Вы находитесь на странице: 1из 15

J

Qrigin

CORPORATE

of CorPorations:

CRIMINAL

LLt\BILITY

~J~~'

J n simple language, corporation means a group of individuals coming together

to carry on a business. Corporation

law. Though,

corporation in the fourteenth

that the origin of corporation could be sought in the twelfth century or

perhaps

are of the view

I'tTognised

is a creation

of

law, a business

the

origin

authors'

of

was

said

to

entity

by

English

century

law establishes

or so, yet some

juristic

person

modern

in

the

Roman

law where,

have

been

re cognized.

Cenerally, the common law did not allow a corporation

crime. There were exceptions

doctrine

the conduct of his servant in the course of employment.

,'iea rious

ground

that since the master acquired the bendit,; of the servant's work, he should also carry the burdens.

order to provide compensation

or vicarious

to be convicted

were

based

on

of

a

the

and

these

exceptions

of respondent

superior

liability - the ma~ter is liable for

The

in the

seventeenth

and justified

on

doctrine

century

the

of

in

liability was created

in the

la"" of tort

parties

to third

~J,

VVhile the common

law recognized

the appropriateness

of vicarious

liability

{c)!'tori

compensation,

it rejected

vicarious

liability

for

crimes

since

crimes

required

mens

rea or guilty mind.

T'he

mere

existence

of the

master-servant

re lationship was not considered

to

be

a

sutficient

criterion

tc)r imputing

pcr:';()llal i~lult to the master. However,

there

were

three

common

law crimes

libel

and

vicarious liability, allowing the master

corporation) to be convicted tor oHences of his servant. Apart from these

vicdrious liability exceptions, corporations the criminal law.

wilit'li did not require

contempt

Inens rea. These

In

these

include

public

nuisance,

the

criminal

courts

of court.

catew)ries

of oflences,

applied

or

a

(which could

were

be either

an individual

immune

from

liability under

The court,; in early twentieth century began to dismantle the corporate

imrnunity from criminal law by holding that words like everyone in criminal

st llutcs

corporations cannot be held criminally liable for offences committed by their

could include corporations. Courts also rejected the argument that

oHil'ers rcx reasons of being ultra vIi-es unless those employees were expressly

ordered to commit the act in question.

However, the most challenging obstacle to imposing criminal liability on

corporations was the diHicult:y of attributing mens rea to an artificial person - a

I GIOS~;, Edwards; "Organization

Ezra Scotland

p./)3.

structure

and organization

crime",

in Gilbert

Geis and

(1980)

(Eds.) "White

collar crime, theory and research"

Sage Publications

 

2

corporation.

The

breakthrough

came

in 1915 when

the

House

of Lords

in

I,clIllarr/\

LarrYliJg ("'0. Limited,

v. Asiatic Petroleum

Co.2

laid

down

the

general

principle

of

directing

mi.Q.d (identification

theory).

In

this

case

Vis('(nlllt Haldane

stated

that "corporation

is an abstraction.

It has no mind

of

its ()wn any more

than

it has

a body

its active

and

directing

will

must consequently

be

sought

in

the

of its own; of

person

somebody

who

for

some

purposes

of the corporation,

corporation".

applied the principle of directing mind and held that there is no reason why a corporation which can enter into binding agreements with individuals and

()thl~r corporations

agreement

and will

may be called

an agent, but who is really tl1e directing

very

ego

and

centre

of

the

in R II. Fane RO/)Jilson Ltd,

mind

the

personality

the Canadian

of

the

Subsequently,

COUIt

cannot

be said to entertain

Inens rea when

it enters

into an

which

is the gist of a conspiracy

and a false pretence.

the

HoUon of an enterprise headed by one entrepreneur, who both owns and runs the going concern, to that of an organisation where stock ownership becomes

Over the past century, the concept of a corporation

has

shifted

from

affairs,

the

latter

being

separated from the control of the corporation's managed by a professional, hired and self·perpetuating

bureaucracy.

Further,

the

individual

shareholder's

role

has changed

from

part-owner

to investor,

and

its importance

has

diminished

in

large

corporations

where

the

most

significant

shareholders

are

collective

entities.

T'he

attachment

of

the

shareholder

to the corporation

is becoming

secondary

and

indirect,

reflecting

the

hld

that·

corporations

serve

a

variety

of

interest~

besides

those

of

shareholders,

including

those

of

their

employees,

customers

and

the

community

at large.

