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CORPORATE CRIMINAL LIABILITY: AN ANALYTICAL STUDY

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CORPORATE CRIMINAL LIABILITY: AN ANALYTICAL STUDY

By –Gyan Prakash Tiwari

Law Student, Alliance University, Bangalore

INTRODUCTION
Corporations have become an integral part of our society. They have significant impact on the
economy, society and environment. Some corporations function in other countries apart from
their home country as well and are known as multinational corporations (MNCs). These MNCs
play a huge role in most aspects of human life today. Their powers have grown at an astonishing
rate over the last couple of centuries, and are sometimes comparable to entire nations.
Therefore, imposing accountability and control over these MNC’s and corporations is of great
importance. This rise in significance of corporations has increased our risk of getting victimized
by their crimes. The expansion of corporate sector through globalization, information and
technological development has led to the development of doctrine of Corporate Criminal
Liability. The level of crime may be extraordinary owing to the powers and reach of such
corporations as opposed to a crime committed by a single person. Once it is found that a
corporation has committed a crime, the next question is whether corporations can be held guilty
of such crimes.

The foundation of a criminal liability lies in two elements:

I. actus reus - this means guilty act or omission

II. mens rea - this means prohibited state of mind or guilty mind

The concept here is derived from a Latin phrase actus non facit reum nisi mens sit rea, which
means that just the act will not make a person guilty unless the mind or intent is also found to
be guilty. The evolution of corporate criminal law has faced many challenges over the years,
the most important one being failure to find the mens rea. As corporations are intangible legal
entities it became really hard to prove criminal intent of a fictional being. Also one of the major
punishments imposed for a criminal activity i.e. imprisonment, could not be applied here.
Given that the corporations are intangible legal entities, hence fulfilling the requirement of
bringing the accused physically in court is impossible. Prior to the 20th century, it was believed
that a corporation lacked the mens rea which are required for the commission of a criminal act
and hence to attain a criminal conviction. Under Section 11 of IPC, company is also included
in the definition of the term ‘person’ in determining the corporate criminal liability.

1
 The Imposition of punishment is only for the offence under criminal but deterrence is the
principle which only been applied for economic entities like corporations

But despite these mechanism and regulations the Indian legal system are facing problems in
keeping a check or control these corporations who do enjoy the patronage and impunity which
are impacting the society and became an integral part of society and emerge as the vital actor
in the economy as it is affecting the lives of people positively but in many times disastrous or
negative manner.

Corporate Crimes: Nature And Types

The development of corporate criminal liability has become a serious issue for prosecutors and
courts in determining the criminal liability. In India the principle of vicarious liability been
taken in determining the liability of any individual even in the case of corporations under the
law. The emergence of transnational criminal activities are one of the major problems and
challenges which is globally impacting the society with more and more involvement of
corporate sector1 but still there are not sufficient legal system in order to deal with such
problems as there is a need to review criminal justice system . In this modern world the impact
of activities of corporation are high in the society corporation which became an integral part of
society and also emerge as the vital actor in economy2 as it is affecting the lives of people
positively but in many times disastrous manner with certain categories of crimes as we have
seen cases Bhopal Gas tragedy, Uphar Cinema tragedy or scams or scandals especially white
collar crimes and other organized crimes which is the major problems and concerns which has
been taken by apex courts in recent times but despite these disasters still there is concern in
determine or impose criminal liability on corporations who are capable of committing the
crime even though we have laws as in most cases corporations get away from any criminal
liability as they in most cases enjoy the culture of impunity and there is a need to have proper
mechanism in order to stop the corporations from committing these crimes and remove the
culture of impunity which corporate body enjoy .

1
[Link], “Corporate Criminal Liability - Evolution of the Concept”, Cochin University Law
Review (1998)
2
D. Silviya Dixina and S. Indrapriya, “A study on Corporate Crime in India”, International Journal of Law
Management and Humanities 2 (2018)

2
Nature and Types

Corporate crimes are thought of to be general styles of the white collar crimes and that is
additionally grasped with respect to the activity crimes. The distinction between corporate crimes
and the occupational crimes is that the corporate crimes refers to the criminal act of the corporate
managers for the benefit of the corporation, the occupational crimes refers to the individual
employees who is against the corporation itself3, E.g., the occupational crimes include theft, money
laundering etc.

