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A Brief Note on: Corporate Civil Liability

A corporation can only do those things that are incidental to the fulfillment of the purposes for which it was established by law. All its actions must be directed toward its ultimate purpose of creating a corporation. A company incorporated by special statute is therefore limited to the powers conferred by the statute and to those reasonably incidental to it.

The purpose and object of a company registered under the Companies Act 2013 is contained in its memorandum of association and the company cannot exceed the limits so set for its activities. Anything a company does beyond its subject matter clause is ultra vires.[i]

It may be reiterated that a company is not a natural person. It has no mind, body, soul or brain of its own. It has to act through its agents, employees and other functionaries like directors etc. Hence, it follows that a corporation has no will of its own and no interest of its own.

The interest of the company is actually the interest of its shareholders, which is represented by the board of directors. Despite this fact, the law confers on corporations a fictitious legal personality that vests them with rights, obligations and property. As a result, a company can sue or be sued and owe both civil and criminal liability for actions it has taken.

Civil liability

It also imposed civil liability on companies. Although a company is an artificial person without a brain and body of its own, it would be liable for wrongful acts committed by its agents or employees in the course of their employment.

Indirect liability

A company is an artificial person that has no brain and body of its own, but would nevertheless be liable for wrongful acts committed by its agents or employees in the course of their employment. This liability is based on the principle of vicarious liability. This is further reinforced by the Latin maxim "Qui facet alium facet per se", which means that an authorized act which is done through another is deemed to have been done by him.

A company is therefore liable for the torts of its employees and agents, just as a master is liable for the wrongful and negligent acts of his employees. Thus, based on the principle of agency, the master, i.e. the corporation, would be liable for the acts of the servants done in the course of employment.

The decisive word here is the course of employment. The company is not responsible for any action that was done by the agent, but is not within the scope of his work and was not authorized by the principal. Only the one who did the act would be responsible.

Over the years, the concept of vicarious liability has also included various other aspects within its framework. The question of whether acts with malice as an ingredient has been the subject of much debate in court and whether there has been a shift in trend in recent years. Previously, in Stevens v. Midland County Rly. Company, Baron J. held that a corporation has no mind of its own and therefore cannot be liable in a civil action involving malice.

This view was again reiterated in Abrath v. Nor Eastern Railway Company [ii]. In this case, a railway company prosecuted Dr Abrath, a surgeon, for issuing a fabricated certificate to a passenger who claimed to have been injured in a railway accident. However, the surgeon was acquitted, after which the surgeon sued the railway company for malicious prosecution. The plaintiff had to prove that there was an ulterior motive and motive behind his prosecution.

However, Lord Bram ruled that the corporation was a mere fiction, unable to attribute any mind to it, and therefore incapable of inventing any malice. Lord Lindley overruled the decision in the earlier case of Citizen's Life Assurance Company v. Brown [iii] and noted that a company could be liable for torts involving malice, such as defamation. In this case, the company's superintendent sent a letter to its policyholders containing certain allegations against a former employee of the company.

An ex-employee sued the company for defamation. Lord Lindley held that a corporation is liable and responsible for defamation because of the agency principle, and because the alleged tort is committed in the course of the corporation's employment, it cannot claim immunity.

This settled the matter and firmly established that a corporation could be sued for malicious prosecution or fraud or defamation involving malice as an essential ingredient.

However, the company shall not be liable if the conduct of its employee or employee or officer is not authorized by its company articles. The case of Poulton v London & S.W.Rly. The company [iv] is the main decider in this matter. In this case, a station master in the employ of the defendant railroad company arrested the plaintiff for refusing to pay freight for a horse transported by the railroad.

The railway company had power under an Act of Parliament to arrest a person who failed to pay a fare, but not to arrest a person for non-payment of freight for the carriage of goods. The court held that the company was not liable because it itself had no power to arrest for such non-payment and therefore could not delegate such power to the station master (his employee) to do so.

The plaintiff's remedy for illegal arrest in such a case could be directed against the station master personally and not against the railroad company as the master of its employee. The reason for the decision appears to be that the superintendent had no implied authority to arrest the plaintiff on behalf of the railway company, so that he could not be held liable for an act to which the agent was not authorized and he held that the railway company could not be vicariously liable.

Companies Act, 2013

In addition to the above liability, the company also has civil liability under the Companies Act 2013. Misstatements in the prospectus have been subject to civil liability under Section 35. If any person has subscribed for the company's securities during the issuance of the prospectus, which contains the misstatements, and as a result has received any damage or loss, the director of the company at the time of issue of the prospectus, the founder of the company and any person named in the prospectus would be liable to indemnify the persons who suffer any loss as a result.

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