And

hence,

it has been

observed

that

"the

corporation

can

no

longer

be identified

with a single homogeneous

group

of individuals.

 

Its

decisions

and

activities

are

the

resultant

of

and

are

responsive

to

a

complicated

set

of

interests

and

contlicting

claims"~.

This

is

the

more

significant

change

for

the

purposes

of

the

criminal

law

and

for

imputing

corporate

criminal

liability on the corporations.

 

The

law

recognized

the

CO) poralions

are of two kinds:

system

(<:I)

Corporation

Aggregate, and

of

(b) COrI)()ration Sole.

2'4 WJL5)

AC

705 at 71(3 (H.L.)

3 (19/11) 76 CCC

196 at 203 (Alla C.A.)

small

independent

corporations.5.

Corporation Aggregate is an incorporated body having membership of several

persons. It is formed by number of persons known as share holder who pool their resources to create a fund known as capital to start with and it works for

common interest of all the share holder and prime being profit making6•

Cc2!I!orate Criminal

Liability in India:

Criminal Liability is attached only those acts 111 which

Criminal

prohibits certain act" or omissions. The basic rule of criminal liability revolves around the basic Latin maxim actus 11011 fc7citreumJ nisi mens sit rea. It means that to make one liable it must be shown that act or omission has been done

there

is violation

of

Law i.e. to say there

cannot

be liability without

a criminal

law which

~

which was forbidden by law and has been done with guilty mind.

Hence every crime has

other mental known as mens rea.7 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

resl )ollsibility upon

rat ic)( lal choices about actions and behaviour.8

two elements

one

physical

known

as actus reliS and

an individual

flows naturally

from

the

freedom

to make

Rc( ently, The Supreme Court in Standard Gnartered Bank & Others v. Directorate 01' l';"nforcement & Others\ considered the issue as to whether a

company, or a corporation, being aj~ristic person, could be prosecuted for an

oUenee for which mandatory sentence of imprisonment and tine is provided;

lllld when found guilty, whether the court has the discretion to impose a

sentence of fine only. 'I'he Supreme Court 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

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

cannot

h Salmond;

"Salmond

on Jurisprudence",

Pvl.,

cw Delhi, 2002 p. 305-328

~Fitzgerald PJ. (Edt.), lJ niversal Law Publishing

7 Actus reus connotes

cow,titutes of Human action; result of conduct and act prohibited by law\ One other hand mellS rea is generally taken as blame worthy mental condition: Russell, W.O., Russell on Crime p.l7-51 (l.W.e. Turner Ed., New Delhi; Universal Law Publishing Pvt., 2001) .

those result of human conduct which is forbidden by law and hence

8 A. Ashworth, Principles of Criminal Law p. 79-81 (Oxford: Clarendon Press, 1991) cited hy Fisse, Reconstructing Corporate Crimina! Law: Deterrence, Retribution, Fault, and

Salldiolls, 5G S. Ca.l. 1

Rev. 111·1

indicllnent or other criminal process, although the criminal act is committed through its agents.

Corporations playa significant role not only in creating and managing business but also in common lives of most people. 'T'hat is why most modern criminal law systems l(:>reseethe possibility to hold the corporation criminally liable for the perpetrati()Jl of a criminal offence. The doctrine of corporate criminal liability turned from it's infancy to almost a prevailing rule.1O 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 ill 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 liabilit.yor corporate crime is very difficult to define because this phrase in present day scenario covers wide range of offences. However for U) lclerstanding purpose it can be defined as illegal act of omission or cOl1lrnission, punishable by criminal s;'lilction committed by individual or grollp of individual in course of their occupationll• It can be even defined as sOCiallyinjurious acts committed in course of occupations by peoples who are managing the affairs of the company to further its business interese2.Corporate criminality also represents a kind of instrumentalities through which the trust of the people continues to be' betrayed by persons in positions of

respollSibility, 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 lawm3• 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.

The development of the law relating to corporate criminal liability in India is not only similar to that in English law, but also greatly influenced by the

Eng-lish Law. At one

point

of

time,

"corporations"

were

viewed as a

convenient

shield

to

evade

liability. However,

under

our

present

penal

structure,

for an otlence

by the corporation,

both

the corporation

and its

officer can be made liable. The law on corporate criminal lia15ilityis however,

'0

Thiyagaraj;m,

T.