If we see corporate crime are different from that of traditional crimes that have been committed by
individuals. As such, there is no separate branch for the crimes that have been committed by the
corporate. There are various types of corporate crime. The major types of corporate crimes are bribery,
counterfeiting, fraud, insider trading, blackmail etc. The corporates are capable of committing a
variety of crimes which include crimes resulting in physical harm-like industrial disasters,
occupational hazards, manufacturing unsafe products, causing industrial pollution which lead
to environmental degradations and also committing human rights violations. In the economic
front the impact is devastating when various means and opportunities are available in the
corporate environment and culture.

The above assessment shows corporation involvement in financial manipulations to inside

trading, manipulation of security market, stealing trade secrets, projecting investment trends,
corporate corruption and bribery and can also lead to corporate negligence and manslaughters.
The new Companies Act in India has introduced certain provisions to put check on corporate
misdeeds and also imposed upon them corporate social responsibility. But is it effective in
determining and attributing the criminal liability on corporations.

There are certain offences which are committed by corporation showing the problems which
the society suffers from the corporate crimes. As in the recent past many industrial disasters
happened in India and in the world at large one of those were Bhopal Gas Tragedy,1984,
Chan Sala Mining Disaster,1975, Jaipur oil depot fire 2009,etc. The industrial disasters are a
threat to people and many of all these incidents leave long term health effects and severe

3
Sara Sun Beale, “The Development and Evolution of the U.S. Law of Corporate Criminal Liability”,
Zeitshrift Fur Die Gesamte Strafrechtswissenschaft 126 27-54 (2014)

3
Contamination of the surroundings which arise from the corporates demand supply
production of goods and services.

There are organized crimes or transnational crimes which is the new form of criminality in
which along with organized groups the corporation is also found to be indulged into. Money
Laundering, Cyber Crimes, Terrorist Funding, Drug Trafficking, Human Trafficking. The
workers in hazardous industries do suffered death and injuries at workplaces and which lead to
long term effects of occupational diseases. The Corporate executives are mostly responsible
for the vast majority of deaths because as they have violated occupational health and safety
standards or have chosen not to create adequate standards. Therefore the corporations may be
held liable for neglecting or failing in adopting or providing safety measures to workers which
are required in the workplace as mentioned under ILO guidelines(International Labour
organization) which frames the law and recommends the state to implement but even though
India who is one of the member states in general ignore some of the guidelines which are
required especially in relation to labour rights in the workplace or in corporations as most of
the times these corporate body ignores the labour rights of the workers and fail to provide them
safety measures which are required to be provided to employees . As at present most of the
corporate body or companies ignores most of labour law guidelines and regulation and not
taking any due diligence in conducting the business activity. Even after many disaster incidents
like Bhopal gas tragedy, Uphar tragedy, Satyam case these corporates in most of the time get
away from any sought of criminal liabilities which is the major problem.

The people in general also experiences the violence in the form of pollution and other green
crimes. There are many different green crimes but they are all committed for the sake of profit
and they all harm the environment and even though we have a mechanism or regulations to
tackle such problem (environment protection act 1986) most of the time corporates get away
from any punishments or criminal liability. The multinational corporations have moved
production plants to countries that do not have many laws regulating pollution, and even though
there are certain mechanism or regulation to deal with such issues in India which comes under
the “environment protection act 1986” but still the corporation who do enjoys the culture of
impunity got away from any criminal liabilities as they continued to be involved in
environmental damage which has been very significant.

Corporates also get involved in various regulating offences. Other regulatory offences
depending upon the activities undertaken by the corporate there are other categories of

4
Regulatory offences committed by them. These offences may be committed during the usual
operation of their working or by non-compliance. In addition the Companies Act has provisions
to ensure compliance with regulatory framework.

Principles of corporate criminal liability

There are certain guiding principle in relation to Business and human rights as to protect,
respect and remedy4 which states the duty and responsibility of states to protect the innocent
people's rights, and giving them remedy with the formulation and effective implementation of
laws.

The problem of determining the corporate criminal liability is itself the big question, but one
question which arises what value of corporate criminal liability could have been given the
coexistence of civil liability or redress against them and whether corporate criminal liability
has the added value over the individual criminal responsibility. 5

The element of crimes is when the prosecutors need to prove beyond any reasonable doubt
involves the principles of criminal liability. There are two things which needed to point before
determining any criminal liability is mens rea and actus rea taking into account the principle of
strict liability along with other principles where the liability without any fault arises as if see
cases corporates involved in respect to environmental crimes also in certain acts strict liability
in absence of mens rea would not actually absolve the liability in some acts which corporates
commit. In general, corporations can be held liable when there is the intention and knowledge
of act the rule only extend to when employees having the knowledge during the course of
employment in order to benefit the corporation 6, In this scenario the law is uncertain when
the corporations liability turns not on knowledge and intent of the employee but on the
cumulative action and knowledge of several others who are part of corporations.

