CRIMINAL LAIBILITY OF CORPORATIONS

Submitted by:
Name of authors RICHA and SUNEET KUMAR DWIVEDI Nationality INDIAN Qualification LLM student and Assist professor of Law Address - RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB, SIDHUWAL, PATIALA-147001 E-mail-id richashreee@gmail.com, sunit1215@gmail.com Contact number 09814271447, 08057635699 Name of college/university with address and class RAJIV GANDHI NATIONAL UNIVERSITY OF LAW PUNJAB SIDHUWAL, PATIALA-147001.

CRIMINAL LAIBILITY OF CORPORATIONS Synopsis 1 INTRODUCTION 2 CORPORATE CRIME

3 EVOLUTION OF CORPORATE CRIMINAL LIABILITY 4 CORPORATE CRIMINAL LIABILITY IN INDIA 4.1 origin of corporations 4.2 criminal liability under indian law 4.2.1 Doctrine of direct liability (theory of organ) 4.2.2 Notion of corporate culture as a foundation for corporate criminal liability 4.2.3 Corporate mens-rea doctrine 5 CONSOLIDATION OF CRIMINAL LIABILITY 6 INDIAN CORPORATE SCENE 7 MODEL PENAL CODE PROVISIONS 7.1 variety of crimes 7.2 Punishments 8 LIABILITY UNDER INFORMATION TECHNOLOGY ACT 2002 9 CONCLUSION

1 Introduction Much of our lives and daily routines are affected by corporate activities. To a great extent, companies provide the food we eat, the water we drink, the necessities and luxuries of everyday living. Increasingly, particularly with growing privatization, it is not the State that provides these amenities - but companies. Such companies generate wealth for the economy and their shareholders and provide employment for much of the population. Short of a revolutionary restructuring of the economy and the political institutions of the country, it is certain that the power and influence of companies will grow and not diminish in the foreseeable future. But, with great power comes great responsibility. Just as individuals owe a duty not to harm or injure others in society without justification, so do companies owe a duty not to poison our water and food, not to pollute our rivers, beaches and air, not to allow their workplaces to endanger the lives and safety of their employees and the public, and not to sell commodities, or provide transport, that will kill or injure people1. These involve criminal activity on the behalf of business organization, entailing deceptive corporate crime and fraud have been prevalent for as long as commercial enterprises have been in techniques, to obtain an unfair advantage to which the perpetrator not entitled. Corporate crime and frauds are commonly commited by those outside an organization- third parties , employees ,or collusion with third parties and employees. Recent survey have been revealed that majority of corporate frauds are being perpetrated by the management of large commercial houses. The estimate of losses born from such fraud varies widely, and the most economies, the extent of such corporate frauds assume such significant proportions. The generic and interrelated source of corporate crime find their roots in increased profits and decreased costs, increased demand and decreased competitions, control of market, workers and supplies. The predominant factors attributable to the current level of major corporate crimes and frauds comprise of: the growing complexity of corporate organizations, escalating speed of modern commerce and computerization, understaffing of internal audit functions, outdated and

Retrived from <http://www.legalserviceindia.com/articles/corp1.htm> 28oct,2012,3.00p.m

ineffective internal control mechanisms, increasingly transient employees and corporate global expansion combined with lack of familiarity with local business practices. In the Indian and International scenario, the entire legal framework to make corporations and multinational companies to accountable is being systematically dismantled. The corporate sector now enjoys far more rights with laws being amended to empower corporations with right to control and regulate their own governance. 2. Corporate Crime Corporate crimes are offenses committed by corporate officials for their corporation and the offenses of the corporation themselves for corporate gain. Typically a corporate criminal bribes a government, dumps toxic industrial waste into rivers. Corporate crimes are often called quiet acts because people not only dont know whom to blame but may not even know that they have been victimized.2 Erich Goode describes the corporate crime whereby executive and officers engages in illegal actions intend to further the interest of that corporations actions which thereby become actions taken on the behalf of corporations. Because individuals in an organization act within a corporate social structure, often the organization and / or industry climate plays important role in whether an actor commits a crime on the behalf of the organization. But if corporate culture secretly rewards such behaviour, is that behaviour actually deviant? Goode posits that corporate crime is a form of deviant behaviour when actions include the harm of the people, sanctions against the actor and/ or company, and the discrediting of the corporate actor. In sum, corporate crime is an important form of the organizational deviance.3 3. Evolution of Corporate Criminal Liability The Fiction theory propounded by Pope Innocent IV and propagated by Salmond and Blackstone etc. stated that the corporate body is really a fiction and not an individual being like a human. It owes its existence to law. This principle was we can say used in Salomon Vs. A Salomon & Co. Ltd4 where the separate legal personality of a corporate body was stressed.