Sivanathan;

"Corporate

Criminal-concept",

available

at:

1111 p ://www.manupalra.com/Arlicles/arl1isl.asp ?s=Corporate/Commercial

" \.\ il!iallls, 'ClW u

K.S.; 'Texl

Book on Criminology", Universal Law Publishing Pvt., New Delhi,

ne>tconfined to the general criminal law in the penal code but it is, in fact, scattered over a plethora of statutes with specific provisions for the same.

The need t(:>r proper law relating to corporate criminal liability in a legal system, specially in the developing countries like India was observed by the Supreme Court in the following terms:

((In India,

the

need

for

industrial

development

has led to the

establJ:<,hlnentof a number of plants and factories by the domestic companies and under-takJiJg:sas weHas by Transnational Corporations. Many of dJese liJdustries are engaged In hazardous or Inherendy dangerous activities which pose potential threat to lIfe, health and safety

ofpel:50ns working In the factory, or residing In the surrounding areas. Though wor1(JiJ/1"of such factories and plants is regulated by a 614 llUlnher oflaws oj'ou]" country, dlere is' no special legislation proViding Ic)]" cOlnpell.';ationand damages to (Jutslders who may suffer on account of any ll]{iustJialaCCident.JI4

Th(~ mc~jorlaw relating to Corporations in India is codified in The Company

Act,

Section 2(7) includes a company. Hence under Indian law the liability of the corporation is essentially liability of the company only. Further, under Indian law as well as under the English law, a Company is a creation of the law. It is not a human being but is an artificial person. On incorporation, the company acq uires a separate legal entity distinct from and independent of its members.

all dealings are with the company and all

1956 and

the

definition

of "Corporation"

as given in

the

Act under

\\'hen

a company

is incorporated,

persons

behind

the company are disregarded, however important they may

he.

The :~eparate personality of the company is, however, a statutory privilege; it must be used for legal and legitimate business purposes only. Where a fraudulent, dishonest or improper use is made of the legal entity, the concerned individual will not be allowed to take shelter behind the corporate personality. '"['he court will break through the corporate shell and apply the priIlciple of "Lifting of the corporate veil". The court will look behind the corporate entity and take action as though no entity separate from the members existed. In other words, the benefit of separate legal entity will not be available and the court will presume the absence of such separate existence's. The Companies Act, 1956 contains certain provisions16, which empower the courts to lift the veil to reach the persons who are in fact

" Sillgh.K.

J, in Charan LalSalw

v u.o.J, AIR 1990 SC 1480.

,', 1);L1al Praveen,

Cotlstitution

and

.

"Corporate

Entity in existing lrg~d system-Its

other

enactments",

(2001.) (il CLA 96 (Mag).

rights and liabilities

under

the

re"pollsible l~r the culpable or wrongful act. The corporate in the following cases:

veil can be lifted

(l) Where

(2) Where corporate veil has been used for fraud or improper conduct,

W) Where

the doctrine conflicts with the Public policy,

the corporate facade is only an agency instrumentality,

(4)

For determining the real character of the company,

(5)

Where the veil has been used for evasion of taxes,

(6)

In quasi-criminal cases,

(7) For investigating the ownership of the company,

(H)For investigating the affairs of the companyl7,

(9) Where

the company is used as a medium to avoid various welfare and

labour legislations, (10) In case.,.ofeconomic offences,

f 11)

\Nhere

the company is used for some illegal and improper

purpose,

etc.

The following prOVlSlons of the Companies Act, 1956 provide that the Members or the Directors/officer(s) of a company will be personally liable if:

(l)

A company carries on business for more than six months after the number of its members has been reduced below seven in the case of a

public company and two in the case of a private company. Every

person

who was a member

of the company during the time when it

carried on business after those six months and who was aware of this

t~lCt,shall be severally liable for all debts contracted after six monthsl8,

(2)

The application money of those applicants to whom no shares has been allotted is not repaid within 130 days of the date of issue of the prospectus, then the Directors shall be jointly and severally liable to repay that money with the prescrihed interese9,

(~i)an otlicer of the company or any other person acl'; on its behalf and enters into a contract or signs a negotiable instrument without fully writing the name of the company, then such officer or person shall be personally liable20,

as a separate entity

(4) 'The court refuses to treat the subsidiary company

(!»

and instead treat it as only a branch of the holding compani',

that the

business of the company has been carried on with intent to defraud the

In

the

course

of winding up

of the company,

it appears

creditors of the company or any other person or for any fraudulent

17 Section 2(~9,Comp.mies Act, 1956.

IX Serlion 11.5, Companies

Act, 1956.