The corporations has no physical existence who does not act on his own its thinking and acting
been mostly done by individuals of the corporation directors or by employees there is a great
need to form the liability on the corporate bodies who are contributing to the economic
development and prosperity of the country there must be checks and balances on corporations

4
John Ruggie, “Protect, Respect and Remedy: A framework for Business and Human Rights”,Innovation
Technology Governance globalization (2018)
5
James [Link], “A Pragmatic Critique of Corporate Criminal Theory: Atrocity, Commerce and
Accountability”, University of Toronto workshop on corporate criminal liability (2012)
6
United States v. LaGrou Distribution Systems [2006] 05 3361

5
who are in today’s are enjoying the culture of impunity. But the problem arises when it is
difficult to substantiate or track down the individual offenders in corporations as they many
times get away from any liability and they generally shift the blame on somebody else.

There is also the problem is the dividing line between the criminal and civil provisions are not
very clear or precise in relation to determining the liabilities on the corporation as the statutes
such as company law provisions are made for both civil and criminal action in dealing with
conduct of individuals in the corporation, Consequently the directors of the corporation who
uses its position or who acted dishonestly in most cases civil action been brought on company
to recover any damages or compensation for the damages which in most cases corporations
tried to blur the distinction as by seeking the matter to be dealt under the civil provision as the
corporates use it as an excuse and get away from the stigma of criminality which might
otherwise arises which shows the problem as in most cases corporates use this civil action as a
tool to get away from any criminal liability and even though damages are been awarded as most
of the corporates fail to take due diligence which result in mass destruction and damage to
innocent people as been seen in Bhopal gas tragedy case as corporation mostly are ready to
pay the sum or compensation as they are economically wealthy as it is not much to corporates
to pay small compensation damages as they get away from any criminal liability or
punishments .Earlier times when corporates commits any offence it was very difficult for the
courts to determine the criminal liability of corporation as at many times they get away from
any punishments as pointed out in the case of New York Central & Hudson River Railroad Co.
v United States,7where the supreme court of the United States expressly abandoned what it
termed the old and exploded doctrine of corporate immunity from criminal prosecution; the
Court emphasized its concern that many offenses might otherwise go unpunished.

The four principles under which faults are ascribed to persons which are accountability, fair
opportunity, answerability, and justification or excuse8 which is very important as pointed out
by Ashworth who also underlined the doctrine of mens rea. 9

In context to Indian legal system in determining the criminal liability been determined by
doctrine of mens rea and actus rea the main ingredients of an offence in determining the

7
212 U.S. 481 (1909)
8
A. Ashworth, “Principles of Criminal Law Oxford: Clarendon Press”, 80-81 (1991)
9
Ibid, ‘There is indeed a fundamental principle underlying the mens rea concept: in criminal law there should
normally be no responsibility without personal fault. .... Criminal responsibility without personal fault removes
the choice of lawful behavior’

8
criminal liability but when the offences which are committed by corporations whether the
company can convicted of any criminal offence this is the major issue which the Indian courts
face as they struggle to formulate the jurisprudence in order to determine or substantiate the
guilt of the corporations as in most cases the companies or corporate bodies could not be
criminally prosecuted for the offence which require mens rea as in most cases without mens
rea one could not possess the requisite mind to carry out any act 10 as this is one of the major
issues which court in India face in determining the criminal liability of corporations. Also if
we take look at the Latin maxim of actus non facit reum nisi, mens sit rea (guilty mind,
criminal intent) which basically talks about the mental state or criminal offence which has been
committed must be established in determining the criminal liability as it possesses difficulty in
fixing or determining the liability of corporation in case of lack of any human element which
are required.

But recent past Supreme court of India in case of Standard Chartered Bank v Directorate of
Enforcement11 have tried settled this issue by holding that the corporate bodies can be
prosecuted for criminal offences which earlier similar to these kind of cases the law was
unwilling to impose any criminal liability on corporations because of lack of mens rea to
commit any offence as the corporations in most cases get away from any criminal liability or
imprisonment.

