Concept of corporate criminal liability in India-

Until the concept of corporate criminal liability was established, Courts in India did not punish
corporations as they felt that essential ingredient ie. Mens rea is absent in corporation it being a
fictitious legal entity having no physical existence so also could not be brought physically for the
proceedings. However due to such concept many legal difficulties started arising which was noticed by
the Law Commission in its 41st report of Law Commission of India where amendment was suggested
in section 62 of the IPC but the bill which was made was lapsed but the view of Courts in terms with
this concept changed in a landmark case of Standard Chartered Bank and Ors. v. Directorate of
Enforcement , the bank was prosecuted for violation of provisions of the Foreign Exchange Regulation
Act ,1973 where the Supreme Court did not go by the strict penal provisions and held that a
corporation can be held liable regardless of the mandatory punishment as under the statue.

When a corporation is held criminally liable, the criminal conduct of employees may make them suffer
criminally and financially. Everyone in the corporate entity is held liable be its officers, directors and
even corporation where the penalties include civil penalties, criminal penalties, loss of government
contracts, permanent or temporary loss of deposit insurance, conservatorship etc.

In the case of Assistant Commissioner v. Velliappa Textiles Ltd, it was held that the corporations
cannot be imprisoned as they cannot be punished and prosecuted under IPC which directs
imprisonment. The concept of corporate criminal liability has been established under the Companies
Act. The liability of Directors under the Companies Act 2013 has been increased which has replaced
the Companies Act 1956.Under the Companies Act 2013 it holds not only the Directors liable but also
include the officer in default wherein it includes in broad framework a whole-time director, key
managerial personnel and such other officers in absence of KMP who have been specified by the Board
of directors and every other director who has information related to it or has participated to be part of
that act without raising the objection under the concept of corporate criminal liability in India.

The concept of Corporate Criminal Liability has been recognised under the Companies Act 2013 under-

Section 53-Prohibition of shares at a discount.

Section 118(12)-Minutes of proceedings of General Meeting, Meeting of Board of Directors and other
meetings and resolutions passed by Postal Ballot.

Section 128(6)-Books of Account, etc, to be kept by Company.

Section 129(7)- Financial Statement.

Section 134- Financial Statement, Boards report, etc.

Section 188(5)- Related Party transactions.

Section 57-Punishment for personation of Shareholder.

Section 58(6)- Refusal for registration and appeal against refusal.

Section 182(4)- Prohibitions and restrictions regarding Political Contributions.

Section 184(4)- Disclosure of Interest by Director.

Section 187(4)- Investments of the Company to be held in own name.

Section 447- Punishment for fraud.

Section 21 in the Transplantation of Human Organs Act 1994 states about Offences by Companies as-

(1). Where any offence, punishable under this Act, has been committed by 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 punished accordingly: Provided that nothing
contained in this sub-section shall render any such person liable to any 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.

(2). Notwithstanding anything contained in sub-section (1), where any offence punishable 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 attributable to any neglect on the part of, any director, manager,
secretary or other officer of the company, such director, manager, secretary or other officer shall also
be deemed to be guilty of that offence and shall be liable to be proceeded against and punished
accordingly.
Explanation: For the purposes of this section:

(a) “Company” means any body corporate and includes a firm or other association of individuals.

As per Section 66 of the Food and Safety Standard Act 2006 offences by Companies:

(l) Where an offence under this Act which has been committed by 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 punished accordingly.

Provided that where a company has different establishments or branches or different units in any
establishment or branch, the concerned Head or the person in-charge of such establishment, branch,
unit nominated by the company as responsible for food safety shall be liable for contravention in
respect of such establishment, branch or unit.

Provided further that nothing contained in this sub-section shall render any such person liable to any
punishment provided in this Act, if he proves that the offence was committed without his knowledge
or that he exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding
anything contained in sub-section (1), where an 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
attributable to any neglect on the part of, any director, manager, secretary or other officer of the
company, such director, manager, secretary or other officer 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 anybody corporate and includes a firm or other
association of individuals.

As per section 305 of the Code of Criminal Procedure mentions Procedure when corporation or
registered society is an accused.-

(1) In this section, Corporation means an incorporated company or other body corporate, and includes
a society registered under the Societies Registration Act, 1860 (21 of 1860).
(2) Where a corporation is the accused person or one of the accused persons in an inquiry or trial, it
may appoint a representative for the purpose of the inquiry or trial and such appointment need not be
under the seal of the corporation.

(3) Where a representative of a corporation appears, any requirement of this Code that anything shall
be done in the presence of the accused or shall be read or stated or explained to the accused, shall be
construed as a requirement that that thing shall be done in the presence of the representative or read
or stated or explained to the representative, and any requirement that the accused shall be examined
shall be construed as a requirement that the representative shall be examined.

