are
superior to corporate criminal liability. In the following subsections I will show
how different countries have responded to these arguments, and the basic
elements of corporate criminal liability which vary from country to country.

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First, it must be determined what entities can be held criminally liable. Second, l
find out for what crimes corporations can be held criminally liable. Third, learn
what individuals, by what kind of act, and with what state of mind, can induce
the criminal liability of corporations. Finally, presentation of the criminal
sanctions available for corporate crimes and the alternatives to corporate
criminal liability.

In D.P.P. v. Kent and Sussex Contractors Ltd.1, the manager of the

company had sent in false returns for the purpose of obtaining petrol coupons.
The Court held the company liable and said that through its manager the
company committed the offence.

In R. v. C.R. Haulage Ltd.2, a company was held liable for conspiracy

to defraud. Its managing directors and some others had conspired to practice
fraud upon another company.

In Moor v. Bresler Ltd.3, the company was held guilty for the criminal act
of its secretary.

1 (1944) K.B. 146

2 (1944) K.B. 551
3 (1944) 2 All E.R. 515

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Corporate Criminal Liability - The Necessity:

. In the modern day world, the strong effect of activities of corporations is

incredible on the society. In the day to day activities, not only do the
corporations affect the lives of the people as a blessing but also many a times
proves disastrous which then falls under the category of crimes. For instance,
the Uphar Cinema tragedy or thousands of scandals especially the white collar
and organized crimes can come within the category that requires immediate
concern. Despite so many disasters, the law was unwilling to impose criminal
liability upon corporations for a long time. This was for basically two reasons
that are:

# That corporations cannot have the mens rea or the guilty mind to commit an
offence; and
# that corporations cannot be imprisoned.
These two obstacles were managed to survive till late 20th and very early 21st
century. The general belief in the early 16th and 17th centuries was that
corporations could not be held criminally liable. In the early 1700s, corporate
criminal liability faced at least four obstacles, i.e.

Firstly, attributing acts to a juristic fiction, the corporation. Eighteenth-century

courts and legal thinkers approached corporate liability with an obsessive focus
on theories of corporate personality; a more pragmatic approach was not
developed until the twentieth century.
Secondly, the legal thinkers did not believe corporations could possess the
moral blameworthiness necessary to commit crimes of intent

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Thirdly, the ultra vires doctrine, under which courts would not hold
corporations accountable for acts, such as crimes, that were not provided for in
their charters.
Finally, the fourth obstacle was court’s literal understanding of criminal
procedure; for example, judges required the accused to be brought physically
before the court.

Corporate mens rea

Courts in United States were slow to extend corporate criminal liability to

crimes of intent and the process in India was even slower. Now, it is well settled
that a corporate can be held liable for committing offences that require mens rea
as now it has been recognized that a corporate can have a mens rea.

Generally, corporations may be held criminally responsible for the illegal acts of
its employees if such acts are related to and committed within the course of
employment, committed in furtherance of the business of the corporation and its
imbibed culture; for example, if the corporate structure is so organized as to
deprive senior managers of the information they need to exercise such powers,
this would indicate a corporate culture that is designed to elude law
enforcement. Generally, deficient structures for the dissemination of
information within the firm would also be suspect. Moreover, in organized
crime networks, the culture and the objective of the corporation in itself is to
commit crimes, authorized or acquiesced in by the corporation. In these cases,
the corporate itself authorizes and sometimes directs its employees to enter into
unethical business practices which are sanctioned by the organization structure

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like in case of recovery wherein hiring of antisocial elements is directed many a
times.

Hence, there is no obstacle in the criminal law jurisprudence whatsoever to

impose criminal sanction on a corporation since it can have a mind of its own
and also an environment wherein crime is nurtured. However, this concept still
not contemplated in the statutes in India.

Statutory Inadequacy:
This developed jurisprudence does not find a place in the Indian statues as they
still make only the officials responsible for the act criminally liable and not the
corporate itself. Instances of this are:
Sections. 45, 63, 68, 70(5), 203, etc of the Indian Companies Act wherein only
the officials of the company are held liable and not the company itself; it is also
reflected through the Takeover Code. The various sections of the IPC that direct
compulsory imprisonment does not take a corporate into account since such a
sanction cannot work against the corporation.

These are the major statutes in their respective field that are devoid of necessary
legal aspects. On the other hand, law has also developed to an extent with
regard to certain other statutes and their respective penal provisions wherein a
fine has been imposed on the corporations when they are found to be guilty.
Some such examples are:

Section 141 of the Negotiable Instruments Act, 1862[33]

Section 7, Essential Commodities Act[34]
Section 276-B of the Income Tax Act[35]
The statutes mentioned in the first point need to be amended soon to include

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corporate criminal liability and not merely restricting criminal liability to its
personnel.

