DR.

RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY, LUCKNOW

INDIAN PENAL CODE-I

FINAL DRAFT

TOPIC: CORPORATE CRIMINAL LIABILITY

Submitted to- Submitted by-

Mr. Malay Pandey Tulika Gupta

Assistant Professor of Law, Roll no.-180101150

Dr. Ram Manohar Lohiya National law B.A.LL.B. (Hons.) 2nd year

University, Lucknow IV Semester

ACKNOWLEDGEMENT

“Words can never convey what deeds have done.”

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Writing a project is never a single man’s job. I am overwhelmed in all humbleness and
grateful to acknowledge my depth to all those who have helped me to put ideas, well above
the level of simplicity and into something concrete.

I am very thankful to my constitutional law professor Mr. Malay Pandey and Mr. K.A.
Pandey for their valuable help. They were always there to show the right track when I needed
their help. With the help of their valuable suggestions, guidance and encouragement, I was
able to complete this project. I would also like to thank my friends, who often helped and
gave me support at critical junctures during the making of this project.

I hope you will appreciate the hard work that I have put in this project.

TABLE OF CONTENTS

ACKNOWLEDGEMENT.........................................................................................................2

INTRODUCTION......................................................................................................................3

EVOLUTION OF DOCTRINE OF CORPORATE CRIMINAL LIABILITY.........................5

ESSENTIAL REQUIREMENTS FOR ESTABLISHING THE CRIMINAL LIABILITY OF

CORPORATIONS.....................................................................................................................7

TESTS TO DETERMINE THE CORPORATE CRRIMINAL LIABILITY............................7

NORMATIVE RECOGNITION OF CORPORATE CRIMINAL LIABILITY IN INDIA:

THE COMPANIES ACT, 2013.................................................................................................8

TOWARDS NEW FORMS.....................................................................................................10

CONCLUSION........................................................................................................................13

REFERENCES.........................................................................................................................14

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 INTRODUCTION

A Corporation is a separate legal entity, which is established through some process of

registration and legislation. Apart from shareholders, even corporation has separate rights and
liabilities. There are some corporations, who have facilities and assets in other countries from
that of their own country. These corporations are known as Multi - national Corporations.
These multinational corporations play a vital role in the human life day to day. Over years
this has gained so much power that it has even been compared to the entire nations.
Therefore, it is of paramount importance to impose some kind of accountability and control
over these corporations. The Doctrine of Corporate Criminal Liability is one essential
superior doctrine, imported into criminal law from tort law. According to this doctrine, a
Corporation is liable and can be convicted for any of the unlawful acts of its agents, provided,
agents act within the scope of their actual and apparent authority. The authority presumed by
the agents to have by an average reasonable person is the apparent authority, and on the other
hand, the authority which the corporation itself assigns to its agents is the actual authority. In
case, if any, coherent kinship is being established between the criminal conduct of the agent
and the corporate, then the corporation is held criminally liable for the employee’s conduct.
“A company can only act through human beings and a human being who commits an offence
on account of or for the benefit of a company will be responsible for that offence himself.
The importance of incorporation is that it makes the company itself liable in certain
circumstances, as well as the human beings” – this is proposed by Glanville Williams.
Corporations to have their own entity, that is, separate legal entity from their members is very
much sufficient to held them liable. Criminal liability means legally accountable or
responsible to the society for any criminal act done, enforceable by punishment. Similarly,
corporate criminal liability is the doctrine under which a corporate is liable for the act done
by it, that is, its agents. It defines the extent to which it can be made liable for its acts or
omissions. The expansion of corporate sector through globalisation, information and
technological development has led to the development of doctrine of Corporate Criminal
Liability. Once there was a time when there were no criminal liabilities over companies, but
today the world has come to a situation where corporates are held liable for their crimes. The
Criminal liability of the Corporation is decided on the basis of the extent to which it can be

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held responsible for the wrongs of its employees or agents. Nowadays, Corporations have
become an intrinsic part of the society. Further, with various development they have gained
International Journal of Pure and Applied Mathematics Special Issue 88 significant role in
our economy, which means there is a threat to the society of being victimised by these
corporations and therefore they should be deterred. Imposition of punishment is only for the
offence under criminal but deterrence is the principle applied for economic entities like
corporations.