1'1 Section 69, Companies Act, 1956.

purpose, al those who were aware of such fraud shall

liable without any limitation of liability22.

be

personally

ThIIS, the protection of separate legal entity cannot be claimed in these cases

and the limited liability of the shareholder becomes unlimited if he is engaged

in these activities. The concept of "limited liability" restricts the liability of a

shareholder to the nominal value of the shares held by him. If he has paid the

entire amount which is payable towards his shares, he cannot be held liable

for the debts of the company, even if he holds almost the entire share capital

of the company. This rule, however, does not apply if the court lifts the

corporate veiland finds the shareholder responsible for the wrongful acr3• Not

less recently, in the landmark judgment of Kaplla Hingorani v State of Bihal\

the Apex Court analysed the rights and liabilities of a company vis-a.-vis the

Fundamental

right,;

and

Human

7Rights

of

the

individuals.

The

Court

observed:

"A company incorporated under the COlnpanies Act is ajuristic person and has a distinct and separate entity vis-a.-visits shareholders. The corporate ve/~ howeveI~ can in certain situations be pierced or lilled. VJi77enel'era corporate entity is abused for an unjust and inequitable pUlposeJ d1e court would not hesitate to blt the veIl and look into the realities so as to identIfy d1e pe/:';ons who are gUilty and liable dlereo[ The veIl can indi~fJutably be bfted when the corporate personality is f(mnr! to be opposed tojus/JceJ convenience and interest of the revenue or worklnan or againstpublic li1terestJ~It has also been observed that a corporation deemed to be (:StateJJwidlli1 the Ineanlng of Article 12 of

Lhe Constitution

suf~iect to the same. binitatJons li1 the Held of ConsdtutJonal or admlillstJ-a/Jvelaw as the government itself; though in the eyes of law they would be distJilctand Independent legal entJtiel5

.

and actJng as agency of the government,

would be

C(;!!:Qorate Criminal

Liability - The

N ecessi~

 

III t he

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 Ciilelna tragedy or thousands of scandals especially the white collar

alld organized crimes can come within the category that requires immediate

22 Section 542, Companies

Act, 1956.

2.1 Dalal Praveen, "Corporate

Entity in existing legal system-Its rights and liabilities under the

Constitution

and other enactments",

(2004) 61 CLA 96 (Mag).

('oncern. Despite so many disasters, the law was unwilling to impose criminal

liability upon corporations that are-"6 :

for a long time. This was for basically two reasons

(i) That

to commit an offence; and (ii) That corporations cannot

corporations

cannot have the lnens rea or the guilty mind

be imprisoned.

These two obstacles were managed to survive till late 20th and very early 21st century.

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 cln environment wherein crime is nurtured. However, this concept still not contemplated in the statutes in India.

In [mlia, 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, foti(~iture of property and tine. In certain cases the sections speak only of inq Irisonment 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 f(x corporations to,be imprisoned.

Coing 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 171C A.s',,,'is·talltComlni5sione0 Assessment- II, BangaJore and Ors. v.

VeJkJppa

TextJJes Ltd.

and

01:5.27, B.N. Srikrishna].

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 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

it,;

41 sl

Report,

the

Law

Commission

suggested

amendment

to Section

62 of the Indian

Penal

Code

by adding

the following

lines:

"In evelY case 111 which d1e offence IS only punishable with linpri'ionlnent or with linpri'iOnment and fine and the oflender is a company or other body corporate or an association of IndividllalS~it shall be cOlnpetent to the court to sentence such offender to fine only."

This

47''' Report,

reo >mmendation:

the

recommendation

Law

got no

Commission

response

in

from

paragraph

the

Parliament

8(3)

made

and

again in its

the

following

((In many of the Acts, relaang to economic olknces, imprisonment is Jnandatory. Where the convicted person /5 a corporadon this provision becOlnes unw()rkable~ and it is desirable to prOVIde that In such cases~it shall be competent to d1e court to impose a fine. This difficulty can arise under d1e Pena! Code aJso~but it /5 hkt:ly to arise inore fTequendy In the

case of

economic

laws.

We,

therefore~ recommend

that the follOWing

provi5/on should be Inserted li1the Penal Code as~say, Secaon 62:

J. In every case

li1 which the offence

/5 pun/5hable

With Impnsonment

only or With linpnsonment and fjne~ and the offender is a cOl[Joradon, it shall be competent to the court to sentence such offender to fine only.