Punishment to Corporation

After the guilt is being established the next thing needed is to determine the nature and types
of punishment which are to be imposed on [Link],the conviction itself is a stigma that
affects the business prospects of a corporation yet ends of criminal justice could only be met
by providing appropriate sanctions. Question can be asked why corporation should be
punished? As it can be said that objective of criminal justice would require that there should
be condemnation of the guilty even when it is a corporation. Once the corporations are taken
as separate from individuals within itself and they are acting as a whole in a different way than
its executives, there are requirements they should be punished distinctly even if physical,

10 Rohit Jaiswal, "Criminal Liability of Corporate Bodies- A report submitted by Singhania and Partners
LLP”, International Law Office (2012)
<[Link] ed97-4fcc-b04e-be05f8c8e37f>
Last accessed 20th November 2019
11 (2005) 4 SCC 530

9
Imprisonment is not possible which is the problem which has been faced in case of determining
the criminal liability on corporations.

Under criminal law there are certain theories of punishment are based of Retribution,
Deterrence, Prevention and Reformation. Question arises how far these theories can be applied
to find the rational corporate punishment?

Theories of corporate crimes

The corporation are enjoying the culture of impunity as there is the need for developing a
culture whereby there could be voluntary compliance of law and cooperation will law
enforcement as the objective is to prevent the crime by laying down norms whereby criminal
activities can be discouraged.

Also, failure to control the corporate misdeeds may lead to retarded development and also loss
of capital in many ways. The magnitude of harm which is caused by the corporates must have
the adequate legal mechanism to deal with it.

There are different theories of punishment which are Retribution, deterrence, Prevention and
Reformation which takes care of different circumstances of crimes and criminals .In relation
to retribution as freedman points out expressive retribution justifies the corporate punishment
the expressive retributivists commitment is to assert moral truth in the face of denial.

In relation to deterrence theory the punishment are more severe in order to deter the convict
and the prospective criminals from committing future crimes. And since the corporate form of
punishment is not possible in the case of corporation the alternative forms of deterrence can be
adopted in dealing with the case of corporations. If one starts with a view that there is under
deterrence corporate wrongdoing in order to reduce corporate criminal liability but laws are
mostly focusing on the more of corporate civil liability.12

In most cases corporations are operating for benefits or profits therefore deterrence of excessive
cost of non-compliance of law could be more deterrent for them though the same is not
generally true in the case of individual criminal behavior. It has been seen the deterrent fine
which are imposed on the corporates would affect many innocent employees, shareholders or

12
Vikramaditya S. Khanna, “Corporate Crime Legislation: A Political Economy Analysis”, Washington
Law Review 82 100-141(2004)

10
a public too but it should not be used as the excuse as we see some cases of the corporates are
making a profit from the crime committed and enjoy the culture of impunity.

In the case of MC Mehta vs Union of India13 famous case where the Supreme court recognized
absolute liability on the enterprise for carrying on inherently dangerous and hazardous
activities held that quantum of damages in such cases should be a deterrent in the event of any
disaster. Also, one more thing taken by court that such quantum of damages can be taken based
on the capacity of enterprise which in most cases are high .One more thing can be taken that in
relation to such incident the damages should be awarded to such enterprises only then such
multinational corporation which runs the hazardous activities at social cost which could be
deterred in order to stop such corporates to get way from such hazardous activities resulting
widespread rampage in society.

In relation to preventive theory of punishment been mostly applied in order to incapacitate or

prevent the offenders in order to stop them from committing further crimes, the question arises
how far the preventive theory is appropriate in determining and punishing the corporations and
if so in what circumstances?

It can be said that prevention are more workable with corporate criminals as the kind of criminal
activity dependent on being able to maintain legitimacy in formalized roles in the economy.
The corporation can permanently incapacitated by order of wounding up which can be equal
to capital punishment in individual cases also corporation can be restrained from continuing
the activities which violated the law. It is been also observed that many of the corporate crimes
arise from defective control system, insufficient checks and balances to ensure that the law is
complied with poor communication, inadequate standard operating procedure which fail to
incorporate safeguards as against reckless behavior. These defects can be due to negligence or
some of the conscious decisions which still can be controlled by proper regulatory authorities
who regulate corporate policies and practices. In any way the formal mechanisms can be
applied by putting the corporation under the supervision of auditors, environmental experts and
other authorities in order to make sure that such order must be regulated and function properly.

