SCHOOL OF LAW

CORPORATE CRIMES

TOPIC:

ROLE OF JUDICIARY IN DEVELOPING THE CONCEPT OF

CORPORATE CRIMES-COMMON LAW AND INDIAN LAW

SUMMITED BY: NANDINI MISHRA SUMMITED TO:

ADMISSION NO: 20GSOL2010037 Dr. PRATHMA PRATIM MITRA

LLM 1st YEAR 1ST TRIMESTER

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ROLE OF JUDICIARY IN DEVELOPING THE CONCEPT OF
CORPORATE CRIME- COMMON AND INDIAN LAW

ABSTRACT
The concept of corporate crime has grown rapidly the last thirty years, with an increasing
number of corporations participating in economic and public life. Particularly came to the notion
that corporations within their core business can act against the law, causing damage to the
country, but also to society as a whole. Having in mind the essence of corporate operations and
management (the pursuit of making profit), and the scope of their activity, we can assume how
much damage it inflicts illegal activities. In addition corporate crime now dominates pronounced
international character, given the growing presence of multinational corporations, which further
aggravated criminal reaction to this form of negative social effects.

In addition, in today's age of global capitalism, advanced technology development, including the
development of e-commerce (e-commerce), we can expect further growth of corporate crime.
Also corporate crime shows strong correlation with other types of crime, especially white-collar
crime, economic crime and organized crime. There is often a lack of differentiation of these
criminal phenomena, which affect the study of corporate crime. Although by doing some of their
activities the corporation performs specific criminal offenses, criminal liability of legal persons
for a long time has no provisions for that under national law, especially the European countries
from which Corporation is coming.

Therefore, many countries have joined the facelift for the criminal law, and to provide
accountability and punishment of legal persons for criminal offenses (either directly, or
indirectly to). Bearing in mind the European directive and other international standards, it is
expected that this issue will be aligned in the European countries in a way that will make the
offenses responsible corporation, which will cause the development of corporate criminal law.

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INTRODUCTION
“Corporate bodies are more corrupt and profligate than individuals, because they have more
power to do mischief, and are less amenable to disgrace or punishment. They neither feel shame,
remorse, gratitude nor goodwill.”
The conceptualization of corporate criminal liability has its roots in the common law countries
like Canada, England and the USA, where the industrial revolution hit the economy at a rather
early stage than the rest of the world. Such developments were obscure in the civil law countries
where the importance given to corporate criminality was minimal or negligible. The earlier
notion amongst the legal historians was that corporations in their corporate capacity were
incapable of committing crimes such as felony, treason or perjury, rather, only the individual
members were capable of doing so and could be held liable for the same. This idea remained
stagnant for many years, until the concept of corporations as a juristic person came up for
consideration. The members of the company increasingly began pooling in resources for
initiating business ventures as well as to safeguard themselves for any future losses. Thereafter,
“once these corporations began owning property and engaging in business, they came to be
recognized in law as persons.”

There was further deliberation that whether these legal persons can be held criminally or civilly
liable for their acts. Though there was an earlier reluctance to punish the corporations, the very
first instance of imposing corporate criminal liability was seen in the English Courts in 1842, when
a corporation was fined for failing to fulfil a statutory duty. The abstraction of corporate criminality
unfolded from the common law doctrine that masters were criminally liable for the acts of public
nuisance caused by their servants, which is basically the principle of vicarious liability. The
budding of this very doctrine to its full expansion into corporate criminal liability was particularly
“the result of judicial interpretation of common law and the existing statutory laws.”

However, the concept of corporate criminality developed at a yet slower pace than civil liability
of corporations. As for the civil law countries, due to the tradition of limited judicial interpretation
of statutes, corporate criminal liability failed to develop.

HISTORICAL BACKGROUND
Company legislation in India started with the Joint Stock Companies Act, 1850 (Act XLIII of
1850). An historical account of the course of subsequent legislation will be found in the report of
the Company Law Committee submitted in 1952. Indian Company Law has been largely based on
the prevailing English Law. The predecessor of the Companies Act, 1956, was Act VII of 1913,
which underwent several amendments, including a major amendments of 1936 and 1951 when
Acts XXII of 1936 and LII of 1951 were passed. The period of the Second World War and the
post-war years witnessed an upsurge of Industrial and commercial activity on an unprecedented
scale in India and large profits were made by businessmen through incorporated companies.

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During these years, several developments took place in the organization and management of joint
stock companies which attracted public attention. At the end of the War, the Company Law
Amendment Committee in the United Kingdom familiarly known as the Cohen Committee, after
an enquiry spread over two years, submitted its report recommending far-reaching changes in the
English Companies Act, 1929. In India, too, there was a general feeling that in view of the
experience gained during the war years, the time was ripe for fresh legislation so as to ensure
efficient and honest management of the business of companies and check unfair business methods
and anti-social practices resorted to by some persons engaged in the management of companies.

The Government of India took up the revision of Company Law immediately after the termination
of the last war. Two company lawyers— one from Bombay and the other from Madras— were
successively appointed to advise Government on the broad lines on which ,the Indian Companies
Act, 1913, should be revised and recast in the light of the experience gained during the war years.
Their reports were considered by Government and a memorandum embodying its tentative views
was circulated towards the end of 1949 for eliciting opinion.

