Introduction
Recent cases
Comment
Criminal liability presupposes the existence of mens rea (guilty mind) and actus reus (guilty act) - the two essential ingredients of an offence under the Penal Code 1860. Natural persons can be convicted of an offence as they possess mind. However, when an offence has been committed by a company - a legal person - the question arises as to whether the company can be convicted of a criminal offence. The issue has troubled Indian courts, which for a long time were of the view that companies could not be criminally prosecuted for offences requiring mens rea,as they could not possess the requisite mind. The Supreme Court's decisions in Standard Chartered Bank v Directorate of Enforcement and Iridium India Telecom Ltd v Motorola Inc have settled the controversy, holding that corporate bodies can be prosecuted for criminal offences.
The law was unwilling to impose criminal liability on corporate bodies as:
- corporations cannot have the mens rea to commit an offence; and
- corporations cannot be imprisoned.
The Penal Code sets down the kinds of punishment that can be imposed on a convict, including death, life imprisonment, rigorous and simple imprisonment, forfeiture of property and fines. In certain cases, the code mentions only imprisonment - such as the punishment in case of an offence under Section 420, which includes cheating and dishonestly inducing delivery of property. Indian courts were of the view that corporate bodies could not be prosecuted for such crimes as if found guilty of such an offence, they could not be imprisoned.
In Assistant Commissioner, Assessment- II, Bangalore v Velliappa Textiles Ltd a private company was prosecuted for violation of certain sections of the Income Tax Act. Sections 276(C) and 277 of the act provided for a sentence of imprisonment and a fine in the event of violation. The Supreme Court held that the respondent company could not be prosecuted for offences under the act, because each of these sections required the imposition of a mandatory term of imprisonment coupled with a fine. The court held that a corporation did not have a physical body to imprison and therefore could not be sentenced to imprisonment. The court also noted that when interpreting a penal statute, if more than one view is possible, the court is obliged to lean in favour of the construction that exempts an accused from a penalty rather than the one that imposes the penalty.
In Standard Chartered Bank v Directorate of Enforcement the Supreme Court held that:
"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 imprisonment. Corporate bodies undertake activities that affect the life, liberty and property of the citizens. The corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to criminal law is essential for a peaceful society with a stable economy. There is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment and fine."
It was further held that:
"There is no dispute that a company is liable to be prosecuted and punished for criminal offences. Although there are earlier authorities to the effect that corporations cannot commit a crime, the generally accepted modern rule is that except for such crimes as a corporation is held incapable of committing by reason of the fact that they involve personal malicious intent, a corporation may be subject to indictment or other criminal process, although the criminal act is committed through its agents."
In Iridium India Telecom Ltd v Motorola Inc the Supreme Court held that companies and corporate houses can no longer claim immunity from criminal prosecution on the ground that they are incapable of possessing the necessary mens rea for the commission of criminal offences. The court relied on the principle laid down in HL Bolton (Engg) Co Ltd v TJ Graham & Sons:(1)
"A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company."
Based on the aforesaid principle, the Supreme Court further held that:
"A corporation is virtually in the same position as any individual and may be convicted of common law as well as statutory offences including those requiring mens rea. The criminal liability of a corporation would arise when an offence is committed in relation to the business of the corporation by a person or body of persons in control of its affairs. In such circumstances, it would be necessary to ascertain that the degree and control of the person or body of persons is so intense that a corporation may be said to think and act through the person or the body of persons."
In the case of corporate criminal liability, the settled position of law is now that a company is virtually in the same position as any individual and may be convicted of offences including those requiring mens rea. Furthermore, a company cannot escape liability for a criminal offence merely because the punishment prescribed is that of imprisonment and a fine.
For further information on this topic please contact Rohit Jaiswal at Singhania & Partners LLP by telephone (+91 11 4153 1000), fax (+91 11 4153 1001) or email ([email protected]).
Endnotes