13 AIR 1987 SC 1086

11
Civil or Criminal Punishments to Corporates

When we talk about punishments for corporations which in most of the times are punished
under the civil as well as under the administrative law even though corporate crimes are one of
the most controversial issues. The penal statutes prescribing the punishments have not been
able to make any distinction for the offence which could otherwise be the same for an individual
and the corporation, The problem and matter with regards to punishment which came under
scrutiny in the case of Assistant Velliappa Textiles ltd and ors 14 where the court observed the
criminal liability cannot be imposed upon the corporations where the punishment for the
offence also prescribes imprisonment. The Law commission of India in its 41st and 47th report
did suggest the punishments for criminal liability which is either imprisonment or fine as in
most cases the corporate should be fined in relation to the white collar crimes 15 but, sadly the
recommendation never get through even though we have many provisions under the Indian
laws which deals with the matter of corporate crimes like fraud, bribery , insider trading etc.
which in most cases are punished under civil regulation but no penal regulations are been
incorporated which punish the company.16

The main issue which has been faced today is that corporations cannot be imprisoned as they
were not been amended to any prosecution for a criminal offence as in most cases the corporates
even though fine or compensation been paid which is one of the easiest ways to get away from
any criminal prosecution or imprisonment the reasons are for corporations who are
economically wealthy and continue to grow for them it not much to pay little compensation or
fines in case of any violation of statutes and committing any crime however bad the it affect
the society at large .

It was additionally worthy to say that our Parliament has additionally understood this issue
associate degreed projected to amend the IPC during this regard by together with fine as an
alternative to imprisonment where corporations are involved in 1972. However; the bill was
not passed by parliament.

14
AIR 2004 SC 86
15
Law Commission of India, 41st Report on Reform of Judicial Administration Pertaining to the Code of
Criminal Procedure, 1973 (September 1969)
16
Akhil Mahesh, “Corporate Criminal Liability”, National University of Advanced Legal Studies Kochi (2015)
available at
<[Link] accessed on 25th September 2019

12
There are certain mechanism or law mostly civil regulation which determine the liability of the
corporation and punishments are given under section 45 ,63 , 68,75(5),203 under the companies
act but there are no effective mechanism which can punish or prosecute the corporation itself
as most of the times only individuals who commit crimes or offence held liable and most of the
cases of corporation are been dealt under these civil regulation as mostly they get away from
any criminal prosecution or punishment which usually been given to criminal offender which
shows the real problem in the current legal system .

Judicial Approach

The judiciary plays the major role in determining the corporate criminal liability as there are
certain cases which shows what are the problems which judiciary faced in determining the
criminal liability in corporation and what are its observations ,the below mentioned cases are
being critically been analyzed .

Standard Chartered Bank and ors. V Directorate of Enforcement And ors17

The appellant went to the High Court of Bombay to contest the notices issued to them under
Section 50 read with Section 51 of the Foreign Exchange Regulation Act, 1973. The appellant
asserted that it could not be prosecuted for the offence under Section 56 of the FERA Act. The
appellant filed an appeal against the judgment of the Division Bench of the Bombay High
Court, dated 7thNovember, 1998 where the appellant contended that no criminal proceedings
can be initiated against the appellant-company for the offence under Section 56(1) of the FERA
Act as the minimum punishment prescribed under Section 56(1)(i) is imprisonment for a term
which shall not be less than six months and with fine. The questions raised at the moment
included if a company or a corporate body could be made liable for crimes for which the
punishment is necessarily imprisonment and if the sentence is both imprisonment and fine, can
fine alone be imposed by the court for the guilty.

Judgements

The majority view was given by K.G. Balakrishnan, Arun Kumar, J. and D.M. Dharmadhikari,
J. Reference was made to Section 11 of the Indian Penal Code which says that “The word
“person” includes any Company or Association or body of persons, whether incorporated or
not” and to the 41st and 47th law commission report in which the law commission stated that

17
AIR 2005 SC 2622
13
– “In every case in which the offence is only punishable with imprisonment or with
imprisonment and fine and the offender is a company or other body corporate or an association
of individuals, it shall be competent to the court to sentence such offender to fine only.” 19
References were also made to Craies on Statue Law and Maxim lex non cogit ad impossibilia
which gave that law has to be followed mainly with respect to intent and not just based on the
construction. Also, in case of impossibility of events, it can be safely assumed that the
parliament intended it to be changed.