2. In every case in which the offence is punishable With impnsonment and any other punIshment not beli1g fine and the offender is a cOl[Joraaon, it shall be cOlnpetent to the court to sentence such offender to fine.

3. In dll:s'secaon, corporaaon means an Incorporated company or other body corporate~ and Includes a firm and other associaaon of lildi~iduals. "

But

the

Bill

prepared

on

 

the

basis

of

the

recommendations

of

the

Law

Commission

lapsed

and

it

did

not

become

law.

However

few

of

these

recommendations

were

accepted

by

the

Parliament

and

by

suitable

amendment

some

of the provisions

in the taxation

statutes were amended.

T'he

Court

decided

that

as

the

company

cannot

be

sentenced

 

to

imprisonment,

 

the

court

cannot

impose

that

punishment,

but

when

imprisonment

and tine is the prescribed

punishment

the court

can impose

the

punishment

or

fine

which

could

be

enforced

against

the

company.

Such

discretion

is

to

be

read

into

the

section

so

far

as

the

juristic

person

 

is

concerned.

or

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

tine

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 difliculty in construing the statute in such a way. We do not think that there is blanket immunity for any company frO!n any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment.

Fine is the most common punishment in every part of the world and it is a punishment the advantages of which are so great and obvious that we propose to authorize the court~ to inflict it in every case. Imprisonment, transportation, bcmishment, solitude, compelled labour are not equally disagreeable to all men. With fine the case is different. In imposing a fine it is necessary to have regard to the pecuniary circumstances of the offender, as to the character and magnitude of the otlence.

Presently, all _the penal provisions of various statutes include only fine as a

So is the case with

form of punishment

that can be imposed on a company.

judicial pronouncements

on the aspect of sentencing. In addition to this, the

Law Commission in its 41" and 4Th Report~ also speaks of introducing only

line 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 nOli cogit ad impossiblJia, which tells us that law does not contemplate something which cannot be done.28 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 eflicient 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

the criminal justice system of the land.

to

evolve new forms of punishment~ and incorporate them in

Special Acts and Corporate Liability:

rT'he

principle

of vicarious liability has been incorporated

statutes, such as:

iri various special

(i)

The Negotiable Instruments Act, 1881 - Section 141

(ii)

The Income Tax Act, 1961 - Section 278B

(hi)

The

Minimum Wages Act, 1948 .- Section 22C

(i,,)

The Employees State Insurance Act, 1948 - Section 86A

(v)

The

Employees

Provident

Fund

and

Miscellaneous

Provisions

Act,

1952 - Section 14A

 

(vi)

The Payment of Bonus Act, 1965 - Section 29

 

(viii) The Water

47

(Prevention and Control of Pollution) Act, 1974 - Section

Section 141 of the Negotiable Instruments Act, 1881 reads as follows:

Section 141: Offences by companies. (1) If the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and proceeded against ilnd punished accordingly;

Provided that nothing contained in this sub-section shall render any person liable to punishment if he proves that the offence was committed without his knowledge, or that he had exercised all due diligence to prevent the commission of such offence.

Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the Celltral Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section 0), where any offence under this Act has been committed by a company and it is proved that the offence has been committed with the consent or connivance of, or is attribute to, any neglect on the pqrt of. any director, Manager, secretary, or other office of the company, such director, manager, secretary or other oflicer shall also be deemed to be guilty of that offence arid shall be liable to be proceeded against and punished accordingly.

Explanation: For the purpose of this section. - (a) "Company" means any body corporate

and includes

a firm or other

association of individuals; and (l» "Director", in relating to a firm, means a partner in the firm.

But neither Section 1410) of the Act, nor the pari materia provisions in other enactments give any indication as to who are the persons responsible to the company, for the conduct of the business of the company. rr'herefore, we will have to fall back upon the provisions of Companies Act, 1956 which is the law relating to and regulating companies. Section 291 of the said Act provides that su~iect to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things,

47

Section 141 of the Negotiable Instruments Act, 1881 reads as follows:

Section 141: Offences by companies. (1) [f the person committing an offence under section 138 is a company, every person who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the oflence and shall be liable to be proceeded against and proceeded against and punished accordingly;

Provided that nothing contained in this sub-section shall render any person

liable to punishment if he proves that the offence was committed without his

knowledge,

diligence to prevent the

c( mllnission of such oHence.