Retrieved from< http://www.julianhermida.com/contcorporate.htm> 280ct,2012,4.05p.m PrakashTalwar, Corporate Crime, Isha Books, Delhi, 2006, p.23. (1897) A.C. 22 (HL)

3 4

In the Concession theory was propounded and propagated by Savigny, Dicey etc., which stated that it is the sovereign which grants the approval to the corporate body to function. This can be compared to todays Indian Companies Act, 1956 which allows the companies authority to function. The Purpose theory is the next theory which was propounded by Demilius, Brinz etc., which stated that entities are formed for a specific purpose and that they cannot function beyond those rights. This can be compared to the modern day principle of Ultra-Virus which of course has been abolished now. The next theory is the Symbolist theory which is also known as the Bracket theory which was propounded by Ihering which stated that the body corporate was just a bracket which could be lifted in order to check the actual state of affairs. The next theory is the Realist theory which is the most important and is modern and recent in origin and was propounded by the German jurist Althusius and further propagated by Von Gierke which says that corporations are real in nature and that they have their own will and life and are social organisms. This can be equated with the modern concept of Corporate Social Responsibility wherein the bodies are imputed with certain social responsibilities as they are considered as part of the society.5 The feature of Corporate Liability being imposed by courts can be seen as early as in the beginning of 1800s. In Yarborough Vs. Bank of England6 Trover 7was granted against the company; trespass was allowed against company in Maund Vs. Monmouthshire Canal Co.8; company was held vulnerable for indictment in case of wrongful exercise of lawful authority in R. Vs. Great North of England Railway Co.9 Lord Lindley in the Judicial Committee of the Privy Council while deciding Citizens Life Assurance Co. Ltd. Vs. Brown 10held that the company will be liable for the acts of its employees based on the ordinary principles of agency because he felt that the talk of imputing malice to corporations appears to introduce speculative difficulties which are needless. Therefore the principles of Corporate Liability came to be justified by reference to agency and vicarious liability. 4. Corporate Criminal Liability in India Corporations are as much part of our society as are any other social institution. Corporations represent a distinct and powerful force at regional, national and global levels and they wield
5

See Zuhairah Ariff Abd Ghadas, Real or Artificial? Jurisprudential Theories on Corporate Personality, USChina Law Rev. Vol.4, May, 2007 6 (1812) 16 East. 6 7 Action to recover value of goods wrongfully taken or detained 8 (1842) 4 Man. & G. 452 9 (1846) 9 Q.B. 315; 115 E.R. 1294 10 (1904) A.C. 423 at 426

