A corporation is considered as a separate legal entity distinct from its
shareholders. It can be described to imply as an association of persons for some
common object and it has no strictly any legal or technical meaning. It is
understood that criminal liability is attached where there is violation as per
criminal law. The criminal liability of any act is based on the Latin maxim
Actus non facit reum mens sit rea which means that to make a person or any
entity liable it must be shown that there is an act or omission which is
forbidden by law and with mens rea which is legally understood as having guilty
mind. It comes under the category of White-collar crimes.
liability can be defined as a crime which has been committed by individual or
association of individuals who for pursuing a common purpose or make business
gain in course of their occupation commit such acts or omission which is
forbidden by law and with guilty mind where it is for the benefit of the
corporation or any individual out of the association of individuals. Earlier in
many situations when the concept of holding a corporation liable was not
introduced there was not any corporation held liable for any criminal act as the
it is an artificial legal person, so it could not be imprisoned, and corporation
not being natural person there was absence of mens rea.
When a Corporation is
hold criminally liable it not only affects the business of corporation but also
the individuals in the corporation who are engaged in criminal conduct it may
make them suffer criminally and financially. However, it has been suggested in
case of punishment to be imposed on corporation it has been suggested that fine
should be imposed rather than imprisonment.
Development of concept of Corporate Criminal Liability-
Corporate crimes are those crimes which are committed by corporations or members
of corporations where liability is imposed for performing any acts or omissions
which are punishable by law. In Zee Tele films Ltd. v. Sahara India Co. Corp.
, where a company was discharged form liability arising out of defamation
where there was absence of mens rea which is considered as an implicit
requirement under law. In the case of State of Maharashtra v. Syndicate
High court had held that company could not be prosecuted for offences which
entail corporeal punishment which entailed corporeal punishment or imprisonment
prosecuting a company for such offences would result in trial with verdict of
guilty but no effective order could have been implemented. However, in case of
Iridium v. Motorola a different viewpoint was held then the above case referred
where the Supreme Court held that a company could be held liable for statutory
offences as well as common law offences which includes those offences where
there is a requirement of mens rea.
However, in earlier times major issues were
faced for evolution of concept of corporate criminal liability wherein-
There was a failure to identify presence of mens rea in corporation as there was
absence of criminal in tent by corporations who are fictional and artificial
legal person in eyes of law,
A Corporation could not be imprisoned or given death punishment which is usually
given in criminal law.
As per the Court the accused must be physically present in the proceedings which
is not possible in case of corporations as them being artificial legal persons.
However today, the directors or officers are made liable for the acts committed
in actual authority to perform in when they direct their subordinates to commit
any crime and failed to exercise any due care or supervise their acts which
falls under the category of accomplice theory and further this theory also
states that due to concept framed of responsible relation that a person will be
made criminally liable due to responsible relation found regardless of whether
he possessed the knowledge that the act was criminally liable. However, it can
be said that apart from being an asset corporation can also be hazardous to the
Indian social legislations like the Essential Food commodities Act 1955,
The Environment Protection Act,1986, The Negotiable instruments Act,1881 state
that along with the corporation also its employees shall be held liable for that
offence and if pronounced guilty imprisonment shall be given as punishment to
those involved in the crime. In this day of economic progress such principle has
assumed importance in corporate governance.
However, there are certain criticisms attached to the Doctrine of Corporate
Criminal Liability in which the first one would be Imprisonment and second would
be Mens Rea.Whenever certain crimes are committed there is mandatory
imprisonment in case of punishing which also includes Companies along with
natural persons. In case of Fraud under section 447 there is mandatory
punishment of imprisonment wherein companies being an artificial legal person
cannot be imprisoned and can be only be punished with fine and not otherwise.
For the Commission of the Crime there has to be requisite Mens rea for
committing the Crime, however in case of Companies there is absence of Mens rea
to hold a Company liable for crime. The Courts have applied the doctrine of
Alter ego in order to hold the companies/corporations liable in case of Mens Rea
which is considered as an essential element of Committing a Crime.