On 28th October, 1950, the Government of India appointed a Committee of twelve members
representing various interests under the chairmanship of Shri C. H, Bhabha, to go into the entire
question of the revision of the Companies Act, with particular reference to its bearing on the
development of trade and industry in the country. This Committee, popularly known as the Bhabha
Committee, submitted its report in March, 1952, recommending comprehensive changes in the
Companies Act of 1913. The report of the Bhabha Committee was again the subject of discussion
and comment by Chambers of Commerce, Trade associations, professional bodies, leading
industrialists, shareholders and representatives of labour. The Bill, which eventually emerged as
the Companies Act, 1956, was introduced in Parliament on 2nd September, 1953. IT was a
comprehensive and consolidating as well as amending piece of legislation. The Bill was referred
to a Joint Committee of both Houses of Parliament in May, 1954. The Joint Committee submitted
its report in May, 1955, making some material amendments to the Bill. The Bill, as amended by
the Joint Committee, underwent some further amendments. In Parliament and was passed in
November, 1955. The new Companies Act (I o f 1956) came into force from 1st April, 1956.

POSITION IN FORMATION OF COMPANY

Formation of company is governed by the provisions contained in The Companies Act of 1956.
The company form of organization is being preferred as being suitable by more and more business
firms, particularly for setting up medium and large sized organizations. Formation of Company in
India involves several steps which are explained hereunder. The steps involved in Formation of
company in India are required from the time a business idea originates to the time. A company is
legally ready to commence business are referred to as stages in the formation of a company. Those
who are taking these steps and the associated risks area promoting a company are called its
promoters. It is advisable to avail the services of Indian company lawyer for the formation of
company in India.

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Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 is a landmark
UK company law case.

FACTS: Salomon transferred his business of boot making, initially run as a sole proprietorship,
to a company (Salomon Ltd.), incorporated with members comprising of himself and his family.
The price for such transfer was paid to Salomon by way of shares, and debentures having a floating
charge (security against debt) on the assets of the company. Later, when the company's business
failed and it went into liquidation, Salomon's right of recovery (secured through floating charge)
against the debentures stood a prior to the claims of unsecured creditors, who would, thus, have
recovered nothing from the liquidation proceeds. The liquidator sought to overlook the separate
personality of Salomon Ltd., distinct from its member Salomon, so as to make Salomon personally
liable for the company's debt as if he continued to conduct the business as a sole trader.

ISSUE: Whether, regardless of the separate legal identity of a company, a shareholder/controller

could be held liable for its debt, over and above the capital contribution, so as to expose such
member to unlimited personal liability?

JUDGMENT: A company is a separate legal entity distinct from its members and so insulating
Mr. Salomon, the founder of A. Salomon and Company, Ltd., from personal liability to the
creditors of the company he founded. The court also upheld firmly the doctrine of corporate
personality, as set out in the Companies Act 1862, so that creditors of an insolvent company could
not sue the company's shareholders to pay up outstanding debts.

STAGES IN FORMATION OF COMPANY IN INDIA (PRIVATE

LIMITED)

i. Promotion is the first step towards formation of company.

ii. Incorporation is the second step towards formation of company.
iii. Commencement of business is the ultimate or final stage towards formation of company.

STAGES IN FORMATION OF COMPANY IN INDIA (PUBLIC LIMITED)

(i) Promotion
(ii) Incorporation
(iii) Subscription of capital
(iv) Commencement of business

Under the Indian laws, a private limited company can start its business immediately after
obtaining the certificate of incorporation. As it is prohibited to raise funds from public, it does
not need to issue a prospectus and complete the formality of minimum subscription. A public
company, on the other hand, goes through the capital subscription stage and then receives the

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certificates of commencement. Thus, it has to undergo all the four stages. Formation of company
in India thus involves the steps stated above and the formalities required therein for formation of
company in India.

 PROMOTION OF A COMPANY IN INDIA

Promotion of a company in India is the first stage in the Formation of company. It involves
conceiving a business opportunity and taking an initiative towards the direction of formation so
that practical shape can be given to exploiting the available business opportunity. Thus, it begins
with somebody having discovered a potential business opportunity. Any person or a group of
persons of even a company may have discovered an opportunity. If such a person or a group of
persons or a company proceeds in the direction of formation of company, then, they are said to
be the promoters of the company. There is no statutory definition of a promoter. A promoter is
said to be the one who undertakes the formation of company. He further sets it going and takes
the necessary steps to accomplish that purpose. Thus, apart from conceiving a business
opportunity, the promoters analyze its prospects. The promoter further brings together the men,
materials, machinery, managerial abilities and financial resources and set the organization going.
After thoroughly examining the feasibility of the idea, the promoters assemble resources, prepare
necessary documents, and give a name. He further performs various other activities to get a
company registered and obtain the necessary certificate enabling the company to commence
business. Formation of company thus depends upon the promoters and it is the promoters who
perform various functions to bring a company into existence.

 FUNCTIONS OF PROMOTERS:

(a) Identification of business opportunity: The first and foremost activity of a promoter in the
direction of formation of company in India is to identify a business opportunity by the formation
of company. The opportunity may be in respect of producing a new product or service. It may be
by making some product available through a different channel or any other opportunity having
an investment potential. Such opportunity is then analyzed to see its technical and economic
feasibility before formation of company in India.

(b) Feasibility studies: It may not be feasible or profitable to convert all identified business
opportunities into real projects. The promoters, therefore, undertake detailed feasibility studies to
investigate all aspects of the business they intend to start. Depending upon the nature of the
project, feasibility studies may be undertaken, with the help of the specialists like engineers,
chartered accountants etc. To examine whether the perceived business opportunity can be
profitably exploited by formation of company in India.