enormous economic powers. Besides governments and governmental agencies, it is the corporations that are the more and more effective agents of action in our society. But, corporations, as we understand today, have not been same in the past. The multitude of roles the corporations play in the present day human life have been necessitated by the demands of the society, as it kept on developing. The development of the society, at various points of time, has had a direct influence on the structure and functions of the corporation. This had led to an ever increasing demand for the law to recognize the change and suit its applications, accordingly.11 Over the last few decades nature and form of a corporate sector has grown complex. In last two decades of 20thcentury, we saw globalization and privatization of every type of business entities all over the world and this globalization further paved the way for Global Village, which considerably made the changes in the form of business organization. Today, a corporation is an artificial entity that the law treats as having its own legal personality, separate from and independent of the persons who make up the corporation.12 4.1 Origin of Corporations In simple language, corporation means a group of individuals coming together to carry on a business. Corporation is a creation of law, a business entity recognised by law. Though, English law establishes the origin of modern corporation in the fourteenth century or so, yet some authors13 are of the view that the origin of corporation could be sought in the twelfth century or perhaps in the Roman law where, juristic person was said to have been recognized. Sir Henry Maine suggested that a sort of corporate (as opposed to the individual) responsibility was at the very heart of the primitive legal system. Society was not what it is assumed to be at present, a collection of individuals. In fact, and in view of the men who comprised it, it was an aggregation of families. The law recognized this system of small independent corporations.14 Corporations are of two kinds: (a) Corporation Aggregate, and
11

Balakrishnan. K; Corporate Criminal Liability - Evolution of the concept Cochin University, Law Review, (1998), p.255. 12 Salomon v. Salomon (1897) AC 22. 13 Gross, Edwards;Organization structure and organization crime, in Gilbert Geis and Ezra Scotland (Eds.) White collar crime, theory and research Sage Publications (1980) p.53. 14 Maine Henry; Ancient law, John Murray, London (1930), p.143.

(b) Corporation Sole. 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 making.15It was the industrial revolution of the seventeenth century and improvement in the transportation system thereby, which brought about the previously unanticipated changes not only in the size and structure of the corporations but also in the role and functions corporations play in the society. Over the past century, the concept of a corporation has shifted from the notion of an enterprise headed by one entrepreneur, who both owns and runs the going concern, to that of an organisation where stock ownership becomes separated from the control of the corporations affairs, the latter being managed by a professional, hired and self-perpetuating bureaucracy. Further, the individual shareholders role has changed from part-owner to investor, and its importance has diminished in large corporations where the most significant shareholders are collective entities. The attachment of the shareholder to the corporation is becoming secondary and indirect, reflecting the fact that corporations serve a variety of interests 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 conflicting claims.16 This is the more significant change for the purposes of the criminal law and for imputing corporate criminal liability on the corporations. In todays economic and social structure, a corporation possesses functional structures, it is permanent, large, formal, complex and goal-oriented, and has decision-making structures. Although not all corporations share the characteristic of being large-scale operations involving many individual participants, it should be noted that small corporations do not generally raise the same problems for prosecutors as large ones. Moreover, the social importance of an organizations policies and decisions increase with the magnitude of its resources, reflecting the greater potential of large organizations to cause substantial harm. It has also been observed that the large corporations tend to breed the conditions for disaster.

15

Salmond; Salmond on Jurisprudence, Fitzgerald P.J. (Edt.), Universal Law Publishing Pvt., New Delhi, 2002 p. 305-328. 16 M. Dan-Cohen; Rights, Persons and Organizations 1986 Berkeley, University of California Press, p.27.

The larger the corporation, the greater the diffusion of responsibility, and the greater the possibility for disaster, and for disaster of greater reach. 4.2 Criminal Liability of Corporations under Indian Law In India and internationally, laws to hold corporations accountable are systematically being dismantled, even as corporations and other agents of globalisation dictate policies of nations. The corporate sector enjoys far more rights than the common people. With the onset of the new trade regime, national laws are being changed to empower corporations with the right to hire and fire at will, to get the first right over natural and community resources. 17 Corporate criminal liability has been an important issue on a legal agenda for a long time. Corporations play a significant role not only in creating and managing business but also in common lives of most people. That is why most modern criminal law systems foresee the possibility to hold the corporation criminally liable for the perpetration of a criminal offence. The doctrine of corporate criminal liability turned from it's infancy to almost a prevailing rule.18 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 in 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 liability or corporate crime is very difficult to define because this phrase in present day scenario covers wide range of offences. However for understanding purpose it can be defined as illegal act of omission or commission, punishable by criminal sanction committed by individual or group of individual in course of their occupation.19 It can be even defined as socially injurious acts committed in course of occupations by peoples who are managing the affairs of the company to further its business interest.20 Corporate criminality also represents a kind of instrumentalities through which the trust of the people continues to be betrayed by persons in positions of responsibility, 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 law.21 In this sense, Corporate criminal