The Supreme Court in the case of New York Central and Hudson River Railroad Co.
v. United States
which was 1909 case first endorsed that since the corporations
were held liable for civil cases would also be liable under the criminal law. In
the case of Municipal Corporation of Delhi v. J.B Bolting Company (P) Ltd
interesting question was confronted by the Court wherein the Company can be
awarded with punishment of Fine when mandatory punishment is both imprisonment
Doctrines established in Corporate Criminal Liability-
1.The Doctrine of Vicarious Liability-
Under the Doctrine of Vicarious liability
as in law of torts its stated that the Master is vicariously held for the acts
committed by the servants. Similarly, in the case of Ranger v. The Great Western
it was held that the company is held vicariously liable for the
acts committed by its employees if it is done in the course of its employment.
In the case of Gunston and Tee Ltd v. Ward this doctrine is applicable as same
as Respondent Superior was applicable as in civil law, but it does not find in
criminal law as in criminal law it states that every person is liable for the
acts committed by them and not for acts committed by others.
2.The Doctrine of Identification-
Under the Doctrine of Identification the acts
of Corporate officers are identified with that of a company wherein the
corporation being a artificial legal person having no physical existence the
acts committed or guilt by senior officers in their official capacity, the
company shall be held accountable.
3.The Doctrine of Collective Blindness-
Under the Doctrine of collective
blindness, courts have held that corporations will be held liable even if single
individual was not at fault and considered sum total knowledge of all employees
in order to make a corporation liable.
4.The Doctrine of Wilful Blindness-
Under such doctrine if any illegal or
criminal act is committed and the corporate agent does not take action or
measures to prevent happening of such activities then doctrine of wilful
blindness is applicable.
5.The Doctrine of Attribution-
Under the Doctrine of attribution, as in case of
sentencing or imprisonment in event of act or omission leading to violation of
criminal law, the mens rea i.e. the guilty mind is attributed towards the
directing mind and will of the corporations. This doctrine is being used in
India however this doctrine was developed in United Kingdom.
6. The Doctrine of Alter Ego-
Under the Doctrine of Alter Ego, it is described
as someone’s personality which is not seen by others. The owners and persons who
manage the affairs of the Company are considered as the Alter Ego of the
Company. The Directors and other persons who mange the affairs of the company
can be held liable for the acts committed by or on behalf of the Company under
this doctrine since the corporation has no mind, body or soul so the people are
the directing mind and will. However, it has always been relied that the
principle of Alter ego has been acted in reverse so the acts of individuals who
are managing the affairs of the Company are attributed to the Company and not
Models of Corporate Criminal Liability-
The models under the Corporate Criminal Liability are as follows-
1.The Identification Doctrine-
It is an English law Doctrine wherein it tries to
identify that certain persons who acts on behalf of corporation and whose
directing mind and conduct can be attributed to the corporation. The liability
of these persons where the persons acting on behalf of corporation is limited to
the scope of them working in employment or authority.
2.The Organizational Model-
In terms of criminal cases model of corporate
criminal liability in India focuses on organizing model while defining the
corporate criminal liability of an organization. The Corporate culture may
provide an environment for which will lead to Commission of Crime.
3.The Derivative Model-
The liability of an organization is derived liability in
terms of Corporate Criminal liability wherein the liability is put on the
organisation because the individuals who commit the crime are in connection with
Concept of corporate criminal liability in India-
Until the concept of corporate criminal liability was established, Courts in
India did not punish corporations as they felt that essential ingredient ie.
Mens rea is absent in corporation it being a fictitious legal entity having no
physical existence so also could not be brought physically for the proceedings.
However due to such concept many legal difficulties started arising which was
noticed by the Law Commission in its 41st report of Law Commission of India
where amendment was suggested in section 62 of the IPC but the bill which was
made was lapsed but the view of Courts in terms with this concept changed in a
landmark case of Standard Chartered Bank and Ors. v. Directorate of Enforcement
, the bank was prosecuted for violation of provisions of the Foreign Exchange
Regulation Act ,1973 where the Supreme Court did not go by the strict penal
provisions and held that a corporation can be held liable regardless of the
mandatory punishment as under the statue.
When a corporation is held criminally liable, the criminal conduct of employees
may make them suffer criminally and financially. Everyone in the corporate
entity is held liable be its officers, directors and even corporation where the
penalties include civil penalties, criminal penalties, loss of government
contracts, permanent or temporary loss of deposit insurance, conservatorship
In the case of Assistant Commissioner v. Velliappa Textiles Ltd
, it was held
that the corporations cannot be imprisoned as they cannot be punished and
prosecuted under IPC which directs imprisonment. The concept of corporate
criminal liability has been established under the Companies Act. The liability
of Directors under the Companies Act 2013 has been increased which has replaced
the Companies Act 1956.Under the Companies Act 2013 it holds not only the
Directors liable but also include the officer in default wherein it includes in
broad framework a whole-time director, key managerial personnel and such other
officers in absence of KMP who have been specified by the Board of directors and
every other director who has information related to it or has participated to be
part of that act without raising the objection under the concept of corporate
criminal liability in India.