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(i) Technical feasibility: Sometimes an idea may be good but technically not possible to
execute. It may be so because the required raw material or technology is not easily available.
This is an important steps towards formation of company.

(ii) Financial feasibility: Every business activity requires funds. The promoters have to estimate
the fund requirements for the identified business opportunity. If the required outlay for the
project is so large that it cannot easily be arranged within the available means, the project has to
be given up. For example, one may think that developing townships is very lucrative. It may turn
out that the required funds are in several crores of rupees, which cannot be arranged by floating a
company by the promoters. The idea of formation of company may be abandoned because of the
lack of financial feasibility of the project.

(iii) Economic feasibility: Sometimes it so happens that a project is technically viable and
financially feasible but the chance of it being profitable is very little. In such cases as well, the
idea may have to be abandoned. Promoters usually take the help of experts to conduct these
studies before formation of company. It may be noted that these experts do not become
promoters just because they are assisting the promoters in these studies. Only when these
investigations throw up positive results, the promoters may decide for the formation of company.
Formation of company in India thus involves the above said technicalities associated with it.

(c) Name approval: The first and foremost task in the direction of formation of company is the
selection of a name to be given to the proposed company. Having decided to launch a company,
the promoter has to select a name for it and submit an application to the registrar of companies of
the state in which the registered office of the company is to be situated, for its approval. The
proposed name may be approved if it is not considered undesirable. It may happen that another
company exists with the same name or a very similar name or the preferred name is misleading,
say, to suggest that the company is in a particular business when it is not accepted but some
alternate name may be approved. Therefore, three names, in order of their priority are given in
the application to the Registrar of Companies before formation of company.

(d) Fixing up Signatories to the Memorandum of Association: The second important step
towards the Formation of company is the signing the Memorandum of Association of the
proposed company. Usually the people signing memorandum are also the first Directors of the
Company. Their written consent to act as Directors and to take up the qualification shares in the
company is necessary.

(e) Appointment of professionals: Certain professionals such as mercantile bankers, auditors

etc., are appointed by the promoters to assist them in the preparation of necessary documents
which are required to be with the Registrar of Companies. The names and addresses of
shareholders and the number of shares allotted to each are submitted to the Registrar in a
statement called return of allotment. Formation of company involves some more steps associated
therein.

(f) Preparation of necessary documents: The promoter takes up steps to prepare certain legal
documents, which have to be submitted under the law, to the Registrar of the Companies for
getting the company registered. These documents are Memorandum of Association, Articles of

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Association and Consent of Directors. This is a crucial and important stage in Formation of
company hence is done by legally trained hands.

 INCORPORATION

After completing the aforesaid formalities, promoters make an application for the incorporation
of the company. The application is to be filed with the Registrar of Companies of the state within
which they plan to establish the registered office of the company. The application for registration
must be accompanied with the documents related to the identity of the Directors, premises etc.
These may be briefly mentioned again.

 The steps involved with the Formation of company in India can be enumerates as
under:

1. The Memorandum of Association duly stamped, signed and witnessed. In case of a public
company, at least members must sign it. For a private company however the signatures of two
members are sufficient. The signatories must also give information about their address,
occupation and the number of shares subscribed by them.

2. The Articles of Association duly stamped and witnessed as in case of the Memorandum.
However, as stated earlier, a public company may adopt Table A, Which is a model set of
Articles, given in the Companies Act. In that case a statement in lieu of the prospectus is
submitted, instead of Articles of Association.

3. Written consent of the proposed directors to act as directors and an undertaking to purchase
qualification shares.

4. The agreement, if any with the proposed Managing Director, Manager or whole-time director.

5. A copy of the Registrars letter approving the name of the company is essential for the
formation of company in India.

6. A statutory declaration affirming that all legal requirements for registration and formation of
company in India have been complied with. This must be signed by an advocate of a High Court
or Supreme Court or a signatory to the Memorandum of Association or a Chartered Accountant
or Company Secretary in whole time practice in India.

7. A notice about the exact address of the registered office may also be submitted along with
these documents. However, if the same is not submitted at the time of incorporation, it can be
submitted within 30 days of the receipt of the certificate of incorporation after the formation of
company in India.

8. Documentary evidence of payment or registration fees for formation of company in India.

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The Registrar upon submission of the application along with the required documents has to be
satisfied that the documents are in order and that all the statutory requirements regarding the
registration and formation of company in India have been complied with. However, it is not his
duty to carry out a thorough investigation about the authenticity of the facts mentioned in the
documents. When the Registrar is satisfied, about the completion of formalities for registration, a
Certificate of Incorporation is issued to the company, which signifies the birth of the company.
The certificate of incorporation may therefore be called the birth certificate of the company.
With effect from November 1, 2000, the Registrar of Companies allots a CIN (Corporate Identity
Number) to the Company. This completes the stages with the Formation of company in India.

 EFFECT OF THE CERTIFICATE OF INCORPORTATION

The issuance of the certificate of incorporation is considered as the final stage towards formation
of company in India. A company is legally born on the date printed on the Certificate of
Incorporation. It becomes a legal entity with perpetual succession on such date. It becomes
entitled to enter into valid contracts. The Certificate of Incorporation is a conclusive evidence of
the regularity of the incorporation of a company or the formation of company in India. Imagine,
what would happen to an unsuspecting party with which the company enters into a contract, if it
is later found that the incorporation of the company was improper and hence invalid. Therefore,
the legal situation is that once a Certificate of Incorporation has been issued, the company has
become a legal business entity irrespective of any flaw in its registration. The Certificate of
Incorporation is thus conclusive evidence of the legal existence of the company and important
adjunct towards the formation of company in India.