17 18

Retrived from < www.legalserviceindia.com/articles/cor_dr.htm 30oct,2012,3.30pm . Thiyagarajan, T. Sivananthan; Corporate Criminality-concept, available at <http://www.manupatra.com/Articles/artlist.asp?s=Corporate/Commercia> 19 Williams, K.S.; "Text Book on Criminology", Universal Law Publishing Pvt., New Delhi, 2001, p.64. 20 Siegal, L.J.; "Criminology" Wadsworth& Thomson Learning, London, 2000, pp.398-99. 21 Braithwaite, John ; Corporate Crime in the Pharmaceutical Industry, 1st Edition, Routledge and Kegan Paul, London, 1984, p.6.

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. 4.2.1 Doctrine of Direct Liability (Theory of Organs) This doctrine, which was specifically developed for the purpose of imposing liability on corporations, seeks, in fact, to imitate the imposition of criminal liability on human beings. The direct doctrine relies on the notion of personification of the legal body. 22 It identifies actions and thought patterns of certain individuals within the corporation called corporate organs who act within the scope of their authority and on behalf of the corporate body, as the behaviour of the legal body itself. Hence, the name of the doctrine: the theory of corporate organs or the alter ego doctrine referring to these individuals as the embodiment of the legal body. In its wake corporation can be rendered criminally liable for the very perpetration of the offences, resembling the liability imposed on a human perpetrator, subject to the natural limitations that follow from the character of the corporations as a legal personality.

4.2.2 Notion of Corporate Culture as a foundation for Corporate Criminal Liability Generally speaking, it can be said that corporate culture refers to a "pattern of shared beliefs and values that give the members of an institution meaning and provide them with the rules for behaviour in their organization". This rather broad notion can be used for many purposes, and is helpful in analyzing a corporation's personality in many respects. For the purposes of attributing criminal liability, corporate culture refers primarily to the chain of command, the decision-making structure and the general atmosphere concerning obedience to the law. The following indicators are often singled out as pointing to facets of corporate culture that are relevant in the context of criminal liability

4.2.3 Corporate Mens Rea Doctrine It is often asserted that companies themselves cannot commit crimes; they cannot think or have intentions.23 Only the people within a company can commit a crime (Sullivan 1995). However, once one accepts that the entire notion of corporate personality is a fiction - but a
22

Retrived from <http://supreme.justia.com/us/200/321/>, 31oct,2012,4.00pm .

23

R. Hal Williams, The Democratic Party and California Politics, 1880-1896,Stanford, Stanford University Press, 1973, p. 34-36.

well-established and highly useful one - there seems no reason why the law should not develop a concomitant corporate mensrea fiction. Most of the other doctrines - identification, aggregation etc. - involve fictitious imputations of responsibility. The real question is not whether the notion of a corporate mensrea involves a fiction, but whether, of all the fictions, it is the one that most closely approximates modern-day corporate reality and perceptions. While this inevitably will raise problems of how to assess policies and procedures to ascertain whether they reflect the requisite culpability, such a task is not impossible. The answers might not be easy, but at least this approach involves asking the right questions. It is often argued in opposition to corporate criminal liability that the imposition of fines provides no guarantee that delinquent conduct will be deterred. The fines imposed on corporations are often minimal in comparison with the devastating effects of their wrongful acts, and virtually amount to a cost of doing business. But there is also a concern that excessive fines can have perverse effects that may have to be borne by innocent shareholders, creditors, employees or consumers. But, it should be remembered that the punishment of companies decreases their overall wealth. Accordingly, shareholders and employees have an incentive to encourage and monitor better corporate practices. Costs can only be passed on the public to the extent that the company remains competitive. Arguments that shareholders and employees need protection must be outweighed by the greater societal interest in ensuring the safety of employees, the public and the environment. 5. Consolidation of Criminal Liability The corporations unthoughtful actions have also victimized the society and the criminal nature has come out very drastically. A responsible societys primary duty is to deter those who victimize the society by their dangerous acts. The most appropriate way found, was, to attribute criminal liability to corporations for their actions. The general belief in the 16th and 17th centuries was corporations could not be held criminally liable. It was so because the widely held juridical belief was that a corporation lacked the essential mens-rea24 which