or

that

he

had

exercised

all

due

Provided further that where a person is nominated as a Director of a company by virtue of his holding any office or employment in the Central Government or State Government or a financial corporation owned or controlled by the eelltral Government or the State Government, as the case may be, he shall not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has been committed by a company and it is proved that the oflence has been committed with the consent or connivance of, or is attribute to, any neglect on the PC)Itof. any director, Manager, secretary, or other office of the company, such director, manager, secretary or other oflicer shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation: For the purpose of this section. -

(a) "Company" means

association of individuals; and (1)) "Director", in relating to a firm, means a partner in the firm.

any body corporate

and includes

a firm or other

But neither Section 141(l) of the Act, nor the pari materia provisions in other enactments give any indication as to who are the persons responsible to the company, for the conduct of the business of the company. Therefore, we will have to fall back upon the provisions of Companies Act, 1956 which is the law relating to and regulating companies. Section 291 of the said Act provides that subject to the provisions of that Act, the Board of Directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do. A company though a legal

entity can act only through its Board of Directors. The settled position is that a

Managing

Director

is prima

Jade, in charge

of

and

responsible

for the

company's

business

and affairs and can be prosecuted

for offences by the

company.

But

insofar

as

other

directors

are

concerned,

they

can

be

prosecuted only if they were in charge of and responsible for the conduct of

the company's business.

A combined

definitions in clauses (24), (26), (30), (31), (45) of Section 2 of that Act would

Act, 1956 with the

reading of Sections 5 and 291 of Companies

shm\! that the following persons are considered to be the persons who are

responsible to the company for the conduct of the business of the company:

(a)

the managing directorls;

 

(b)

the whole-time directorls;

(c)

the manager;

(d)

the secretary;

(e)

any person in accordance with whose directions or 'instructions the Board of directors of the company is accustomed to act;

(f)

any person charged by the Board with the responsibility of complying with that provision (and who has given his consent in that behalf to the Board); and

(g)

where any company

does

not have any of the officers specified in

clauses (a) to (c), any director or directors who may be specified by the

Board ·in this behalf directors.

no

is so specified, all the

or

where

director

In the recent case of K. K. Ahuja v.' 11: K. Vora & Anr.29,

interpreted the vicarious liability clause in the following manner:

the Apex Court has

(i) If the accused is the Managing Director or a Joint Managing Director, it is not necessary to make an averment in the complaint that he is in charge of, and is responsible to the company, for the conduct of the business of the company. It is sufficient if an averment is made that the accused was the Managing Director or Joint Managing Director at the relevant time. This is because the prefix 'Managing' to the word , Director' makes it clear that they were in charge of and are responsible to the company, for the conduct of the business of the company.

(ii) In the case of a director or an officer of the company who signed the cheque on behalf of the company, there is no need to make a specific averment that he was in charge of and was responsible to the company, for the conduct of the business of the company or make any specific allegation about consent, connivance or negligence. The very fact that the dishonoured cheque was signed by him on behalf of the company, would give rise to responsibility under Sub-section (2) of Section 141.

· (iii) In the case af a Directar, Secretary ar Manager (as defined in Sectian 2(24.) af the Campanies Act) ar a persan referred to' in clauses (e) and (f) af Sectian 5 af Campanies Act, an averment in the camplaint that he was in charge aI', and was respansible to' the campany, far the canduct af the business af the campany is necessary to' bring the case under Sectian 141(l). NO' further averment wauld be necessary in the camplaint, thaugh same particulars will be desirable. They can alsO'be made liable under Sectian 141(2) by making necessary averments relating· to' cansent and cannivance or negligence, in the camplaint, to' bring the matter under that Sub-sectian. (i,,) Other Oflicers af a campany can nat be made liable under Sub-section (1) af Section 141. Other officers af a campany can be made liable anly under Sub-sectian (2) of Sectian 141, be averring in the complaint their pasition and duties in the company and their rale in regard to' the issue and dishonour af the cheque, disclasing cansent, cannivance ar negligence.