(4) Where a representative of a corporation does not appear, any such requirement as is referred to in
subsection (3) shall not apply.

(5) Where a statement in writing purporting to be signed by the managing director of the corporation
or by any person (by whatever name called) having, or being one of the persons having the
management of the affairs of the corporation to the effect that the person named in the statement has
been appointed as the representative of the corporation for the purposes of this section, is filed, the
Court shall, unless the contrary is proved, presume that such person has been so appointed.

(6) If a question arises as to whether any person, appearing as the representative of a corporation in
an inquiry or trial before a Court is or is not such representative, the question shall be determined by
the Court.

As per the Section 38 of the NDPS Act,1985 mentions Offences by Companies-

(1) Where an offence under Chapter V has been committed by 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 punished accordingly.

Provided that nothing contained in this sub-section shall render any such person liable to any
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.

(2) Notwithstanding anything contained in sub-section (1), where any offence under Chapter IV has
been committed by a company and it is Proved that the offence has been committed with the consent
or connivance of, or is attributable to any neglect on the Part of, any director, manager/ secretary, or
other officer of the company, such director, manager, secretary of other officer shall be deemed to be
guilty of that offence and shall be liable to be proceeded against and punished accordingly.

Explanation-For the purposes of this section, - (a) "Company" means any body corporate and includes
a firm or other association of individuals.

The corporation can be held criminally responsible for a variety of Crimes namely-

a. Conspiracy.

b. Maintaining public nuisance.

c. Violations of Consumer Protection laws.

d. The illegal practice of Medicine.

e. Antitrust laws Violations.

As per the P C Amendment Act Bill 2013, Section 9(1)- A commercial organisation shall be guilty of an
offence and shall be punishable with fine, if any person associated with the commercial organisation
offers, promises or gives a financial or other advantage to a public servant intending- (a) to obtain or
retain business for such commercial organisation; and (b) to obtain or retain an advantage in the
conduct of business for such commercial organisation: Provided that it shall be a defence for the
commercial organisation to prove that it had in place adequate procedures designed to prevent
persons associated with it from undertaking such conduct.

(2) For the purposes of this section, a person offers, promises or gives a financial or other advantage to
a public servant if, and only if, such person is, or would be, guilty of an offence under section 8,
whether or not the person has been prosecuted for such an offence. (3) For the purposes of section 8
and this section, - (a) "commercial organisation" means-

(i) a body which is incorporated in India and which carries on a business, whether in India or outside
India;

(ii) any other body which is incorporated outside India and which carries on a business, or part of a
business, in any part of India;

(iii) a partnership firm or any association of persons formed in India and which carries on a business
(whether in India or outside India); or

(iv) any other partnership or association of persons which is formed outside India and which carries
on a business, or part of a business, in any part of India;

(b) "business" includes a trade or profession or providing service including charitable service;

(c) a person is said to be associated with the commercial organisation if, disregarding any offer,
promise or giving a financial or other advantage which constitutes offence under sub-section (1), such
person is a person who performs services for or on behalf of the commercial organisation. Explanation
1. -The capacity in which the person performs services for or on behalf of the commercial organisation
shall not matter irrespective of whether such person is employee or agent or subsidiary of such
commercial organisation.
Explanation 2. -Whether or not the person is a person who performs services for or on behalf of the
commercial organisation is to be determined by reference to all the relevant circumstances and not
merely by reference to the nature of the relationship between such person and the commercial
organisation.

Explanation 3. -If the person is an employee of the commercial organisation, it shall be presumed
unless the contrary is proved that such person is a person who performs services for or on behalf of
the commercial organisation.

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the offence under
section 8 and this section shall be cognizable.

Section 10 (1)- Where a commercial organisation has been guilty of an offence under section 9, every
person who at the time the offence was committed was in charge of, and was responsible to, the
commercial organisation for the conduct of the business of the commercial organisation shall be
deemed to be guilty of the offence and shall be punishable with imprisonment which shall not be less
than three years but which may extend to seven years and shall also be liable to fine Provided that
nothing contained in this sub-section shall render any such person liable to any punishment, if he
proves that the offence was committed without his knowledge or that he has exercised all due
diligence to prevent the commission of such offence.

(2) Notwithstanding anything contained in sub-section (1), where an offence under section 9 has been
committed by a commercial organisation and it is proved that the offence has been committed with the
consent or connivance of, or is attributable to, any neglect on the part of any director, manager,
secretary or other officer of the commercial organisation, such director, manager, secretary or other
officer shall also be deemed to be guilty of the offence and shall be liable to be proceeded against and
punished accordingly under this section.