The Certificate of Incorporation once issued, is a conclusive evidence of the existence of the
company and the first legal proof regarding the formation of company in India. Even when a
company gets registered with illegal objects, the birth of the company cannot be questioned. The
only remedy available is to wind it up. Because the Certificate of Incorporation is so crucial, the
Registrar has to go very carefully before issuing it. On the issue of Certificate of Incorporation, a
private company can immediately commence its business. It can raise necessary funds from
friends, relatives or through private arrangement and proceed to stat business. A public company,
however, has to undergo two more stages in its formation.

 CAPITAL SUBSCRIPTION

A public company can raise the required funds from the public by means of issue of shares and
debentures. For doing the same, it has to issue a prospectus which is an invitation to the public to
subscribe to the capital of the company and undergo various other formalities. The following
steps are required for raising funds from the public.

(i) SEBI Approval: SEBI (Securities and Exchange Board of India) which is the regulatory
authority in our country has issued guidelines for the disclosure of information and investor
protection. A company inviting funds from the general public must make adequate disclosure of

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all relevant information and must not conceal any material information from the potential
investors. This is necessary for protecting the interest of the investors. Prior approval from SEBI
is, therefore, required before going ahead with raising funds from public.

(ii) Filling of Prospectus: A copy of the prospectus or statement in lieu of prospectus is filed
with the Registrar of Companies. A prospectus is any document described or issued as a
prospectus including any notice, circular, advertisement or other document inviting deposits
from the pubic or inviting offers from the public for the subscription or purchase of any shares or
debentures of, a body corporate. In other words, it is an invitation to the public to apply for
shares or debentures of the company or to make deposits in the company. Investors make up
their minds about investment in a company primarily on the basis of the information contained in
this document. Therefore, there must not be a mis-statement in the prospectus and all significant
information must be fully disclosed.

(iii) Appointment of Bankers, Brokers, and Underwriters: Raising funds from the public is a
stupendous task. The application money is to be received by the bankers of the company. The
brokers try to sell the shares by distributing the forms and encouraging the public to apply for the
shares. If the company is not reasonably assured of a good public response to the issue, it may
appoint underwriters to the issue. Underwriters undertake to buy the shares if these are not
subscribed by the public. They receive a commission for underwriting the issue. Appointment of
underwriters is not necessary.

(iv) Minimum Subscription: In order to prevent companies from commencing business with
inadequate resources, it has been provided that the company must receive applications for a
certain minimum number of shares before going ahead with the allotment of shares. According
to the Companies Act, this is called the minimum subscription. The limit of minimum
subscription is 90 per cent of the size of the issue. Thus, if applications received for the shares
are for an amount less than 90 per cent of the issue size, the allotment cannot be made and the
application money received must be returned to the applicants.

(v) Application to Stock Exchange: An application is made to at least one stock exchange for
permission to deal in its shares or debentures. If such permission is not granted before the expiry
of ten weeks from the date of closure of subscription list, the allotment shall become void and all
money received from the applicants will have to be returned to them within eight days.

(vi) Allotment of Shares: In case the number of shares allotted is less than the number applied
for, or where no shares are allotted to the applicant, the excess application money, if any, is to be
returned to applicants or adjusted towards allotment money due from them. Allotments letters are
issued to the successful allot-tees. Return of allotment, signed by a director or secretary is filed
with the Registrar of Companies within 30 days of allotment.

A public company may not invite public to subscribe to its shares or debentures. Instead, it can
raise the funds through friends, relatives or some private arrangements as done by a private
company. N such cases, there is no need to issue a prospectus. A ‘Statement in Lieu of
Prospectus is filed with the Registrar at least three days before making the allotment.

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  COMMENCEMENT OF BUSINESS

If the amount of minimum subscription is raised through new issue of shares, a public company
applies to the Registrar of Companies for the issue of Certificate of Commencement of Business.
The following documents are required:

1. A declaration that shares payable in cash have been subscribed for and allotted up to the
minimum subscription mentioned in the prospectus;

2. A declaration that every director has paid in cash, the application and allotment money on his
shares in the same proportion as others;

3. A declaration that no money is payable or liable to become payable to the applicants because
of the failure of the company to either apply for or obtain permission to deal n its securities on a
stock exchange; and

4. A statutory declaration as per the format. This declaration can be signed by a director or
secretary of the company.
5. A public company raising funds privately, which has earlier filed a Statement in lieu of
prospectus, has to submit only documents 2 and 4 listed above.

The Registrar shall examine these documents. If these are found satisfactory, a Certificate of
Commencement of Business will be issued. This certificate is conclusive evidence that the
company is entitled to do business. With the grant of this certificate the formation of a public
company is complete and the company can legally start doing business.
It is thus clear that the Formation of company in India involves several steps which are
associated with filing of documents for the Formation of company in India and getting the
requisite clearances.

ENGLISH COURT IN CORPORATE CRIME

 Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd

Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd [1915] AC 705 is a famous decision
by the House of Lords on the ability to impose liability upon a corporation. The decision expands
upon the earlier decision in Salomon v Salomon & Co. [1897] AC 22 and first introduced the
"alter ego" theory of corporate liability.