EVOLUTION OF DOCTRINE OF CORPORATE CRIMINAL LIABILITY

In the eye of law, the Corporations and the members representing it are treated in a separate
manner. A Corporation is a separate legal entity. It is established through a process of
registration and legislation. Compared to the individuals, corporations have become
dangerous criminals. But there is no proper method to punish the crimes of these
corporations. The intention to commit criminal act of the corporation was unable to be
proved, a corporation cannot be imprisoned and the last problem is, in every case the court
asks the offender to be physically present during the hearing but a corporation cannot be
produced. Therefore, similar to shareholders, even corporations are imposed with separate
rights and liabilities. Various theories have been proposed by the Common law to determine
the Corporate Criminal Liability. Among the theories, the doctrine of Vicarious Liability
under tort law was said to be best, which says that corporations would be made liable for the
tort committed by its workers. But there raised a problem in making the corporations liable
under the tort law, because in India, there is a separate source for punishing criminal acts i.e.,
Indian Penal Code. Under Section 11 of IPC, company is also included in the definition of the
term “person‟ (Corporate criminal liability). Therefore, in case corporation commits any
crime it can be punished under IPC. But, before that certain factors are to be considered. A
corporation cannot be punished for acts like rape because the only punishment for that crime
is, imprisonment. Mostly, the punishment imposed on corporations are both imprisonment
and fine. In the landmark case of Assistant Commissioner vs. Velliappa Textiles Ltd 1, the
Supreme Court held that, in case Corporation cannot be imprisoned, they can also be not

1
Assistant Commissioner v. Velliappa Textiles, (2003) 11 SCC 405.

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prosecuted for the offence that is punished with imprisonment under IPC. The other opposing
this statement held that, while deciding a case, the judge should, first, identify whether the
accused is guilty or not and second, should award him with the punishment that is prescribed
for the offence he committed. And he further stated that, Corporations have become lethargic,
thinking that, being a juristic person, they cannot be punished easily and sent to jail,
therefore, they commit so many crimes during the course of the employment. There are so
many examples to this. It would be unfair on the part of the judiciary to allow a corporation
freely without any liability. Taking into account all these, the judge finally held that,
corporations should be made criminally liable for the crimes they commit. The case of
Standard Chartered Bank vs. Directorate of Enforcement 2 overruled the Velliappa case and
stated that, a Corporation cannot be let free merely because it imposes imprisonment for its
criminal act. In case where, it imposes imprisonment, it should be punished with fine. In
Iridium India Ltd. Vs. Motorola Incorporated3, it was explicitly held that the corporations are
punished under both common law and statutory law similar to an individual. It is because, a
corporation is controlled and managed by a person. It acts through a person. Therefore, a
court should punish a corporation with such punishment, which it would have given to a
person on commission of such offence. Even, if corporation cannot be punished for certain
acts, the authority acting on behalf of it is punished. This is clearly elaborated in the
important case of, U. P. Pollution Control Board vs. Modi Distillery 4, where an industry
discharged its wastes in the nearby drain. This act is in breach of the Water (Prevention and
Control of Pollution) Act 1974. The court held that, the authority responsible for this act of
the firm will be prosecuted and punished, even if the company cannot be prosecuted. The IPC
has other more provisions to charge corporations for joint liability, criminal conspiracy,
aiding and abetting illegal activities etc. This doctrine has gained more importance in the
modern world. This was supported by the case of Anil Hada vs. Indian Acrylic Ltd 5. But this
case was overruled by the case of Aneeta vs. M/s Godfather Travels &Tours 6. In this case, the
Supreme Court stated that, in case company is viewed as criminal, the prosecution against the
employees or employer of the company is not maintained. Vicarious liability exists only
when there is any prosecution against the firm (Multidimensional aspect of corporate
Criminal liability: An Indian Perspective). For the applicability of the doctrine of Corporate

2
Standard Bank and Ors. v. Directorate of Enforcement and Ors., AIR 2005 SC 2622.
3
Iridium Telecom Ltd v. Motorola Incorporated Co., (2011) 1 SCC 74.
4
U. P. Pollution Control Board vs. Modi Distillery, (1944) 1 All E.R. 691.
5
Anil Hada vs. Indian Acrylic Ltd, 1999 Supp (5) SCR 6.
6
Aneeta vs. M/s Godfather Travels &Tours,2012 5 SCC 661.

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 Criminal Liability, the criminal act of the employer or employee must be committed with the
intention of benefitting the corporation in some manner and be committed with the intention
of increasing their own personal gain, this conduct ultimately ends up benefitting the
corporation.

ESSENTIAL REQUIREMENTS FOR ESTABLISHING THE CRIMINAL LIABILITY OF

CORPORATIONS

There are some necessary elements which must exist in order to impose criminal liability on a
corporation. These are as under:

a) The intended act must be within the scope of employment: The first requirement that
must be met is that the employee committing the offence must act within the course of
his employment. He must be performing activities authorized by his company.
b) The act must be benefiting the corporation: The second element is that the employee
behaviour or act must benefit the corporation. It is extremely irrelevant that an
employee commits an act selflessly with no intent to make any personal gain or
benefit.