24

State of mind or Intention

could sustain a criminal conviction. In the famous words of English Lord Edward, the first Baron Thurlow corporations were deemed to have, no soul to damn and no body to kick.25 The uncertainty on when and how to impose liability on corporations and for what sort of default and what should be the remedy for the default are the questions or queries which perplex the judiciary. Often in debates on criminal liability and the punishment which should be given, the only suggestion that comes forth is that of imposing fine, which shows the lack of imagination and ignorance regarding the kind of development and the punishments that are being imposed in other countries in this particular area. The primary reason for this reluctance, being the fact, that these corporations are not human individuals. This notion regarding the non human characteristic of a company hampers the conceptualization or creation of tools to deal with criminal liability. In this regard the English courts have shown the way, but unlike always the courts in India have been reluctant to follow the path that the English courts have shown and the Parliament also seems very reluctant to follow in the footsteps of the English Legislature. The notion that a company could be attributed with criminal liability was first propounded in Director of Public Prosecutions Vs. Kent and Sussex Contractors 26. Here the court held that the knowledge and intention of the servants can be imputed to the company to establish the criminal liability of the company. The landmark case in this field is the case of Tesco Supermarkets Ltd. Vs. Natrass27. This decision brought in, a conception of nerve center of command in which the wrong doing of only a small no of key personnel could be imputed to the company. 6. Indian Corporate Scene In India the situation is completely different. Confusion prevails as to whether a company can be convicted for an offence where the punishment prescribed by the statute is imprisonment and fine. Under Sec.420 of the Indian Penal Code the punishment is imprisonment but the question that is always asked is how can a company be indicted for such an offence and be given such a punishment. This confusion was firs addressed

25

See Jhon.C.Coffee, Jr., No Soul to Damn : No Body to Kick : An Unscandalized Inquiry into the Problem of Corporate Punishment, Mich. L. Rev. vol.79, (1981), pg 386 26 (1944) 1 All.E.R. 119 27 [1971] 2 All E. R. 127

in M.V.Javali Vs. Mahajan Borewell & CO. and Others28where the court held that mandatory sentence of imprisonment and fine is to be imposed where it can be imposed but where it cannot be imposed, namely on a company fine will be the only punishment. In, The Assistant Commissioner Assessment-II Bangalore, and otrs. Vs. Velliappa Textiles Ltd. and otrs.29, J. B.N.Srikrishna had opined that corporate criminal liability cannot be imposed without making corresponding legislative changes. The court opined that where the statute provides for imprisonment or fine, it is not a problem but where the statute provides for imprisonment and fine, the court is not given the discretion to impose fine in lieu of imprisonment and therefore the company cannot be prosecuted as the custodial sentence cannot be imposed upon it. The 41st Law Commission gave a report suggesting amendment in the penal provisions and providing for substitution of imprisonment with fine in case of offender being a body corporate. But the authorities are, till date sitting on that report and no such changes have been made to the penal legislation.

