Prior to the twentieth century, it was believed that a corporation lacked the mens rea required for the commission of a criminal act and hence to attain a criminal conviction. The idea that “A corporation has no soul to damn, and no body to kick” was widely prevalent at that time.
At present, the directors, employees and officers are all liable for criminal acts committed by them which they have actual authority to perform or appear to have authority to perform as observed by an average reasonable man. Further, directors and officers may also be subject to criminal liability under the “accomplice theory” which states that they either encouraged or instructed a subordinate to commit a criminal act or failed to exercise due care and supervision of their subordinates which in turn led to the commission of the crime. This theory states that a person is criminally liable by virtue of his “responsible relation” to the misconduct regardless of whether or not he possesses any knowledge regarding the criminal activity. Top corporate law advocates in India can be consulted to know more.
Today, for the doctrine of corporate criminal liability to be applicable, the criminal act of the employee must:
- Be committed with the intention of benefiting the corporation in some manner, or
- Be committed with the intention of increasing his own personal gain, and this conduct ultimately ends up benefiting the corporation as well.
Deadlocks of Corporate Criminal Liability
As has been discussed above that a company is recognized as a juristic person, and being a person it has to face the punishment that has been provided by the various acts. There are various provisions in Companies Act, 2013 itself which hold a company liable for its wrongdoing. However, there are provisions which provide mandatory imprisonment for a person including company, such as Section 447 of Companies Act, 2013 Act, Section 420 of The IPC, 276B of The Income Tax Act etc.
The Courts found themselves anta dead-end in these kinds of situations where a company is charged under sections which provides for necessary imprisonment, as the company is a legal person cannot be imprisoned for its criminal acts, it can only be punished with a fine and not otherwise. The best corporate attorneys in India can explain the concept of corporate liability in more details.
In the case of Motorola Inc. vs. Union of India the Bombay High Court quashed a proceeding against a corporation for alleged cheating, as it came to the conclusion that it was impossible for a corporation to form the requisite mens rea, which was the essential ingredient of the offence. Thus, this doctrine of alter ego allowed the courts to frame corporate houses for the offences which had mens rea as an essential ingredient, and it is now less tiresome for the court to hold a corporation criminally liable.
Two Pillars of Corporate Criminal Liability
1. Derivative Model
This model is an individual centred model. The derivative model can be understood in two sub-categories:
a) Vicarious Liability; b) Identification Doctrine.
a) Vicarious Liability
The concept of vicarious liability is based on two Latin maxims- first, qui facit per alium facit per se , it means that he who acts through another shall be deemed to have acted on his own, and second, respondeat superior which means let the master answer. In Bartonshill Coal Co. v. McGuire , Lord Chelmsford LC said: ‘every act which is done by an employee in the course of his duty is regarded as done by his employer’s orders, and consequently is the same as if it were his employer’s own act.’
b) Identification Doctrine
This doctrine is an English law doctrine which tries to identify certain key persons of a corporation who acts in its behalf, and whose conduct and state of mind can be attributed to that of the corporation. In case of Salomon v. Salomon & Co . House of Lords held that corporate entity is separate from the persons who act on its behalf. The Courts in England had in various judgments like DPP v. Kent & Sussex Contractors Ltd, R v. ICR Haulage Ltd. , ruled that the corporate entities could be subjected to criminal liability and the companies were held liable for crimes requiring intent. Judgment like these led to the promulgation of ‘identification doctrine’.
Unlike derivative model which focuses on an individual, the organizational model takes corporation into consideration. Offences require mental state ( mens rea ) to commit a crime along with physical act ( actus reus ), but the problem that arises while holding corporations criminally liable is how a corporation which is a juristic person could possess requisite mental state to commit a crime.
Corporate culture may help for commission of an offence requiring mental state by- firstly, providing the environment or necessary encouragement that it was believed by the offender working in the corporation that it was perfectly alright to commit that offence, or corporation has psychologically supported the commission of offence; secondly, it is quite possible that the corporation created an environment which led to commission of crime. Both ways it was the corporation and its working culture that let the offence committed.
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