Facts

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A ship owned by Lennard's Carrying Co was transporting some goods on a voyage from
Novorossiysk to the Asiatic Petroleum Company, a joint venture of the Shell and Royal Dutch
oil companies. The ship sank and the cargo was lost. The judge found that the director, Mr.
Lennard, did know or should have known about defects in the ship, which led its boiler to catch
fire, and ultimately sink the ship. There was an exemption from liability in section 502 of the
Merchant Shipping Act 1894, stating that a ship owner would not be liable for losses if an event
happened without 'actual fault or privity'. Asiatic Petroleum Co Ltd sued Mr. Lennard's company
for negligence under the Act. At issue was whether the guilty acts of a director would be
imposed upon the corporation. Lennard's Carrying Co Ltd argued that it was not liable and could
be exempt under section 502.

Judgment
The House of Lords held that liability could be imposed on a corporation for the acts of the
directors because there is a rebuttable presumption the directors are the controlling minds of the
company. Here Mr. Lennard did not rebut the presumption. Viscount Haldane explained the
"directing mind" principle of corporate liability:
...a corporation is an abstraction. It has no mind of its own any more than it has a body of its
own; its active and directing will must consequently be sought in the person of somebody who
for some purposes may be called an agent, but who is really the directing mind and will of the
corporation, the very ego and center of the personality of the corporation. .... It must be upon the
true construction of that section in such a case as the present one that the fault or privity is the
fault or privity of somebody who is not merely a servant or agent for whom the company is liable
upon the footing respondent superior, but somebody for whom the company is liable because his
action is the very action of the company itself. It is not enough that the fault should be the fault
of a servant in order to exonerate the owner, the fault must also be one which is not the fault of
the owner, or a fault to which the owner is privy; and I take the view that when anybody sets up
that section to excuse himself from the normal consequences of the maxim respondent superior
the burden lies upon him to do so.
In considering the case of Mr. Lennard himself he stated:
...whatever is not known about Mr. Lennard's position, this is known for certain, Mr. Lennard
took the active part in the management of this ship on behalf of the owners, and Mr. Lennard, as
I have said, was registered as the person designated for this purpose in the ship's register. Mr.
Lennard therefore was the natural person to come on behalf of the owners and give full evidence
not only about the events of which I have spoken, and which related to the seaworthiness of the
ship, but about his own position and as to whether or not he was the life and soul of the
company. For if Mr. Lennard was the directing mind of the company, then his action must,
unless a corporation is not to be liable at all, have been an action which was the action of the
company itself...

Significance

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Prior to this case the primary means of imposing liability on a corporation was through vicarious
liability, but that applied only to employees of the company, which excluded the directors. After
the Lennard case, the alter ego theory has become the most powerful method of imposing
liability on a corporation. It has proved to be particularly effective for imposing criminal
liability.

 H L Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd [1957] 1

QB 159

Facts

T J Graham & Sons Ltd (TJG) leased their premises to H L Bolton

(Engineering) Co Ltd (HLB) in 1941. HLB sublet their premises in a similar
lease.
In 1954, TJG notified HLB that the lease would be terminated that year, and
HLB gave their subtenants similar notice.
Both notices were rendered ineffective by the enactment of the Landlord and
Tenant Act 1954 (UK) (the Act).
TJG gave the sub-tenants notice of termination under the Act in 1954 and
opposed their application for a new tenancy under section 24(1) of the Act.
The subtenants argued that they had "purchased" their interest in the premises
within 5 years before termination.
TJG argued that they were going to be occupying the premises to
conduct business. No formal resolution from a directors meeting at been
passed by TJG to this effect, but the company had been moving this way in
other aspects (meeting with architects, etc.).

Issues

Were TJG entitled to oppose the sub-tenants application on the grounds of

occupying the premises to conduct business?

Held

TJG were entitled to occupy the premises for the purposes of conducting
business.
The sub-tenants had not "purchased" their interest - they had provided no
consideration when HLB surrendered the lease. Under the Act, consideration
was said to be "bought for money". Despite TJG not formally passing a

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 resolution because, having standing to the directors in charge of the business, the
intention of the directors was the intention of TJG.
It was clear that TJG intended to occupy the land for the purposes of conducting
business.

Quotes

"A company may in many ways be likened to a human body. It has a brain and nerve
center which controls what it does. It also has hands which hold the tools an act in
accordance with directions from the center. Some of the people in the company are mere
servants and agents who are nothing more than hands to do the work and cannot be said
to represent the mind or will. Others are directors and managers who represent the
directing mind and will of the company and control what it does. The state of mind
of these managers is the state of mind of the company and is treated by law as such.
So you will find that in cases where the law requires personal fault as a condition of
liability in tort, the fault of the manager will be the personal fault of the company ...So
also in the criminal law, in cases where the law requires a guilty mind as a condition of a
criminal offence, the guilty mind of the directors and managers will render the company
itself guilty."

 Tesco Supermarkets Ltd. v. Nattras

Tesco Supermarkets Ltd. v. Nattrass [1971] UKHL 1 is a leading decision of
the House of Lords on the "directing mind" theory of corporate liability.
The Trade Descriptions Act 1968 section 24(1), where Tesco relied upon the defense of the
‘act or omission of another person’ i.e. their store manager, to show that they had taken all
reasonable precautions and all due diligence.