Until recently, Indian courts were of the opinion that corporations could not be criminally prosecuted for offenses requiring mens rea as they could not possess the requisite mens rea. Mens rea is an essential element for majority, if not all, of offenses that would entail imprisonment or other penalty for its violation. Adopting an overly generalized rationale, pre Standard Chartered decision, Indian courts held that corporations could not be prosecuted for offenses requiring a mandatory punishment of imprisonment, as they could not be imprisoned. In A.K. Khosla v. T.S. Venkatesan,30two corporations were charged with having committed fraud under the IPC. The Magistrate issued process against the corporations. In the Calcutta High Court, the counsel for the defendants argued, inter alia, that the corporations, as juristic persons, could not be prosecuted for offenses under the IPC for which mens rea is an essential ingredient. The court agreed. The court pointed out that there were two prerequisites for the prosecution of corporate bodies, the first being that of mens rea and the other being the ability to impose the mandatory sentence of imprisonment. Each of these prerequisites rendered the prosecution of the defendant corporations futile: a corporate body could not be
28 29

AIR 1997 SC 3964 AIR 2004 SC 86 30 (1992) Cr.L.J. 1448.

said to have the necessary mens rea, nor can it be sentenced to imprisonment as it has no physical body. In Kalpanath Rai v. State,31 a company, accused and arraigned under the Terrorists and Disruptive Activities Prevention ("TADA") Act, was alleged to have harbored terrorists. In a bench trial, the trial court convicted the company of the offense punishable under section 3(4) of the TADA. On appeal, the Indian Supreme Court referred to the definition of the word "harbor" ["harbour"] as provided in Section 52A of the IPC and pointed out that there was nothing in TADA, either express or implied, to indicate that the mens rea element had been excluded from the offense under Section 3(4) of TADA. The Indian Supreme Court referred to its earlier decisions in State of Maharashtra v. Mayer Hans of M.P.32 and observed that there was a plethora of decisions by Indian George33and Nathulal v. State courts which had settled the legal proposition that unless the statute clearly excludes mens rea in the commission of an offense, the same must be treated as an essential ingredient of the act in order for the act to be punishable with imprisonment and/or fine. Taking this reasoning a step further, the Indian Supreme Court held that an accused corporation could not possess the requisite mens rea, even if any terrorist had been allowed to occupy the rooms in its hotel. The Court observed: We are aware that in many recent penal statutes, companies or corporations are deemed to be off enders on the strength of the acts committed by persons responsible for the management or affairs of such company or corporations e.g. Essential Commodities Act, Prevention of Food Adulteration Act, etc. . . . But there is no such provision in TADA which makes the Company liable for the acts of its officers. Hence, there is no scope whatsoever to prosecute a company for the offense under Section 3(4) of TADA.34 Similarly, in Zee Telefi lms Ltd. v. Sahara India Co. Corp. Ltd.,35the court dismissed a complaint filed against Zee under Section 500 of the IPC. The complaint alleged that Zee had telecasted a program based on falsehood and thereby defamed Sahara India. The court held that mens rea was one of the essential elements of the offense of criminal defamation and that

31 32

(1997) 8 S.C.C 732. A.I.R. 1966 S.C. 43. 33 A.I.R. 1965 S.C. 722 34 (1997) 8 S.C.C. 732, 739-40. 35 (2001) 3 Recent Criminal Reports 292.

a company could not have the requisite mens rea. In another case,Motorola Inc. v. UOI,36 the Bombay (now "Mumbai") High Court quashed a proceeding against a corporation for alleged cheating, as it came to the conclusion that it was impossible for a corporation to form the requisitemens rea, which was the essential ingredient of the offense. Thus, the corporation could not be prosecuted under section 420 of the IPC. It is clear that, in the past, Indian courts were of the opinion that if mens rea is an element of an offense, a corporation cannot be prosecuted for such an offense as it cannot possess mens rea. But what if a corporation is accused of violating a statute that mandates imprisonment for its violation? In Velliappa Textiles,37 a private company was prosecuted for violation of certain sections under the Income Tax Act ("ITA"). Sections 276-C and 277 of the ITA provided for a sentence of imprisonment and a fine in the event of a violation. The Indian Supreme Court held that the respondent company could not be prosecuted for offenses under certain sections of the ITA because each of these sections required the imposition of a mandatory term of imprisonment coupled with a fine. The sections in question left the court unable to impose only a fine. Indulging in a strict and literal analysis, the Court held that a corporation did not have a physical body to imprison and therefore could not be sentenced to imprisonment. Further, the Indian Supreme Court was of the view that the legislative mandate was to prohibit the courts from deviating from the minimum mandatory punishment prescribed by the Act. The Court also noted that when interpreting a penal statute, if more than one view is possible, the court is obliged to lean in favor of the construction that exempts an accused from penalty rather than the one that imposes the penalty. In Standard Chartered Bank and Ors v. Directorate of Enforcement,38Standard Chartered Bank was being prosecuted for violation of certain provisions of the Foreign Exchange Regulation Act of 1973 ("FERA"). Ultimately, the Indian Supreme Court held that the corporation could be prosecuted and punished, with fines, regardless of the mandatory punishment of imprisonment required under the respective statute.