Analysis

B.N. Srikrishna, J. mentioned that legislative intent was what was important and that the
construction of statute only advances the intent. The maxim ‘lex non cogit ad impossibilia’, is
also referred which conveys that the court cannot order the execution of an impossible event.
Thus after this case it has been established that a corporate cannot claim immunity from
punishment claiming that it does not possess the required mens rea for committing offences.
The idea that a corporation cannot be made liable for its crime has been rejected since this case.

Sunil Bharti Mittal vs CBI 18

CBI ordered investigations into three companies Bharti Cellular Limited, Hutchison Max
Telecom (P) Limited and Sterling Cellular Limited for irregularities in the granting of licenses
in the 2G band and spectrum allocation and filed charges against them for the same before the
judge. The judge mandated that the managing directors of the company should also be
prosecuted individually along with the companies themselves.

The major issue was to decide if the liability of the company can be attributed to the person(s)
at the helm of the affairs of the company by invoking the theory of attribution?

Judgement and Analysis

The Court reiterated that the “Criminal Intent of the person(s) controlling company can be
imputed to the company based on the principle of “Alter-ego”, however, the reverse application
of this principle is not permissible. If the company is accused, then the directors cannot be
automatically assumed to be guilty and they can be 20 prosecuted only if the evidence

18
(2015) 4 SCC 609

14
Showcasing their malicious intent, roles and involvement in the crime is adequate or if the
statute provides for specific vicarious liability of directors of the acts of the company by way
of a legal fiction (deeming provision). Two directors were summoned as the directing will and
mind of the company but the judge reversed saying they were brought up by the magistrate
without any incriminating role assigned to them. So, the case was dismissed.

Iridium India Telecom Ltd. v. Motorola Inc.19

The question of punishing a corporate came up again in the Supreme Court in the case filed by
Iridium India Telecom Ltd. Against Motorola Inc. The complaint pertained to allegations of
cheating and criminal conspiracy under Section 420 of the Indian Penal Code and the original
complaint spanned over 35 pages. The appellant challenged that the deceptive nature of the
respondent was revealed from the fact that the proposal was taken to the Board of Directors of
the Respondent, was not accepted by the Board of Respondent and the high court sentenced
that the Board of Respondent as a corporate did not possess the mens rea to commit the
fraudulent act. It was also argued that all the jurisdictions of the world agreed that corporates
have to mad liable for certain criminal offences. The respondent challenged that no
representations were made on the success of the project and the respondent was not controlling
appellant. It argued that it could not be established by the appellant that its intentions were
dishonest and representations were made to experts of their fields and they were able to gauge
the risks of the project. The other argument was that the corporation did not possess the
necessary mens rea for the crime.

Judgement

The Supreme Court reiterated the legal position on two counts: (i) the scope of jurisdiction of
the High Court in quashing criminal proceedings under Section 482 of the Criminal Procedure
Code; and (ii) the fact that companies can be prosecuted for offences involving mens rea. The
Hon’ble Supreme Court further held that Appellants were entitled to an opportunity to establish
that Respondent and its representatives were aware of the falsity of the representations at the
time when they were made. The judgement given by high court was set back and it was said
21 that a corporate will be made liable to its offences and it cannot claim immunity that it does

19
(2011) 1 SCC 74

15
not have the mens rea required to commit crimes. The Supreme Court allowed the prosecution
of the respondent setting aside the sentence given by the high court.

Satyam scandal lifting up of corporate veil

Lifting up of corporate veil is a doctrine used to identify the real people who have committed
the crime and claim immunity by using the company’s name. The court will not allow the use
of the corporate name and it will go through the process of lifting of corporate veil where all
the names of the directors, members and shareholders should be identified and they will be
prosecuted accordingly This doctrine is divided into two theories: Alter ego and Instrumental
theories The alter ego theory gives that a distinction exists between the shareholders and the
company while the instrumental theory finds out the methods in which the shareholders use the
company for their personal benefits. The court does not easily issue orders to remove the
corporate veil and only does when it becomes absolutely necessary.

Case and Judgement

Satyam Computer Services was the fourth largest software firm in India before its infamous
scandal. The infamous Satyam Scan first became visible to the public through a letter from the
CEO himself to SEBI and later investigated in detail by CID and other departments. It was
revealed that the balance sheet as on Sept. 30 2008 was heavily manipulated and was carrying
fictitious cash and bank balance that did not exist. The books were overstated by 5000 to 6000
crores leading to inflated stocks that helped the management earn money. After the revelation,
Ramalinga Raju was taken into police custody and the Raju brothers along with the CFO of the
company, Srinivas Vadlamani have been arrested.