Corporate Punishment

In India, certain statutes like the Indian Penal Code talk about kinds of
punishments that can be imposed upon the convict and as per Section 53 include
death, life imprisonment, rigorous and simple imprisonment, forfeiture of
property and fine. In certain cases the sections speak only of imprisonment as a
punishment like in case of offence under Section 420. Thus the problem arises
as to how to apply those sections on the companies since a criminal statute
needs to be strictly interpreted and in such statutes there is no scope for
corporations to be imprisoned.

Going with the above viewpoint and with the growing trend of corporate
criminality, the Courts in India have finally recognized that a corporation can
have a guilty mind but still were reluctant to punish them since the criminal law
in India does not allow this action

In The Assistant Commissioner, Assessment- II, Bangalore and Ors. v. Velliappa

Textiles Ltd. and Ors.4, B.N. Srikrishna J. said that corporate criminal liability
cannot be imposed without making corresponding legislative changes. For
example, the imposition of fine in lieu of imprisonment is required to be
introduced in many sections of the penal statutes. The Court was of the view
that the company could be prosecuted for an offence involving rupees one

4 AIR 2004 SC 86

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lakh or less and be punished as the option is given to the court to impose a
sentence of imprisonment or fine, whereas in the case of an offence involving
an amount or value exceeding rupees one lakh, the court is not given a
discretion to impose imprisonment or fine and therefore, the company cannot be
prosecuted as the custodial sentence cannot be imposed on it.

The legal difficulty arising out of the above situation was noticed by the Law
Commission and in its 41st Report, the Law Commission suggested amendment
to Section 62 of the Indian Penal Code by adding the following lines:
“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.”

As per the jurisprudence evolved till then, under the present Indian law it is
difficult to impose fine in lieu of imprisonment though the definition of ‘person’
in the Indian Penal Code Includes ‘company.’ It is also worthwhile to mention
that our Parliament has also understood this problem and proposed to amend the
IPC in this regard by including fine as an alternate to imprisonment where
corporations are involved in 1972. However, the Bill was not passed but lapsed.
Such a fundamental change in the criminal jurisprudence is a legislative
function and hence the Parliament should perform it as soon as possible by also
considering the following arguments that the author has brought about.

However, the Apex Court later overruled this decision in Standard Chartered
Bank and Ors. v. Directorate of Enforcement and Ors5 on account of providing
complete justice to the aggrieved which could not be prejudiced in the garb of
corporate personality. In this case, the Court did not go by the literal and strict

5 AIR 2005 SC 2622

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interpretation rule required to be done for the penal statutes and went on to
provide complete justice thereby imposing fine on the corporate.

The Court looked into the interpretation rule that that all penal statutes are to be
strictly construed in the sense that the Court must see that the thing charged as
an offence is within the plain meaning of the words used and must not strain the
words on any notion that there has been a slip that the thing is so clearly within
the mischief that it must have been intended to be included and would have
included if thought of.6

Simultaneously, it also considered the legislative intent and held that all penal
provisions like all other statutes are to be fairly construed according to the
legislative intent as expressed in the enactment. It was of the view that here, the
legislative intent to prosecute corporate bodies for the offence committed by
them is clear and explicit and the statute never intended to exonerate them from
being prosecuted. It is sheer violence to commonsense that the legislature
intended to punish the corporate bodies for minor and silly offences and
extended immunity of prosecution to major and grave economic crimes. If an
enactment requires what is legally impossible it will be presumed that
Parliament intended it to be modified so as to remove the impossibility element.
These Courts have applied the doctrine of impossibility of performance [Lex
non cogit ad impossibilia] in numerous cases including the aforementioned.7

Finally, the Court decided that as the company cannot be sentenced to

imprisonment, the court cannot impose that punishment, but when
imprisonment and fine is the prescribed punishment the court can impose the
punishment of fine which could be enforced against the company. Such

6 Tolaram Relumal and Anr. v. The State of Bombay MANU/SC/0057/1954 and Girdhari Lal Gupta v. D.H. Mehta
and Anr. MANU/SC/0487/1971
7 State of Rajasthan v. Shamsher Singh, 1985(Supp.) SCC 416

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discretion is to be read into the section so far as the juristic person is concerned.
Of course, the court cannot exercise the same discretion as regards a natural
person. Then the court would not be passing the sentence in accordance with
law. As regards company, the court can always impose a sentence of fine and
the sentence of imprisonment can be ignored as it is impossible to be carried out
in respect of a company. This appears to be the intention of the legislature and
we find no difficulty in construing the statute in such a way. We do not think
that there is blanket immunity for any company from any prosecution for
serious offences merely because the prosecution would ultimately entail a
sentence of mandatory imprisonment.