36 37

(2004) Cri.L.J. 1576. (2004) 1 Comp. L.J. 21. 38 A.I.R. 2005 S.C. 2622.

The Court initially pointed out that, under the view expressed in Velliappa Textiles, the Bank could be prosecuted and punished for an offense involving rupees one lakh39 or less as the court had an option to impose a sentence of imprisonment or fine. However, in the case of an offense involving an amount exceeding rupees one lakh, where the court is not given discretion to impose imprisonment or fine, that is, imprisonment is mandatory, the Bank could not be prosecuted. The Court also referred to the recommendations made by the Law Commission, 40 which had noticed the legal conundrum arising out of the aforementioned situation. The Law Commission recommended the following provision to be inserted in the Penal Code: (1) In every case in which the offense is punishable with imprisonment only or with imprisonment and fine, and the offender is a corporation, it shall be competent to the court to sentence such offender fine only. (2) In every case in which the offense is punishable with imprisonment and any other punishment not being fine, and the off ender is a corporation, it shall be competent to the court to sentence such offender to fine. (3) In this section, "corporation" means an incorporated company or other body corporate, and includes a firm and other association of individuals. Of course, Standard Chartered Bank argued that the Indian Parliament enacted laws knowing fully well that a corporation cannot be subjected to custodial sentence, and, therefore, the legislative intention was not to prosecute the companies or corporate bodies. According to the defendant, when the sentence prescribed cannot be imposed, the very prosecution itself is futile and meaningless, and, thus, the majority decision in Velliappa Textiles had correctly laid down the law. The Indian Supreme Court in Standard Chartered Bank observed that the view of different High Courts in India was very inconsistent on this issue. For example, in State of

39 40

One Lakh = Rs. 100,000. Approximately $2320 After independence, the Constitution of India with its Fundamental Rights and Directive Principles of State Policy gave a new direction to law reform geared to the needs of a democratic legal order in a plural society. Though the Constitution stipulated the continuation of pre- Constitution Laws (Article 372) till they are amended or repealed, there had been demands in Parliament and outside for establishing a Central Law Commission to recommend revision and updating of the inherited laws to serve the changing needs of the country.

Maharasthra v. Syndicate Transport,41the Bombay High Court had held that the company could not be prosecuted for offenses which necessarily entailed corporal punishment or imprisonment; prosecuting a company for such offenses would only result in a trial with a verdict of guilty and no effective order by way of a sentence. On the other hand, in Oswal Vanaspati & Allied Industries v. State of Uttar Pradesh,42 the appellant-company had sought to quash a criminal complaint, arguing that the company could not be prosecuted for the particular criminal offense in question, as the sentence of imprisonment provided under that section was mandatory. The Full Bench of the Allahabad High Court had disagreed. 7. Model Penal Code Provisions The Model Penal Code provides that a corporation may be convicted of an offence if: 7.1 Variety of Crimes 1. The offence is a violation or defined by a statute other than the Code in which a legislative purpose to impose liability on corporations plainly appears and the conduct is performed by an agent of the corporation acting in behalf of the corporation within the scope of his office or employment. 2. The offence consists of an omission to discharge a specific duty of affirmative performance imposed on a corporation by law, or 3. The commission of the offence was authorized, requested, commanded, performed or recklessly tolerated by the board of directors or a high managerial agent acting in behalf of the corporation within the scope of his office or employment . Corporations can be held criminally responsible for a wide variety of crimes: a. Contempt in disobeying decrees and other court orders, directed to it.

b. Conspiracy. c. Bribery or conspiracy to bribe public officials.

d. The illegal practice of medicine. e. f. Maintaining public nuisance. Violations of licensing and regulatory statutes.

g. Violations of consumer protection laws.