The above cases shows the crimes which the corporation are committing and how much it is
influencing the society at large mostly in negative way and violating the legal system, Also
how the court faced difficulty in determining or attributing the criminal liability on corporations
as they observe that the individual or corporation can only be held liable if there is sufficient
evidence of the active role criminal intent the second was when the statute specifically imposes
the liability. The court mostly attribute criminal liability on corporations based on the
principles of vicarious liability and use the tool of mens rea and actus rea .

16
 Adequacy of Legal and Regulatory Measures Adopted To Control and
Prevent the Problem
Adequacy of existing Legal mechanism

Law emerges from a society. Incorporating the social desires and international commitments,
laws are designed in a society for the regulation of human behavior, maintaining peace and
order, protection of life, property and contractual rights, etc. Laws, even though is offering
punitive actions like imprisonment and fine on being found guilty of violation of them, serve a
far more necessary purpose. Defining and enforcing the laws in a society helps preventing and
controlling the unlawful acts in them. Let’s first initially explore how adequate are our current
Indian legal system in serving to prevent and control the issue of corporate criminal liability.

Section 11 of the Indian penal code states the following:

“Person—the word “person” includes any Company or Association or body of persons,

whether incorporated or not.” 20, Also, natural person can be convicted of an offence as they
possess mind21 which are one important thing in determining the crime Thus we are able to
observe that IPC’s definition of a ‘Person’ includes corporations and companies so including
them under the purview of law in case of a criminal liability. However, as we have a tendency
to further explore, we find certain areas where company may not be held liable but only the
officials involved. Companies Act 2013, is a regulatory document by Parliament of India that
caters to incorporation of companies, company’s dissolution and responsibilities of company
and its directors. The act replaced the companies Act 1956, after being approved by the
President of India.

Under sections 70 (5), 43, 68 and 203 of the companies Act which are dealing with corporate
criminal liability talks about the officials accountable for the crimes in this. However, the
company itself isn’t considered liable22.

Similarly, sections of the Indian penal code wherein imprisonment and fine or compulsory
imprisonment is involved, liability on a corporation can't be established as the corporation

20
Indian Penal Code, 1860(Act 45 of 1860), s.11
<[Link] on 28th September 2019
21
Indian Penal Code, 1860 (Act 45 of 1860), s.2
22
Companies Act, 2013(Act 18 of 2013)
<[Link] on 28th September 2019

17
being a non-living entity, can't be imprisoned. In the case of State of Maharashtra vs. Syndicate
23
Transport, the court observed that it cannot impose just fine on the culprit where the
mandatory punishment involved was both fine and imprisonment. Imposing simply a fine
during this case was considered being deviating from the minimum prescribed punishment
according to the law.

However, the Supreme Court solved the problem which arose because of the previous
judgments by passing a radical judgment in the case of Standard Chartered Bank and Ors.
etc. vs. directorate of enforcement and Ors. 24 The court observed and enforced that once
imprisonment moreover as fine is that the prescribed obligatory punishment, the corporation
cannot escape just because it can't be imprisoned. In this case, the corporate would be liable to
pay the fine enforced upon by the court as a punitive measure against corporation’s liability.
As against certain sections of the companies Act wherein the corporation itself wasn’t held
accountable, we will also observe other statutes where corporations will be fined if found guilty
under the sections like, Section 276-B of the income tax Act, Section 141 of the Negotiable
Instruments Act, Section 7 of the essentials Commodities Act, etc.

Effectiveness of enforcement mechanism

The main objective of criminal liability for a faulty prospectus is to establish deterrence for
future violators of disclosure requirements. The word "deterrence" is characterized by fear of
the potential consequences as avoiding a particular action or omission. In order to discourage
such undesirable behavior, criminal law has historically levied such fines. A corporation being
a congregation of various stakeholders at the micro and macro level, must be fair and
transparent to its stakeholders in all its transactions. In a globalized world, corporations need
access to resources and compete in a global marketplace that essentially requires them to
embrace and demonstrate ethical conduct in order to develop and survive in the long run.
Recent decades have seen a sharp increase in the ambition of individuals and companies and
an increasing impact on our lives and society corporate fraud and corruption remains a
constant feature posing threat from both the macro and micro-economic perspective of the
economy

Similar to other developing countries and some developed countries, India is in the grip of
fraud, recent decades have seen a sharp increase in the ambition of individuals and companies

23 AIR 1964 BOM 197

24 AIR 2005 SC 2622

18
and an increasing impact on our lives and society corporate fraud and corruption remain a
constant feature posing threat from both the macro and micro-economic perspective of the
economy

The above mentioned problem is very much active in the country as in many cases corporations
get away from such crimes even though we have laws but there is a need for a more transparent,
ethical and responsible or effective corporate governance framework.