The concept of Corporate Criminal Liability has
been recognised under the Companies Act 2013 under-
Section 53-Prohibition of shares at a discount.
Section 118(12)-Minutes of proceedings of General Meeting, Meeting of Board of
Directors and other meetings and resolutions passed by Postal Ballot.
Section 128(6)-Books of Account, etc, to be kept by Company.
Section 129(7)- Financial Statement.
Section 134- Financial Statement, Boards report, etc.
Section 188(5)- Related Party transactions.
Section 57-Punishment for personation of Shareholder.
Section 58(6)- Refusal for registration and appeal against refusal.
Section 182(4)- Prohibitions and restrictions regarding Political Contributions.
Section 184(4)- Disclosure of Interest by Director.
Section 187(4)- Investments of the Company to be held in own name.
Section 447- Punishment for fraud.
Section 21 in the Transplantation of Human Organs Act 1994 states about
Offences by Companies as-
(1). Where any offence, punishable under this Act, has been committed by 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 such person liable to any
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
(2). Notwithstanding anything contained in sub-section (1), where any offence
punishable 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 any body corporate and includes a firm or other association
As per Section 66 of the Food and Safety Standard Act 2006 offences by
(l) Where an offence under this Act which has been committed by 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 where a company has different establishments or branches or
different units in any establishment or branch, the concerned Head or the person
in-charge of such establishment, branch, unit nominated by the company as
responsible for food safety shall be liable for contravention in respect of such
establishment, branch or unit.
Provided further that nothing contained in this sub-section shall render any
such person liable to any punishment provided in this Act, if he proves that the
offence was committed without his knowledge or that he exercised all due
diligence to prevent the commission of such offence. (2) Notwithstanding
anything contained in sub-section (1), where an 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 purpose of this section, - (a) “company” means anybody
corporate and includes a firm or other association of individuals.
As per section 305 of the Code of Criminal Procedure mentions Procedure when
corporation or registered society is an accused.-
(1) In this section, Corporation means an incorporated company or other body
corporate, and includes a society registered under the Societies Registration
Act, 1860 (21 of 1860).
(2) Where a corporation is the accused person or one of the accused persons in
an inquiry or trial, it may appoint a representative for the purpose of the
inquiry or trial and such appointment need not be under the seal of the
(3) Where a representative of a corporation appears, any requirement of this
Code that anything shall be done in the presence of the accused or shall be read
or stated or explained to the accused, shall be construed as a requirement that
that thing shall be done in the presence of the representative or read or stated
or explained to the representative, and any requirement that the accused shall
be examined shall be construed as a requirement that the representative shall be
(4) Where a representative of a corporation does not appear, any such
requirement as is referred to in subsection (3) shall not apply.
(5) Where a statement in writing purporting to be signed by the managing
director of the corporation or by any person (by whatever name called) having,
or being one of the persons having the management of the affairs of the
corporation to the effect that the person named in the statement has been
appointed as the representative of the corporation for the purposes of this
section, is filed, the Court shall, unless the contrary is proved, presume that
such person has been so appointed.
(6) If a question arises as to whether any person, appearing as the
representative of a corporation in an inquiry or trial before a Court is or is
not such representative, the question shall be determined by the Court.
As per the Section 38 of the NDPS Act,1985 mentions Offences by Companies-
(1) Where an offence under Chapter V has been committed by 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 such
person liable to any 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.
(2) Notwithstanding anything contained in sub-section (1), where any offence
under Chapter IV 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 of other officer shall
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 any body
corporate and includes a firm or other association of individuals.
The corporation can be held criminally responsible for a variety of Crimes
b. Maintaining public nuisance.
c. Violations of Consumer Protection laws.
d. The illegal practice of Medicine.
e. Antitrust laws Violations.