The well known maxim ‘judicis est just dicere, non dare’ best expounds the role
of the court. It is to interpret the law, not to make it. This read with the Doctrine
of Separation of Powers has bound the Court’s hands in imposing various kinds
of punishments and all that it is left with is to impose fines. In order to avoid
compelling the Courts to go out of the statute and interpret and therefore define
the law which is essentially the task of the legislature, it is advised that the
legislature amends the various penal statutes in a way so as to bring in various
forms of punishments for the corporations as well, thereby maintaining the
separation of powers regime and hence the rule of law.

En route for new forms

Presently, all the penal provisions of various statutes include only fine as a form
of punishment that can be imposed on a company. So is the case with judicial
pronouncements on the aspect of sentencing. In addition to this, the Law
Commission in its 41st Report also speaks of introducing only fine as an

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additional punishment to be imposed upon corporations in lieu of fines. This
restrictive thinking, according to Courts is based on the maxim lex non cogit ad
impossibilia, which tells us that law does not contemplate something which
cannot be done. This reasoning in itself shows that the law lacks in a non
holistic viewpoint in the concept of corporate criminal liability. The Courts have
no doubt been efficient in evolving the concept of criminal liability of corporate
and have imposed the same on the convicts but the only way of punishing them
that has been thought of is by way of fines. It is now for the legislature to evolve
new forms of punishments and incorporate them in the criminal justice system
of the land.

Corporate Criminal Liability In India

Criminal Liability is attached only those acts in which there is violation of

Criminal Law i.e. to say there cannot be liability without a criminal law which
prohibits certain acts or omissions. The basic rule of criminal liability revolves
around the basic Latin maxim actus non facit reum, nisi mens sit rea. It means
that to make one liable it must be shown that act or omission has been done
which was forbidden by law and has been done with guilty mind.

Hence every crime has two elements one physical known as actus reus and
other mental known as mens rea. This is the rule of criminal liability in
technical sense but in general the principle upon which responsibility is
premised is autonomy of the individual, which states that the imposition of
responsibility upon an individual flows naturally from the freedom to make
rational choices about actions and behaviour.8

8 Assn. of Victims of Uphaar Tragedy v. UOI, 104 (2003) DLT 234

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Although the general rule as stated above is applicable to all criminal cases but
the criminal law jurisprudence has seen one exception to the above said concept
in form of doctrine of strict liability in which one may be made liable in absence
of any guilty state of mind. This happens in cases of mass destructions through
pollution, gross negligence of the company resulting in widespread damages
like in the Bhopal Gas tragedy, etc.

Hence, there can be no dispute of imposing criminal liability on corporations as

regards no mens rea requiring offences but however, it used to come to be
questioned before the Chartered Bank judgement when mens rea was
concerned.

Liability of Corporations in Contract

For entering into a contract two things are of vital importance, i.e., the
form of the contract and the capacity of the parties. A corporation has no
material existence; therefore, it always acts through its agents. It signifies its
assent through its seal. Therefore, the presence of the seal is considered as the
evidence of the assent of the body corporate. Subject to certain exceptions, this
is the general rule. The form of the contract is same in every case, whether the
parties are the natural persons or one or both parties are corporations. So far as
the capacity of a corporation to enter into a contract is concerned, in England, it
depends upon the source of the creation of the corporation. They are created
either by character, or by a statute. In common law a corporation created by a
Royal Charter can bind itself and can deal with its property in the same manner
as a natural person. The power of a corporation, created by a statute to enter into

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a contract is limited to what the statute grants. “Thus a company incorporated
under the Companies Act is limited in its capacity to the objects set out in its
memorandum of association. Any contract made beyond memorandum is ultra
vires and void, although it is agreed upon by all the members unanimously.
Such act (contract) is incapable of ratification. Such a limitation upon a
corporation’s power to contract has been criticised by the jurists. However, in
modern times, the rule is not working as a great impediment upon corporation’s
power because memorandum is drafted very comprehensively. In India, there is
no common law, therefore, the power of corporation to enter into a contract
depends upon the statute.

