This article on ‘Development of Corporate Criminal Liability via Common Law’ was published by Legal Upanishad.
The nexus of this article is the historical emergence of corporate criminal liability into a well-settled legal principle. It will cover the origin of corporate criminal liability, principles of the same, and rulings of Indian courts for the development of corporate criminal liability.
Under Indian law, the basis of criminal liability is based upon “actus non facit reum nisi mens sit rea”. The crime committed by the corporation or members of corporation or association of individual whether incorporated leads to corporate criminal liability.
WHAT IS CORPORATE CRIMINAL LIABILITY?
Corporate Criminal Liability can be defined as an offence that is committed by persons or associations of persons who commit any intentional illegal act for pursuing a similar objective or to have business profit that benefits the corporation or any member of it.
Origin of Corporate Criminal Liability
The concept of corporate criminal liability has evolved in the USA, Canada, and England. In the countries where industrial development was at a slow pace, the development of corporate criminal liability was negligible. Earlier, legal historians believed that crimes can only be committed by individual members of the corporation and not by the entire corporation. This idea existed for years. In 1842, for the first time, a corporation was imposed with a liability of committing a crime by the English Court. The concept has evolved from the common law doctrine of vicarious liability through judicial interpretation of doctrines of common law.
EVOLUTION OF CORPORATE CRIMINAL LIABILITY IN INDIA
Corporate Criminal Liability is a controversial concept that has evolved with developed circumstances of corporate crime by the owner of the corporation over years. It is the basic principle under criminal law that the liability can only be imposed on a living person having its soul and body and there shall be actus reus and mens rea.
Ironically, a corporation does not fall under the basic principle of criminal law and neither be granted imprisonment. But with development, this is becoming an exception because, with a widened scope of corporate criminality, mens rea is attributable to the corporations.
This concept seems to be contradictory to the ultra vires doctrine. A Corporation is restricted from performing such acts which are beyond the scope of the corporation or individuals running the corporation. The English Courts have laid several doctrine principles to affix corporate criminal liabilities that are discussed below:
Principle of Identification
The principle of identification was developed in England which propounds that the acts of individuals dealing with affairs of the corporation and their mind state must associate with the corporation. The crux of this principle is that a corporation does not have its mind as it is a fictitious entity. The theory has been interpreted in the case of
Case: Director of Public Prosecutions v. Kent & Sussex Contractors Lt, (194) 1 All E.R.119
The court observed that the intentions of a company can be formed by the owner of the company and if the head of a company is found guilty, it directly makes a company liable for the offence committed by any of its members, and the intention, as well as knowledge of the head ultimately imposes the same on the company.
The doctrine evolved in the UK. This principle is synonymous with the principle of identification. Under this principle, actions, as well as the mental position of directors of a corporation shall be deemed to be actions and mental position of a corporation.
Principle of Vicarious Liability
This principle is also known as the principle of respondeat superior. The principle evolved in the USA and is a part of Tort law. Under the principle, the accused is held liable for the offence committed by another person. There are certain essentials to be fulfilled for the corporation to be held liable vicariously:
- The act shall be done by the employee within the period of his employment.
- Such an act is done by the employee for the benefit of the corporation. If the act does not benefit the corporation, then the corporation will not be liable.
Principle of Special Vicarious Liability
Are directors of a corporation can be held liable for the offence committed by the third parties i.e. agents of the corporation?
The answer to this question rests on the principle of special vicarious liability. The principle originates from the common law principle. Earlier, there was no such concept of special vicarious liability observed by Indian Courts. But with time, the laws were amended and courts in various judicial interpretations stated that the corporation will be liable for the acts committed by any individual during his employment.
Principle of Alter Ego
The actual owner of the company or any individual at a higher position managing a company is said to be Alter Ego of a company. Under this principle, all such individuals managing the affairs of a company shall be held liable for the act committed for the company’s benefit.
JUDICIAL INTERPRETATION BY INDIAN COURTS UPON CORPORATE CRIMINAL LIABILITY
Corporate Criminal Liability was a new concept included in Indian law. The courts were not observing the idea of corporate crime because of the incapability of corporations to meet the basic principle of criminal liability and impose punishment. Mens Rea developed the concept of corporate criminal liability in the nation. Several judicial interpretations dealing with this issue are mentioned below:
Case: Standard Chartered Bank & Ors v. Directorate of Enforcement, (2005) 4 SCC 530
It is a landmark case that changed the perspective as well as the position of Indian Courts over corporate criminality.
In the case, the company violated certain provisions under Foreign Exchange Regulation Act and was found guilty
Observation of court was, “An act for which punishment under IPC, 1860 is both imprisonment and fine, only the fine can be imposed on the corporation as it is impossible practically to imprison a corporation altogether. It is an unambiguous fact that legislation intends to neglect the corporate criminal liability as under S.11 of IPC 1860, “persons” includes a company, an association of persons incorporated or not.” However, there is no statute exclusively dealing with corporate criminality.
Case: Iridium India Telecom Ltd. Motorola Incorporated and Ors, (2011) 1 SCC 74
An action was brought under S. 420 r.d with S.120B of IPC, 1860. In this case, SC observed that the bodies of corporations capable to commit serious offences cannot be rebutted. The company can be held guilty of the offence and the head of the company can be convicted under common law as well as statutory law.
- New punishments shall be incorporated to deal with corporate criminal liability. For the same, some supplementary court order shall be passed punishing with a fine.
- Apart from fines, for serious offences, strict punishments shall be imposed like the dissolution of a corporation and heavy fines.
- Also, the court shall make an appointment with some professional experts for the assessment of the corporation.
It is finally concluded that over a while the judicial intervention in corporate criminality has extensively evolved. Corporations thus, cannot escape from their criminal liability by taking any defence where men’s rea is involved. In my opinion, the principle of identification is a broader and an accurate theory than the other for determining the discussed concept. Although amendments are needed under punishments.
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