TESTS TO DETERMINE THE CORPORATE CRRIMINAL LIABILITY

IDENTIFICATION TEST:

In Tesco Supermarkets Ltd v. Nattrass7 Lord Reid said: “The person who acts is not speaking
or acting for the company. He is acting as the company and his mind which directs his acts is
the mind of the company. If it is a guilty mind then that guilt is the guilt of the company.”
This test is also known as alter ego test and also as directing mind and will theory. This test is
applied in the English courts for identification or controlling and directing mind of the
company in order to determine the criminal liability of corporations.

AGGREGATION TEST:

7
Tesco Supermarkets Ltd v. Nattrass, [1972] AC 153.

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There may be cases where a corporate wrong may be the result of a combination of guilty
mind of many persons. By aggregating the acts of two or more persons, the actus reus and
mens rea can be taken out of the conduct and knowledge of several individuals. In United
States v. Bank of New England8, the court of appeals confirmed that a collective knowledge
is appropriate because corporations would divide duties and avoid liabilities. This test has
been applied in Australia but is rejected in England.

RESPONDEAT SUPERIOR TEST:

The courts have provided various reasons to justify corporation’s liability for the acts of
agents. A corporation can be held liable for the acts of its agents:

a) commit a crime
b) within the scope of employment
c) with the intent to benefit the corporation.

This was clearly held in United States v. A. P Trucking Co.9

NORMATIVE RECOGNITION OF CORPORATE CRIMINAL LIABILITY IN INDIA:

THE COMPANIES ACT, 2013

The Companies Act, 2013 India’s legal governance atmosphere is evolving just like its
understanding of corporate criminal liability. The Companies Act, 2013 is one good example
of the same. The law has been reformed considerably to control and deter corporate frauds
and standardize governance process more effectively. There are clear provisions under this
Act dealing with frequent corporate crimes like fraud, cheating etc. The Act controls frauds
and deters their recurrence by bringing in more accountability and responsibility upon
independent directors, auditors etc. they are the watchdogs to ensure company’s compliance
to The Companies Act and other such legal provisions of the law. The Act also prescribes
personal liabilities upon Key personnel, auditors, employees etc.10

The present Act has received appreciations from industry experts and legal fraternity alike
because it is not only comprehensive but is also strict with practical penalties effective in
controlling frauds. Collectively it can be said that India’s legal system is evolving and
8
United States v. Bank of New England, (1987) 821 F2d 844.
9
United States v. A. P Trucking Co., 358 US 121.
10
Chopra, Rajiv, Companies Act, 2013: An Analysis Of Key Rules, 5 (7) International Research Journal of
Management (2014).

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adopting towards the rising need for curbing and controlling multidimensional nature of
corporate crimes.

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Punishment for Corporate Fraud

Section 447 of Companies Act defines fraud as an act of omission or commission leading to
consequences against the interest the company misusing or abusing his/ her authority by
virtue of his position. According to this Act, fraud is an offence punishable by imprisonment
not less than six months and can go up to maximum of ten years. The provision for fine
cannot be less than the amount of fraud and may extend up to three times the fraud amount.
The Act has been effective in controlling corporate crimes and frauds. The Report of the
Companies Law Committee11 received suggestions that the ambit of Section 44712 was too
broad and would result in minor infractions being punished with severe penalties, which are
non-compoundable. However, it was also suggested during the discussions that once the
offence of fraud is established, it would not be tenable to provide for a threshold for it to be
punishable under Section 447. The Committee observed that “the provision has a potential of
being misused and may also have a negative impact on attracting professionals in the post of
directors etc. and, therefore, recommends that only frauds, which involve at least an amount
of rupees ten lakh or one percent of the turnover of the company, whichever is lower, may be
punishable under Section 447 (and non-compoundable). Frauds below the limits, which do
not involve public interest, may be given a differential treatment and compoundable since the
cost of prosecution may exceed the quantum involved.”

TOWARDS NEW FORMS

Presently, all the sections 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 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. 13 This reasoning in itself
shows that the law lacks in a non-holistic viewpoint in the concept of corporate criminal
11
Ministry of Corporate Affairs (Government of India), Report of the Companies Law Committee. Report
submitted to Honourable Finance Minister on 1st February, 2016; Available at:
http://www.mca.gov.in/Ministry/pdf/Report_Companies_Law_Committee_01022016.pdf.
12
The Companies Act 2013, sec 447.
13
Kartick Chandra v.Harsha M. Dasi, AIR 1943 Calcutta 35 at 354.

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liability. The Courts have no doubt been efficient in evolving the concept of criminal liability
of corporates and have imposed the same on the convicts but the only way of imposition 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. The legislature
may take the following suggestions. These other forms (including fine), can be classified into
the following major heads:

• Economic Sanctions

• Social Sanctions.

These sanctions are all designed keeping in view that deterrence is the ultimate objective of
penal law-making companies liable since other accepted theories like reformation cannot be
introduced where a juristic mind is concerned.