Liability of corporations in Torts

A corporation acts always through its agents. Therefore, liability of a

corporation for the torts is based on the principle of vicarious liability. A
corporation is liable for the acts of its servants done in course of employment.
But this rule applies only for those acts which are intra vires the corporation.
The difficulty arises in determining the liability for the acts which are ultra
vires. “The strict view of English law is that if a tram company has no power to
run buses, then any bus drivers engaged are not in law the servants of the
Company, and therefore the company is not liable for their torts.” Such acts are
divided into two classes- the acts done under the express authority of the
corporation and acts done without any authority. As far as the acts done without
any authority from the corporation are concerned, the corporation is not liable
for these acts. About the liability for acts done with the authority of the
corporation, there is a difference of opinion. Goodhart’s view is that the

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corporation is liable. In America, this view has been rejected. Winfield says that
the corporation is liable as a joint tortfeasor. A decided case on the point is
Campbell v. Paddington Corp.9 in which it has been held that the corporation is
liable.

Corporation and Fundamental Rights

Any company or society, if it is a Government company or society, is

subject to Fundamental Rights in Part III of the Indian Constitution. It has been
observed:

“Corporations are one species of legal persons invented by the law and
invested with the varieties so as to achieve certain purposes sanctioned by the
law. The characteristics of corporations, their rights and liabilities, functional
autonomy and jurstic status are jurisprudentially recognized as of a distinct
entity even where such corporations are State agencies of instrumentalities. But
merely because a company or other legal person has functional and jural
individuality for certain purposes and in certain areas of law, it does not
necessarily follow that for the effective enforcement of fundamental rights under
our constitutional scheme, the court should not scan the real character of the
entity; and if it is found to be controlled by the State and in effect an
incarnation of the State, constitutional lawyers must not blink at these facts and
frustrate the enforcement of fundamental rights despite the inclusive definition
of Article 12 that any authority controlled by the Government of India is itself a
State.”10

9 (1911) 1 K.B. 869

10 Som Prakash Rekhi v. Union of India, (1981) SCC 449

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Conclusion
“Corporate bodies reap all the advantages flowing from the acts of the directors
and they act to the detriment of the public in the name of the corporate bodies.”
From the above analysis, it is clear that ‘corporate criminal liability’ is not an
alien term. This category of liability existed since time immemorial. However,
the legislature kept its mouth shut when the question of imposing punishment
arose with respect of corporate liability. With the evolution of various theories,
the most vital issue with regard to corporate criminal liability settled i.e., the
issue of mens rea. Concept of vicarious and strict liability is an important aspect
of corporate criminal liability.

Several countries were, and some still are refusing to accept the concept of
corporate criminal liability due to doctrinal, political, and historical reasons. Out
of those formerly refusing to accept this concept, some started to slowly change
their views. Why now? What has changed? The realities of our times have been
changing so much that legislatures have realized that doctrinal issues are less
important than the prevention and appropriate punishment of large-scale white-
collar crimes, money-laundering, illegal arms sales, environmental harm,
product liability, and many others. Some of the countries that have newly
introduced the corporate criminal liability in their legal systems provide for
restrictive systems of engaging liability and punishing criminal activities of
corporations. That might be because they are apprehensive of rapid and extreme
changes in a short period of time. Or maybe the realities of their societies are
not sufficiently pressuring; the historical, social, economic, and political realties
differ from country to country, and these differences have a strong influence on
the legal systems. Also, the influence of the interests of powerful corporations

26
should not be ignored. Hopefully, all the legal systems will achieve uniformity
regarding this issue.

The criminal law jurisprudence relating to imposition of criminal liability on

corporations is settled on the point that the corporations can commit crimes and
hence be made criminally liable. However, the statutes in India are not in pace
with these developments and the above analysis shows that they do not make
corporations criminally liable and even if they do so, the statutes and judicial
interpretations impose no other punishments except for fines. Apart from fines,
punishments such as winding up of the company, temporary closure of the
corporation, heavy compensation to the victims, by stepping on the weakness of
the corporation i.e., its goodwill, etc. Such means of punishment would have a
deterrent effect on the corporate and the sole aim of punishment under criminal
jurisprudence would be achieved.

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Bibliography

1. R W M Dias, Jurisprudence, 5th Edition, 1994, Aditya Books Pvt. Ltd.

2. Prof. Nomita Aggarwal, Jurisprudence (Legal Theory), 8th Edition, 2010,

Central Law Publications

3. P J Fitzgerald, Salmond on Jurisprudence, 12th Edition, 2010, Universal Law

Publishing Co. Pvt. Ltd.

4. Dr. B.N. Mani Tripathi, Jurisprudence (Legal Theory), 18th Edition, 2010,
Allahabad Law Agency

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