As per the P C Amendment Act Bill 2013, Section 9(1)- A commercial organisation
shall be guilty of an offence and shall be punishable with fine, if any person
associated with the commercial organisation offers, promises or gives a
financial or other advantage to a public servant intending- (a) to obtain or
retain business for such commercial organisation; and (b) to obtain or retain an
advantage in the conduct of business for such commercial organisation: Provided
that it shall be a defence for the commercial organisation to prove that it had
in place adequate procedures designed to prevent persons associated with it from
undertaking such conduct.
(2) For the purposes of this section, a person offers, promises or gives a
financial or other advantage to a public servant if, and only if, such person
is, or would be, guilty of an offence under section 8, whether or not the person
has been prosecuted for such an offence. (3) For the purposes of section 8 and
this section, - (a) "commercial organisation" means-
(i) a body which is
incorporated in India and which carries on a business, whether in India or
(ii) any other body which is incorporated outside India and which carries on a
business, or part of a business, in any part of India;
(iii) a partnership firm or any association of persons formed in India and
which carries on a business (whether in India or outside India); or
(iv) any other partnership or association of persons which is formed outside
India and which carries on a business, or part of a business, in any part of
(b) "business" includes a trade or profession or providing service including
(c) a person is said to be associated with the commercial organisation if,
disregarding any offer, promise or giving a financial or other advantage which
constitutes offence under sub-section (1), such person is a person who performs
services for or on behalf of the commercial organisation. Explanation 1. -The
capacity in which the person performs services for or on behalf of the
commercial organisation shall not matter irrespective of whether such person is
employee or agent or subsidiary of such commercial organisation.
Explanation 2. -Whether or not the person is a person who performs services for
or on behalf of the commercial organisation is to be determined by reference to
all the relevant circumstances and not merely by reference to the nature of the
relationship between such person and the commercial organisation.
Explanation 3. -If the person is an employee of the commercial organisation, it
shall be presumed unless the contrary is proved that such person is a person who
performs services for or on behalf of the commercial organisation.
Notwithstanding anything contained in the Code of Criminal Procedure, 1973, the
offence under section 8 and this section shall be cognizable.
Section 10 (1)- Where a commercial organisation has been guilty of an offence
under section 9, every person who at the time the offence was committed was in
charge of, and was responsible to, the commercial organisation for the conduct
of the business of the commercial organisation shall be deemed to be guilty of
the offence and shall be punishable with imprisonment which shall not be less
than three years but which may extend to seven years and shall also be liable to
fine Provided that nothing contained in this sub-section shall render any such
person liable to any punishment, if he proves that the offence was committed
without his knowledge or that he has exercised all due diligence to prevent the
commission of such offence.
(2) Notwithstanding anything contained in sub-section (1), where an offence
under section 9 has been committed by a commercial organisation 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 commercial organisation, such director, manager, secretary
or other officer shall also be deemed to be guilty of the offence and shall be
liable to be proceeded against and punished accordingly under this section.
For the purposes of this section, "director", in relation to
a firm, means a partner in the firm.
It is the one which comprises of corporate ethics and rules relating to
behaviour in a Company. The corporate culture is the one wherein the Culture of
the Company depends from organization to organization. It is the beliefs and
attitudes which guides the practices of the Company. It can also be termed as
the organizational culture.
There are six components of a great corporate culture which can be explained
1.Vision- One of the components of the great corporate culture is to have a good
vision and have a vision or mission statement. It is simple and is considered as
2.Values-It is one such element which provides guidelines on the pattern of
behaviour to achieve the vision or mission set by the Corporation. Originality
of values are to be considered less important than authenticity.
3.Practice – The values which are set by the corporation need to be practised
and the company needs to practice what it professes.
4.People – One of the most important elements is people wherein if people follow
the culture which has been set by the organization it adds to the value
structure of that organization. Stringent policies are been followed by the
5.Narrative -It has been considered as the core element of the Culture Creation
wherein every organisation has a unique story and a unique history.
6.Place -Place has been considered as the one which shapes the culture. Place in
terms of architecture or Aesthetic design determines the Behaviour and mindset
of the people at workplace and the workplace as a whole.
These six components provide for a foundation for shaping the culture of a new
organization. When a Company is looking for a change the first step is to
identify and understand them carefully when in the existing organization.