Facts
Tesco was offering a discount on washing powder which was advertised on posters displayed in
stores. Once they ran out of the lower priced product the stores began to replace it with the
regularly priced stock. The manager failed to take the signs down and a customer was charged at
the higher price. Tesco was charged under the Trade Descriptions Act 1968 for falsely
advertising the price of washing powder. In its defense Tesco argued that the company had taken
all reasonable precautions and all due diligence, and that the conduct of the manager could not
attach liability to the corporation.
Judgment

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The House of Lords accepted the defense and found that the manager was not a part of the
"directing mind" of the corporation and therefore his conduct was not attributable to the
corporation. The corporation had done all it could to enforce the rules regarding advertising.
Lord Reid held that, in order for liability to attach to the actions of a person, it must be the case
that "The person who acts is not speaking or acting for the company. He is acting as the company
and his mind which directs his acts is the mind of the company. If it is a guilty mind then that
guilt is the guilt of the company."
In the House of Lords Tesco was successful with their defense showing that, a store manager
was classed as ‘another person’, and, a system of delegating responsibility to that person was
performance of due diligence, not avoidance of it.
The store manager was not the directing mind and will of the company - the company had done
all it could to avoid committing an offence and the offence was the fault of another person (an
employee). The company was acquitted.

THE LEGISLATION APPROCH OF CORPORATE CRIME IN ENGLAND

 CORPORATE FRAUD ACT 2007- The Fraud Act 2006 is an Act of the Parliament of
the United Kingdom which affects England and Wales and Northern Ireland. It was given
royal assent on 8 November 2006, and came into effect on 15 January 2007.

Purpose

The Act gives a statutory definition of the criminal offence of fraud, defining it in three classes -
fraud by false representation, fraud by failing to disclose information, and fraud by abuse of
position. It provides that a person found guilty of fraud was liable to a fine or imprisonment for
up to twelve months on summary conviction (six months in Northern Ireland), or a fine or
imprisonment for up to ten years on conviction on indictment. This Act largely replaces the laws
relating to obtaining property by deception, obtaining a pecuniary advantage and other offences
that were created under the Theft Act 1978. These offences attracted much criticism for their
complexity and difficulty in proving at court. [citation needed] Much of the Theft Act 1978 has been
repealed, but the offence of making off without payment, defined under section 3 has not been
affected.

 "Fraud by false representation" is defined by Section 2 of the Act as a case where a

person makes "any representation as to fact or law ... express or implied" which they
know to be untrue or misleading.
 "Fraud by failing to disclose information" is defined by Section 3 of the Act as a case
where a person fails to disclose any information to a third party when they are under a
legal duty to disclose such information.
 "Fraud by abuse of position" is defined by Section 4 of the Act as a case where a
person occupies a position where they are expected to safeguard the financial interests of

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 another person, and abuses that position; this includes cases where the abuse consisted of
an omission rather than an overt act.

In all three classes of fraud, it requires that for an offence to have occurred, the person must have
acted dishonestly, and that they had to have acted with the intent of making a gain for themselves
or anyone else, or inflicting a loss (or a risk of loss) on another.

 Corporate Manslaughter and Corporate Homicide Act 2007

The Corporate Manslaughter and Corporate Homicide Act 2007 (c. 19) is an Act of
the Parliament of the United Kingdom that seeks to broaden the law on corporate
manslaughter in the United Kingdom. The Act created a new offence respectively named
corporate manslaughter in England and Wales and Northern Ireland, and corporate
homicide in Scotland.
The Act received the royal assent on 26 July 2007 and came into force on 6 April 2008.

Background
In the United Kingdom, a corporation is considered a juristic person and can be capable of
committing, being convicted of and sentenced for, a criminal offence. However, some conceptual
difficulty lies in fixing a corporation with the appropriate mens rea. Before the Act, a corporation
could only be convicted of manslaughter if a single employee of the company committed all the
elements of the offence and was of sufficient seniority to be seen as embodying the "mind" of the
corporation. The practical consequence of this was that such convictions were rare and there was
public discontent where it was perceived that culpable corporations had escaped censure and
punishment.
A Corporate Manslaughter and Corporate Homicide Bill was introduced to the House of
Commons by Home Secretary John Reid on 20 July 2006.
The Act
The Act attempts to align the offence of corporate killing north and south of the border. An
indictable offence is committed if the way in which an organization’s activities are managed or
organized: Causes a person's death; and Amounts to a gross breach of a relevant duty of care
owed by the organization to the deceased; — and the way in which its activities are managed or
organized by its senior management is a substantial element in the breach. Prosecution in
England or Wales requires the permission of the Director of Public Prosecutions, and in Northern
Ireland, the Director of Public Prosecutions for Northern Ireland and no natural person can be
charged with aiding and abetting the offence. The common law offence of gross negligence
manslaughter, as it applies to corporations, is abolished.

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INDIAN POSITION ON CORPORATE CRIME
The evolution of the concept of corporate criminal liability in India can be classified as a long
process. As we all know, the jurisprudence treats corporations distinct and separate from the
members who represent it. And these corporations have turned out to be more dangerous
criminals than the individuals. So, normally, the question arises as to how the courts could
punish these corporations which commit crimes. Common law has various theories which
determine the liability of the corporations and the best example would be the doctrine of
vicarious liability under the tort law which asserts that the corporations would be held liable for
the torts committed by its employees. India, being a country which adopted the common law
remedies, was able to answer the questions concerning the tort liability of the corporations. But,
the concern as to whether the corporations can be charged for the crimes committed, created
uncertainty in the minds of the adjudicators. The reason can probably be, unlike the tort law, the
nature of Indian criminal law which takes its source from a statute i.e. Indian Penal Code.