The Securities and Exchange Board of India (SEBI) is the main regulator of the Indian stock
market. It has a large mandate and has engaged in an increasing number of enforcement
activities. Nonetheless, it has not really been evaluated in terms of policing fraud against
corporations such as Satyam, and considering SEBI's workload and budgetary constraints, it is
likely time to consider which additional steps might be taken. What further steps can be taken
to make government enforcement more efficient in dealing with the corporate crimes or
scams?

The policy implementation is ineffective, inefficient, and slow especially in the light of delays
in the Indian legal system which is also one of the major problems in dealing with corporate
crimes. The state responsibility is to make sure that certain mechanism and guidelines which
must be adopted and implemented effectively and efficiently in dealing with the issue such as
corporate crimes which is growing day by day which needed to have certain mechanism and
method to deal with such issues which are affecting the society at large and as the corporations
failed to take due diligence in conducting the activities as for them only motive is to make
profit without taking care of any social responsibility as they keep on ignoring and violating
the laws but still get away from any punishments as most of the times corporates enjoy the
culture of impunity due to lack of effective mechanisms. And it is the duty of state to ensure
that there must be checks and balances on corporations and ensure laws which are made must
put an end to this culture of impunity which most of the time corporations enjoy and ensure
that the laws or mechanism must effectively implemented and function and must be reviewed
regularly .

As discussed and there is a need to have a guiding principles on business and human rights as
these guiding principles lay down certain guidelines25 which must be adopted by the states.

25
Guiding Principles on Business and Human Rights,(2011),United Nations Human Rights available
at<[Link] on 8th
September 2019
19
 [Link] existing obligations to respect, protect and fulfil human rights and
fundamental freedoms.

[Link] role of business enterprises as specialized organs of society performing

specialized functions, required to comply with all applicable laws and to respect
human rights;

[Link] need for rights and obligations to be matched to appropriate and effective
remedies when breached. These Guiding Principles apply to all States and to all
business enterprises, both transnational and others, regardless of their size,
sector, location, ownership and structure.

The above guidelines in most of the times been ignored by the states in relation to dealing with
the issue of corporate crimes. As there is a need to have a mechanism which can end the
corporate culture of impunity and help in determining the criminal liability on corporations
who are constantly getting away from their responsibility and the crimes committed by them.

Conclusion

Corporate crimes are the most serious problems to society Loopholes in corporate crime
towards a judicial solution are intended to have an effective impact on society. Corporate crime
applies to crimes committed by the Company or by a person acting on behalf of a company
held liable and punishable by law. Corporate offences to be prosecuted under the legal
provisions are more effective and an amendment is necessary. The industrial disastrous and
environmental degradation due to certain activities amounting to crime are one of direct
challenges to human existence and preservation of the environment.

The criminal justice system is required specifically taking into account the criminological and
penological aspect keeping in view the corporate activities in the present time. Distinct and
specific policies are required to be developed to determine or deal with corporate criminal acts
and activities.

The corporations become a threat to society in the present scenario. Even for the act of the
employee on behalf of the corporation the concept of vicarious liability is consistent,
Consistent, both the employee and the corporation should be punished for a serious offence.

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 The increasing presence of multinational corporations call for putting in place more effective
measures at the national level and it is the duty of the state to ensure that there must be checks
and balances on corporations and ensure laws which are made must put an end to this culture
of impunity which most of the time corporations enjoy and ensure that the laws or mechanism
must effectively implemented and function and must be reviewed regularly.

There are certain measures which can be taken in order to make the corporate body under the
checks and balances as discussed about Guiding Principles of the John Ruggie which provides
framework for business and human rights in order to create and enhance the standards and
practices with regard to Business entities like corporations in order to get tangible results for
the affected individuals and communities which can ultimately lead to socially sustainable
organization. The framework highlighted the state duties to create normative legal obligation
to the corporations and make such legal obligations with more effective implementation of laws
by adopting the guiding principles and implementing the Protect, Respect and Remedy
framework. But, for this state plays a major role as it is the duty of the state to ensure that there
should be no violation of law by these corporate bodies who are enjoying the impunity and
patronage.

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