41 42

(1963) Bom. L.R. 197 (1993) 1 Comp.L.J. 172

h. Antitrust law violations. i. j. Liquor law violations. Larceny, if corporate officers authorized or acquiesced in criminal act.

k. Extortion, assuming that it was authorized, requested or commanded by a managerial agent having supervisory responsibility. l. Obtaining money by false pretenses. m. Selling or exhibiting obscene matter. n. Statutory federal crimes and such as violations of the Occupational Safety and Health Act. 7.2 Punishments A corporation may be punishment by fine, indeed the only punishment that can be inflicted on a corporation for a criminal offence, is a fine or seizure of its property which can be levied by an execution issued by the court . A corporation cannot be imprisoned and is not amenable to prosecution for a criminal offence which is only punishable by death or imprisonment. However, the fact that the penalty provided for the violation of a statute is a fine or imprisonment, or both in the discretion of the court, does not render it inapplicable to a corporation, and the same rule applies where the statute creating the offence provides for imprisonment if the fine imposed not paid. Sometimes, a statute providing that the penalty for a particular crime is imprisonment may be read in conjunction with a general statute allowing the imposition of a fine, and the fine may be imposed on the corporation in lieu of imprisonment. 8. Liability under Information Technology Act, 2002 For instance, Section 85(1) of the Information Technology Act, 2000 (IT Act, 2000) provides that where a person committing a contravention of any of the provisions of this Act or of any rule, direction or order made there under is a Company, every person who, at the time the contravention was committed, was in charge of, and was responsible to, the company for the conduct of business of the company as well as the company, shall be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. The proviso to section 85 (1) provides that such person will not be liable for punishment if he proves that the contravention took place without his knowledge or that he exercised all due diligence to prevent such contravention. Section 85(2) provides that where a contravention of

any of the provisions of this Act or of any rule, direction or order made there under has been committed by a company and it is proved that the contravention has taken place 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 the contravention and shall be liable to be proceeded against and punished accordingly There are certain well-recognised cardinal principles of criminal laws, which need to be discussed before proceeding further. These are: (1) The ignorance of law is no excuse, (2) The presumption of innocence continues until the guilt of the accused is proved, (3) The guilt of the accused must be proved beyond reasonable doubt, (4) No person is guilty of an offence unless it is accompanied by both an act/ omission and the guilty intention for the same, (5) The law may presume the guilty intention if the commission of the act is proved. This is known as strict liability offences, and (6) The law may fix the liability of certain individuals on a notional basis. 9. Conclusion & Suggestions Today, corporate criminal liability is a subject of concern for a wide range of groups campaigning on issues including human rights, environment, development and labour. Corporate crimes committed on all continents across a range of industrial activities in various sectors (e.g. chemicals, forestry, oil, mining, genetic engineering, nuclear, military, fishing, etc.) clearly point towards the need for greater control, monitoring and accountability of corporate activity in a globalised economy. Corporate criminal liability is complementary to individual liability. The present liability regime that makes both corporate and individual prosecutions available to regulatory authorities has undeniable advantages over one that does not. Where crime arises from intraorganisational defects, the dismissal or discipline of a few individuals is clearly an inadequate

response. Further, where individual liability is difficult to determine, prosecution of the corporation is an attractive alternative. There are many other situations where the prosecution of the corporation may be the only way to allocate responsibility for white-collar crime. Where both a corporation and its officers can be prosecuted, the prosecution of one over the other, or both, is a matter that is largely left to the discretion of the prosecuting authority. The prosecutions choice should be aimed at achieving the effective regulation of corporate activities, as well as the general objectives of sentencing.