\-"'hile interpreting the afaresaid vicariaus liability clause, the Apex Caurt had in fad gone a step further and observed that it is nat necessary to' prasecute

the company

the strength af the vicariaus

such prasecution, the Apex Court held, is that there should be a finding that the cantravention was by the company. See Sheoratan AgdlWaJ& Anr. v. State

liability clause. The anly condition precedent for

at the time af initiating prosecutian

of its officers/Directars

an

0/ A1adhya PradesHo. The ratiO" af this decision has however been

s·ubsequently doubted by another bench af the Supreme Court in the case af

Aneeta Hada v. Godfather

Tours & Travels (P) Ltd31

referred to a Constitution Bench.

and the matter has been

Corparate

Liability vis-a.-visIndian Penal Cade Offences:

l nlike the special acts, Indian Penal Cade daes not pravide far any pravisian

incorparating vicariaus liability upan

result, in the event it is alleged that a corparatian has cammitted an affence punishable under the Indian Penal Code, no afficer/Directar af such a carporation can be vicariausly held liable far such affence. Sectian 11 af the Indian Penal Cade defines persan as "The ward "person" includes any

an afficer/Directar af a corparatian. As a

Campany or Association or bady of persons, whether incorparated ar not". Hence it cannot be contemplated that a campany or a carparation cannot be made an accused for commission of offence under the Indian Penal Cade.

However, when a carparatian/company is made an accused under the Indian

Penal Cade, the liability of natural persons

In

charge

of

the

corporation/company is to be identified on the basis of the following legal principle laid clown by the Supreme Court in the case of Maksud Saiyed v. State of Gujrat & Ors.32 wherein it has been held as follows:

((lf11ere ajurisdiction is exercised on a complaint petition filed in terms

o[ Section

156(3) or Section 200 of the Code of Criminal Procedure~

dle Ma81~lrateis' required to apply his mind. Indian Penal Code does not cont;1Jilany provision for attach/ilg vicarious liabIlity on dle part of the Mallaglilg Director or Lhe Directors o[ Lhe Company when Lhe accused I~'Lhe COlnpany. The learned Magistrate failed to pose unto 11linselfLhe correct question viz. as to wheLher Lhe complaint petition, even Il'given face value and taken to be COITectIn its entirety, would lead to Lhe conclusion Lhat Lhe respondents hereIn were personally liable [or any offence. The Bank is a body corporate. Vicarious liabIlity of Lhe MaIlaging Director aIld Director would arise proVided any prOViSIon eXIst5in Lhat behalf In the statute. Statutes Ind1sputably must contain pn:)V1~']onfiXIilg such VIeanous liabIlities. Even for Lhe said pUlfJose~ 11- i'i obligatory on Lhe part 0/ dle COmplaInaIlt to make

reqUl~'ite allegations vicaI'iousliabIlity.~~

which

would attTact Lhe prOVISIons COnsllL-utJng

In the case of Keshab Malllildra V"State o[ UP3, the Supreme Court dealt

with Section ~i5 of the Indian Penal Code to incorporate the concept of constructive liability on Directors/officers of a corporation who had the requisite culpable intention or knowledge to do the act. Section 35 of the Indian Penal Code reads as follows: ((lf11enever an act; which IS Cnin1nalonly

be reason o/its beIng done wiLha CTJinIilalknowledge or IiltentJon, i5 done by several perS0115~each of such persons !-rhoJOInS Iil Lhe act wiLh such knuwledge or intena'on i5 liable /{)r dle act 1n Lhe same manner as 11'Lhe act were done by h/in alone with Lhat knowledge or IntentJon. ~~The Supreme Court interpreting the said section held (~S()RlT as LheremainIng Accused 2, 0 4 ;U1d12 are concerned dle Inaterial produced on record clearly indicates at least pnina fflcie dlat Lhey beIilg at Lhe helm o/affairs have to face LhiScharge fc)r dle alleged negligence and rashness of Lheir suborchnates who actually operated dle Plant on Lhatfatefill night at Bhopal aIld for Lhatpurpose SectJon 35 of dle hldian Penal Code would also pnina facie get attracted agaIilstLhem.

A Inere look at LhatsectJon shows LhatIl'the act alleged against Lhese accused

IJt~comesCnininal on account o[ Lheirshanil!j' common knowlwdge about Lhe defixtive running o[ Lhe Plant at Bhopal by Lhe remainIng accused who represented Lhem on Lhe spot and who had to carry out Lheir directJons fTOln tiJeIn and who were oLherwJsereqUli-ed to superVIse Lheir aca'vity, SectJon 35

of dle Indian Penal Code could at least pnina facie be IilVoked against /-1ccl/sed2, 3; 4 and 12 to be read wiLhSectJon 304-A JPC~: While doing so,