Explanation.-For the purposes of this section, "director", in relation to a firm, means a partner in the
firm.
RCO DOCTRINE

Liability of corporate officers on the basis of attribution The actions and mental states of a company's
directors are attributed to the company such that the actions and the mental states of the companies'
directors are deemed to be the actions and the mental states of the companies. Can the reverse be
true? Suppose a company (through its employees) commits actions that have criminal consequences.
Can the directors of the company be attributed these actions such that they can be held responsible for
the criminal consequences? This aspect of vicarious criminal liability was in issue in the recent
Supreme Court decision in Sunil Bharti Mittal v Central Bureau of Investigation. 3 The government
issued telecommunication licences to a number of companies. The license process came under scrutiny
for certain irregularities (related to bribery of public officials) as a result of which a criminal
investigation was launched into the actions of various companies. One of these companies was Bharti
Cellular Ltd. (BCL). The special court investigating the licensing irregularities decided to attribute the
actions of Bharti Cellular Ltd. to Sunil Bharti Mittal, its Chairman cum Managing Director, and made
him an accused in the proceedings. The special court's directions to make the director of BCL the
accused was challenged in the Supreme Court as a mistake of law. The Supreme Court held that
without statutory backing, the persons in charge of a company cannot be held criminally liable for the
actions of a company. The court was firm in applying the proposition that there is no special
vicariously liability in criminal law without a statutory exceptions in this regard. 1 (2010) 14 (ADDL)
SCR 591. 2 1971 1 ALL ER 127. 3 Criminal Appeal No. 35 of 2015 (arising out of Special Leave Petition
(Crl) No. 3161 of 2013) 3 One might quibble with Bharti Cellular's refusal to attribute the company's
actions to the directing minds of the company as the Supreme Court had no such compunctions, when,
in Iridium, the court extended the actions of the directing minds of a company to the company itself,
and held that the company can be held criminally liable by attribution. One might argue that instead of
the post Iridium one way attribution, Indian jurisprudence needs a two way attribution between the
company and persons in charge of the company to fully guarantee the reach of the criminal law.
However, there are some significant problems with a two way attribution of liability. The juristic basis
for the attribution of the actions and mental states of the directing minds to their company is that the
company cannot act otherwise. The legal fiction of a corporate person has necessitated another legal
fiction of attribution for otherwise the first legal fiction would be meaningless. No such necessity arises
in the case of the actions of the company being attributed to its directing minds. The directing minds
are capable of thinking and acting on their own and do not need attribution as a matter of necessity.
The best justification of the Indian Supreme Court’s decision is that attribution is not the appropriate
mechanism of imposition of liability in order to hold the directing minds responsible for the actions of
their company. In the United States, the courts have taken a much more stringent line towards persons
in charge of companies that commit offences. In United States v Park, 4 the United States Supreme
Court considered the case of Acme Markets Inc. (Acme). Acme was a food chain that operated
throughout the United States. With an employee population of thirty thousand and several hundred
stores, its business operations were large and complex. Acme’s President, Mr. Park, coordinated the
business of the company through several senior delegates. The US federal government detected a
rodent infestation in some of Acme's warehouses and warned Mr. Park of potential legal liability
arising out of the unhygienic conditions in which Acme stored its food. Mr. Park conferred with his
legal team and referred the warehouse hygiene problem to his delegates. When the rodent infestation
problem continued, the federal government sued both Acme and Mr. Park under a federal legislation
that made liable any person who trades in adulterated food. The U.S. Supreme Court stated that a
person who has a responsible relationship to a corporate activity that leads to criminal liability is also
liable under the relevant legislation. The liability of the responsible corporate officer is not vicarious
liability: it is a species of primary liability. The liability arises out of a voluntary assumption of
responsibility coupled with a failure to discharge the liability and resultant harm. In this respect, the
liability of the responsible corporate officer is akin to criminal negligence. It is interesting that a
statutory offence has been converted, through prosecutorial zeal and judicial interpretation, into an
offence similar to criminal negligence. However, in practice, one could read Park as laying down a
standard that begins and ends with the question: did the corporate officer hold a position of
responsibility in the corporation? Has a de jure criminal negligence test become in practice a de facto
responsible position test? Some remarks of the majority opinion lends credence to this proposition.
The Supreme Court remarked that while a corporate officer in a position of responsibility for a certain
state of affairs (for example, warehouse storage) would normally be liable for any offences committed
in furtherance of such a state of affairs (rodent infestation in the warehouse), he can escape liability if
he proves that it was impossible for him to have prevented the offence. One way to demonstrate the
impossibility is to, as the Supreme Court itself stated, affirmatively prove to the court that the
responsible officer was powerless to prevent the commission of the crime. That a person had to prove
an impossibility in order to escape from liability demonstrates how the Park doctrine in practice is a
responsible position test.