Interpretations with IPC

Section 11 defines that the ‘person’ would include “any Company of Association or body of
persons, whether incorporated or not". Hence, corporations can be prosecuted under IPC for the
crimes committed. It is an undisputed fact that the corporations cannot be prosecuted for crimes
done by human beings like rape, where the only punishment as contemplated in IPC, is
imprisonment. Then, the grey area was to determine the position of the cases when the
corporations commit offences where the IPC demands a mandatory punishment of both
imprisonment and fine. Some landmark decisions settled the issue and helped in the development
of corporate criminal liability. In the case of Assistant Commissioner v. Velliappa Textiles
Ltd. the Supreme Court by a majority of 2:1 held that since corporations could not be
imprisoned they could not be prosecuted for an offence where IPC mandates an imprisonment.
The dissenting judge observed that just because a corporation cannot be imprisoned can never be
a reason for an observation that the corporation can not at all be prosecuted in that case. The
judge further added that the court had two functions to perform. The first one is to determine
whether the accused is guilty of having committed the crime and this conclusion has to be made
on the basis of the evidence produced before the court. And the second function is to award a
sentence for the offence for which the accused is found guilty. He explained “Courts would be
shirking their responsibility of imparting justice by holding that prosecution of a company is
unsustainable merely on the ground that being a juristic person it cannot be sent to jail to
undergo the sentence. Companies are growing in size and have huge resources and finances at
their command. In the course of their business activity they may sometimes commit breach of the
law of the land or endanger others’ lives. More than 4,000 people lost life and thousands others
suffered permanent impairment in Bhopal on account of gross criminal act of a multinational
corporation. It will be wholly wrong to allow a company to go scot-free without even being
prosecuted in the event of commission of a crime only on the ground that it cannot be made to

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suffer part of the mandatory punishment.”

Analyzing these functions along with concerns, the judge observed that the corporations could be
punished with a sentence of fine if the court finds them guilty.

Stricter Interpretations:

The same issue was heard in the case of Standard Chartered Bank v. Directorate of
Enforcement where the Supreme Court overruled the Velliappa case and held that there is no
blanket immunity for any corporation from the prosecution of offences just because the
prosecution demands a mandatory imprisonment. And the court decided that in cases of offences
which mandate both imprisonment and fine, the corporations should be punished with a fine.

The element of mens rea has played an important role in the development of corporate criminal
liability in India. In the case of Iridium India Telecom Ltd. v. Motorola Incorporated the
Court held that the corporations can be punished for both the common law offences and statutory
offences including those require mens rea. The Court emphasized:

“[…] a corporation is virtually in the same position as any individual and may be convicted of
common law as well as statutory offences including those requiring mens rea. The criminal
liability of a corporation would arise when an offence is committed in relation to the business of
the corporation by a person or body of persons in control of its affairs. In such circumstances, it
would be necessary to ascertain that the degree and control of the person or body of persons is so
intense that a corporation may be said to think and act through the person or the body of
persons.”

It also added that the corporations may be said to act and think through the body of persons
controlling it and so the mens rea of the body of persons in control should be ascertained, which
is virtually considered to be in the same position as the corporations.

Fixing the Liability:

The Indian Courts have tried to identify the controlling and the directing mind of the
corporations and this principle is used in various statutes. The issue in this area will be whether
the directing person authorized to act on behalf of the firm could be prosecuted when the
corporations are not charged. In the case of U.P Pollution Control Board v. Modi Distillery,
the respondent- industrial unit has been discharging its highly noxious and polluted trade
effluents into the river through a local drain. This discharge, done by the industrial unit,
composed a breach of the Water (Prevention and Control of Pollution) Act of 1974. The Court
held that the managers and the persons responsible for the company’s act could be prosecuted
even if the company was not prosecuted. The court also added that there was a “technical fault
on the part of the company to furnish the requisite information called for by the Board directed

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for making a formal amendment by the applicant and substitute the name of the owning
industrial unit”. The complaint was defective but was curable and the persons responsible for the
conduct of the corporation should be prosecuted. This ratio was reaffirmed in Anil Hada v.
Indian Acrylic Ltd. But in the case of Aneeta Hada vs M/S Godfather Travels & Tours, the
Supreme Court overruled the decision held in Anil Hada case and stated that the decision which
was given in the Modi Distillery case is “treated to be restricted to its own facts” since it is
decided on its own factual matrix. After stating so, the court held that if the company is arraigned
as an accused then the proceedings against the director or the company cannot be maintained. In
other words, there can be no vicarious liability unless there is any prosecution against the
company.

There are other provisions in IPC which can be used to charge corporations for joint liability,
criminal conspiracy, aiding and abetting illegal activities etc. The corporate criminal liability in
India has grown rapidly with the pronouncement of the landmark decisions from the judiciary
and it is to be noted that corporate criminal liability is just one among many branches of law
which is used to make corporations accountable for their illegal activities’ effort from the
judiciary to fix responsibilities on non-fictitious persons.

INDIAN LEGISLATION ACT ON CORPORATE CRIME

 NEGOTIABLE INSTRUMENT ACT 1881

Section 141 - The Negotiable Instruments Act, 1881

141 Offences by companies. —
(1) If the person committing an offence under section 138 is a company, every person who, at the
time the offence was committed, was in charge of, and was responsible to the company for the
conduct of the business of the company, as well as the company, shall be deemed to be guilty of
the offence and shall be liable to be proceeded against and punished accordingly: Provided that
nothing contained in this sub-section shall render any person liable to punishment if he proves
that the offence was committed without his knowledge, or that he had exercised all due diligence
to prevent the commission of such offence: 22 [Provided further that where a person is nominated
as a Director of a company by virtue of his holding any office or employment in the Central
Government or State Government or a financial corporation owned or controlled by the Central
Government or the State Government, as the case may be, he shall not be liable for prosecution
under this Chapter.]
(2) Notwithstanding anything contained in sub-section (1), where any offence under this Act has
been committed by a company and it is proved that the 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 anybody corporate and includes a firm or other association of individuals;
and

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(b) “director”, in relation to a firm, means a partner in the firm.]