Economic Sanctions: these sanctions would include various kinds of monetary and other
forms which would cause huge losses to the company as a whole. Apart from fine, they can
include the following:

• Corporate Death or order for winding up only in cases of continuous criminal

behaviour in the given field. For instance, exit order of the corporate from the division
in which its criminal behaviour has been found continuously. For instance, the food
department of a corporate can be directed to be shut if despite several warnings,
poisonous or objectionable substances are adulterated. Such a sanction could have
been imposed in the famous oil adulteration scam that came up around 7 years back
causing loss of many lives. It may also order at the first instance itself without giving
any warning when due to the intentional activities of the corporate, people might lose
their lives like manufacture of low-quality engines for airplanes which would lead to
their crashing thereby causing huge loss of lives.
• Temporary closure of the company for a given period depending upon the gravity of
the act till the time compliance with norms can be ensured. This can be an alternative
to the above course when the act is not that harmful to the society. For instance, a
corporate being closed for causing pollution till the time it does not arrange for a
pollution free technology.
 Rehabilitation of victims of crime. In such a form of punishment, the corporate would
be ordered to rehabilitate the victims in a manner such as to erase any traces of the
effect of the crime. For instance, cleansing of the riverbanks that have been polluted

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 as a result of toxic disposal. Though it would take some time but this would also
assure that the crime has been undone.

Such schemes are already operational in Germany. Compulsory welfare or reinstatement

activities are to be undertaken in the affected areas over there. Its corporations are subject to
administrative sanctions for public welfare or administrative offences.

• Payments of high sum as compensation to the victims of crime as were paid in the
Bhopal gas tragedy. Compensation to a victim may be made in three different ways.
The State may be made responsible for the payment of compensation, or the offender
can be sentenced to pay a fine by way of punishment for the offence and, out of that
fine, compensation can be awarded to the victim or the court trying the offender can,
in addition, to punishing him according to law, direct him to pay compensation to the
victim of the crime, or otherwise make amends by repairing the damage done by the
offence.14

Section 357, CrPC, empowers a Court imposing a sentence of fine or a sentence (including a
sentence of death) of which fine forms a part, in its discretion, inter alia, to order payment of
compensation, out of the fine recovered, to a person for any loss or injury caused to him by
the offence.15

The Supreme Court of India while discussing the scope and object of Section 357 CrPC in
Hari Krishnan and State of Haryana v. Sukhbir Singh 16 observed that it is an important
provision but the courts have seldom invoked it, perhaps due to the ignorance of the object of
it. It empowered the courts to award compensation to victims while passing judgment of
conviction. In addition to conviction, the Court may order the accused to pay some amount
by way of compensation to victim who has suffered by the action of the accused. It may be
noted that this power of the Court to award compensation is not ancillary to other sentences
but is in addition thereto. This power was intended to do something to reassure the victim that
he/she is not forgotten in the criminal justice system. It is a measure of responding
appropriately to crime as well as reconciling the victim with the offender. It is indeed a step
forward in our criminal justice system.” However, since Section 357 (1) is subject to some

14
Ahmed Siddiqui, Criminology, page 139.
15
The Code of Criminal Procedure 1973, sec. 357 cl. 3.
16
Hari Krishnan and State of Haryana v. Sukhbir Singh, AIR 1988 SC 2127.

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limitations17, it should be categorized as a separate form of punishment itself which is not
dependent on the quantum of fine or constitutional provisions.18

CONCLUSION

From the above analysis, it is proved that 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. It is therefore recommended that amendments
should be carried out by the legislature as soon as possible so as to avoid judiciary from
defining the law and make the statutes fit for strict interpretation by providing for infliction of
criminal liability on the corporations as also providing for various kinds of sanctions apart
from only fines.

REFERENCES

 Sahana, D, Corporate Criminal Liability in India, International Journal of Pure and

Applied Mathematics Vol. 120 No. 5, 2018, ISSN No.:1314-3395.
 Singh, Vijay, Corporate Criminal Liability: A Critical Legal Study, Available at
https://ijrar.com/upload_issue/ijrar_issue_834.pdf.
 Aneja, Arti, Multidimensional Aspects of Corporate Criminal Liability: An Indian
Perspective, JLJ, Available at
http://docs.manupatra.in/newsline/articles/Upload/6F57BFED-0D8F-433E-983B-
F4E638B4E115.pdf.

17
N.K. Chakraborty, Victim assistance and compensation to crime victims under Indian Criminal Justice
System in National Seminar on victimology, pp.9-10.
18
Rudal Shah v. State of Bihar, AIR 1983 SC 1086.

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 Singhvi, Angira, Corporate Crime and Sentencing in India: Required Amendments in
Law, International Journal of Criminal Justice Sciences, Vol. 1 Issue 2, 2006.

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