Concept of Corporate criminal liability in other Countries-
a) United States of America (USA)-
Earlier in the USA the corporations were considered as a fictitious legal entity
and the Mens Rea required to commit a crime was absent in corporations so they
weren’t held criminally liable but this notion was changed and however in the
present scenario although the federal statues may apply but they cannot overrule
the sate laws in case where it overlaps with state laws and hence a Corporation
can be prosecuted for both Federal and State laws. The punishment given under
the laws of this country is that there is punishment by fine or confiscate
Property which can be levied by the orders of the Court. Generally, when there
is violation of a Statue the punishment is either fine or imprisonment or both
as per the Courts order but it does it applies to corporation as well and the
rule applies that if fine is not paid then punishment of imprisonment can be
The concept of Corporate Criminal liability in Switzerland was introduced in the
late of 2003 where it was based on the subsidiary liability which stated that
corporations can be held liable when fault cannot be attributed to a specific
individual due to lack of organisation within the enterprise and also the
Criminal fines range upto five Swiss francs.
The concept of Corporate Criminal liability was codified in French law under
Article 121-2 of the new French Penal code. According to the law in this country
there are three requirements which need to be fulfilled in order to impose a
liability on a legal entity. The first requirement is that French legislature
must have enacted a substantive criminal offence which the corporation must have
contravened, the second requirement being that the actual criminal liability
must lie with the agents or representatives of that corporation on which
liability of corporate criminal liability will be imposed. The third requirement
is that the acts which are criminal in nature and criminal liability can be
imposed must be for the benefit of the Corporation. It provides a list Statutory
In present situation in Germany companies cannot be held liable as per the
German Law but those individuals who commit crime can be held accountable for
their actions even if those actions are for Company’s benefit however fines can
be imposed on companies under the Administrative offences Act. In order to make
a company to hold liable the individuals who commit the criminal or
administrative offence must belong to the person mentioned in the group of
persons under section 30 para 1 OWiG.
In Japan there is a provision of known as dual criminal liability provision
wherein the Company as well as the business operator and the perpetrator can be
held liable and this provision was introduced in the Act which is the Prevention
of Capital Outflow in the year 1932.A company will be held liable when the crime
is committed not only by the Senior Executives but also any of the employees of
the Company however the company will not be held liable in case the crime has
been committed by the Act of Third parties.
In Russia the liability of a Company is either Civil or Administrative in case
it commits illegal conduct as there is no concept of criminal liability for
companies which exists in case of individuals. In this country under their
administrative legislation Company is considered as a separate legal entity and
may commit acts known as the Administrative offences.
The EU General Data Protection Regulation along with the UK Legislation is set
to introduce new criminal offences for corporates which will not be relied on
the basis of identification principle where prosecutions will be in instances of
cyber crime and misuse/manipulation of personal data.
The 47th Law Commission Report has recommended various solutions to deal with
Corporate criminal liability namely that the judges should have the
discretionary powers to impose penalties as it deems fit to them. In case of a
corporation it would be competent enough if it is a corporation to sentence the
offender with fine only rather than imprisonment and fine or only imprisonment.
However, the legislatures have ignored this recommendation by the Law Commission
and failed to incorporate any of this due to which it has become difficult for
courts to punish the offenders. It is to be noted that corporate criminal
liability can arise from various circumstances.
The corporate scandals is having
a bad effect in India. However, with the growth and developments which take
place in India the corporations are not made criminally liable and if
punishments are given then no other than except fines are to be imposed.
There is a need to attach the significance of Corporate Culture in both formal
and informal polices, in rules and practices wherein the corporation is
considered as a conduct element of offence which has been committed by it when
their cause was encouraged by the culture of Corporation. Through this concept
it becomes possible for a corporation in cases where there is no involvement of
individual in committing an offence.
The existing standards in terms of
assessing the Corporate Criminal liability has often been criticized and has also
been termed unrealistic, inconsistent with the fundamentals of the criminal
laws. In terms of corporate context in order to deter crimes the state should
induce the firms to take policing measures. In case of professional assessment
of the corporation, the court should have the power to appoint suitable person
or persons to prepare report on corporation. When a corporation is sentenced in
addition to imposing a fine or instead of imposing a fine it should make one or
more orders in such a way that it considers that it will achieve the objectives
of sentencing. Stricter punishments need to be imposed like corporate
dissolution wherein the courts will be able to see whether any reincorporation
can happen in cases where there is penalized corporate.
Nowadays the concept of Sustainable Development which is professed by the
Government has substantially failed in its efforts to control such crimes
affecting largely the society.
Writteb by: Kumar Saurav and Krupa Savajiyani