 INDIAN PENAL CODE 1860

Section 11 of Indian Penal Code, 1860 (the Code) define person. It reads “the word person
includes any Company or Association or a body of persons, whether incorporated or not.”
Further section 2 of the Code provides that “Every person shall be liable to punishment under
this Code.” Thus, section 2 of the Code without any exception to body corporate, provides for
punishment of every person which obviously includes a Company. Therefore, by reading of
these two provision concept of corporate criminal liability can be derived, though it is not the
sole legislation which provides for the punishment of corporate body, Companies Act, 2013,
Income Tax Act, etc.
Section 420 of Indian Penal Code, 1860
420. Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby
dishonestly induces the person de-ceived to deliver any property to any person, or to make, alter
or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and
which is capable of being converted into a valuable security, shall be punished with
imprisonment of either description for a term which may extend to seven years, and shall also be
liable to fine.

 INCOME TAX ACT, 1961

Section 276B of The Income Tax Act, 1961 lays down that if a person fails to pay to the credit
of the Central Government: ... within the prescribed time, as above, the tax deducted at source by
him, he shall be punishable with rigorous imprisonment for a term which shall be between 3
months and 7 years, along with fine.

 COMPANY ACT, 2013

The Companies Act 2013 is an Act of the Parliament of India on Indian company law which
regulates incorporation of a company, responsibilities of a company, directors, dissolution of a
company. The 2013 Act is divided into 29 chapters containing 470 sections as against 658
Sections in the Companies Act, 1956 and has 7 schedules. However, currently there are only 438
sections remains in this Act. The Act has replaced The Companies Act, 1956 (in a partial
manner) after receiving the assent of the President of India on 29 August 2013.The section 1 of
the companies Act 2013 came into force on 30th August 2013 . 98 different sections of the
companies Act came into force on 12th September 2013 with few changes like earlier private
companies maximum number of members were 50 and now it will be 200. A new term of "one-
person company" is included in this act that will be a private company and with only 98 sections
of the Act notified. A total of another 183 sections came into force from 1 April 2014.

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The Ministry of Corporate Affairs thereafter published a notification for exempting private
companies from the ambit of various sections under the Companies Act.
The 2013 legislation has stipulations for increased responsibilities of corporate executives in the
IT sector, increasing India's safeguards against organized cybercrime by allowing CEO's and
CTO's to be prosecuted in cases of IT failure.
Minister of Corporate Affairs, Nirmala Sitharaman introduced The Companies (Amendment)
Bill, 2020. It was passed by the parliament in 2020.

 Amendments in Companies Act, 2013 regarding provisions of ‘Special

Court’

The definition of Court under Section 2(29) the Companies Act, 2013, (the Act, 2013) also
includes a ‘Special Court’ constituted under Section 435 of the Act, 2013. Chapter
XXVIII constituting Sections 435 to 446B deals with the Special Courts under the CA, 2013.
The definition of Court under Section 2(29) the Act, 2013 may be read as under: –

“(29) “Court” means-

(i) the High Court having jurisdiction in relation to the place at which the registered
office of the company concerned is situate, except to the extent to which jurisdiction has
been conferred on any district courts subordinate to that High Court under sub-clause (ii);

(ii) the district court, in cases where the Central Government has, by notification,
empowered any district court to exercise all or any of the jurisdiction conferred upon the
High Court, within the scope of its jurisdiction in respect of a company whose registered
office is situated in the district.

(iii) the Court of Session having jurisdiction to try any offence under this Act or under
any previous company law;

(iv) the Special Court established under section 435;

(v) any Metropolitan Magistrate or a Judicial Magistrate of the First-Class having

jurisdiction to try any offence under this Act or under any previous company law.”

CONCLUSION

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 The jurisprudential and practical problems in imposing criminal liability on fictional
entities ferment this disagreement. The arguments against imposing such liability focus
on its incompatibility with the criminal justice system; the hardship such liability,
especially under the broad vicarious liability standards employed, causes for businesses;
and the unfairness of punishing innocent actors, such as shareholders and creditors, when
corporate criminal liability is imposed. The arguments in favor of corporate criminal
liability focus on the major role corporations play in today's world; the corrupting
influence of corporate crime; and the ineffectiveness of alternatives such as prosecuting
individuals involved or pursuing civil remedies. The existing standards for assessing
corporate criminal liability are universally criticized as simplistic, unrealistic, and
inconsistent with fundamental tenets of criminal law. These standards rely upon vicarious
liability and hold a corporation liable by imputing the actions and intent of a corporate
agent to the corporation.

REFERENCES

i. Corporate criminal liability mondaq article

ii. Formation of company in India-legal helpline
iii. Origin and evolution of modern company law book pdf
iv. English case laws – Wikipedia
v. Legislative approach of corporate crime in England- American law journals
vi. legalserviceindia.com
vii. http://blog.ipleader.in/corporate-crimeliabilityinIndia
viii. http://www.legalbite-in/analysis-of-corporate-crime

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