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Analysis of White-Collar Crimes in India

The term Corporation has been defined as:

A company incorporated outside India but does not include:
  1. A corporation sole;
  2. A co-operative society registered under any law relating to co-operative societies; and
  3. Any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf.

Emergence of Corporate Criminal Liability in common law finds its roots in Birmingham & Gloucester Railway Co.[1], a company was fined for failing to fulfill a statutory duty. It was challenged that a corporation, being devoid of mind and body, cannot have the necessary guilty mind to commit a crime and that the corporation cannot be sentenced to imprisonment. This problem was solved by the British Parliament in 1889 when the Interpretation Act was enacted which provided that expression �person� shall include a body corporate unless the contrary intention appears, relating to an offence punishable on summary conviction or on indictment.

Position in India:

Corporations cannot be held liable for offences such as bigamy, perjury, murder or rape but they might be held liable for dishonest misappropriation, criminal breach of trust, cheating, etc. Hence, they are generally involved in crimes which are referred to as �white collar crimes�.

Position of corporate criminal liability in India can be traced from various judicial pronouncements and statutes on the issue (chronologically):
Rameshwar Dass Chottey Lal and Ors. vs. Union of India and Ors.
, the Delhi High Court observed that the companies can be held liable for only those offences where imprisonment is not mandatory. As it is difficult for courts to punish companies for offences where corporal punishments are awarded.

41st Report of the Law Commission of India

Recommended a provision that should be incorporated in the Indian Penal Code e.g., as section 62 in Chapter III relating to punishments, on the following lines: �

�In every case in which the offence is only punishable with imprisonment or with imprisonment and fine and the offender is a company or other body corporate or an association of individuals, it shall be competent to the Court to sentence such offender to fine only�.

In Superintendent and Remembrancer of Legal Affairs, WB v. Corpn of Calcutta,
The case of Director of Rationing and Distribution v. The Corporation of Calcutta and Ors. was overruled and it was concluded that the state is liable for criminal acts of its employees.

In Aligarh Municipal Board v. Ekka Tonga Mazdoor Union, Allahabad High Court held, �A command to a corporation is in fact a command to those who are officially responsible for the conduct of its affairs.� Therefore, natural persons as well as the corporate body are both guilty of contempt due to non-performance of high court�s order and consequently are liable for punishment.

47th Report of the Law Commission of India
They recommended an addition to S. 62 of the Penal Code specifically imposing fines as the only punishment which can be inflicted on a corporate for their criminal act.

In Municipal Corporation of Delhi v. J.B. Bottling Company (P) Ltd., the respondent company was found guilty of committing offence under S. 7 of Prevention of food Adulteration Act, 1954. The punishment was fine as well as imprisonment. The company was held guilty of offence and the court declared that it could be punished with a fine alone.

In TR Dhananjaya v. J Vasudevan, the apex court dismissed an appeal in favor of a government employee and directed the employer to create a supernumerary post and give the said benefits to the petitioner. Consequently, the state government issued directions to the employer in order to pursue the directions of court, the directions were disobeyed and an attempt was made to circumvent the same and deny the benefits. It was contended by the employer corporation that the petitioner is not eligible for promotion. The court held, Public servant is also imprisonment.

In Kalpnath Rai v. State, the appellant company was held not liable under TADA[2] for harbouring terrorists on its premises and the reasoning given behind the decision was the lack of mens rea.

In Attorney General�s Reference[3], the court�s opinion was sought by the Attorney General in a case where the train operated by the defendant collided with a freight train resulting in death and injury of several passengers. It was concluded by the apex court that a corporation is liable for manslaughter by gross negligence of its employees.

In Assistant Commissioner, Assessment- II, Bangalore & Others v. M/s Velliappa Textiles Ltd. And Others, two questions were answered by the apex court:

  1. Whether a company can be attributed with mens rea on the basis that those who work or are working for it have committed a crime and can be convicted in a criminal case?
  2. Whether a company is liable for punishment of fine if the provision of law contemplates punishment by way of imprisonment only or a minimum period of punishment by imprisonment plus fine whether fine alone can be imposed?

The three judges on the bench wrote 3 different judgements:

On the first question, BN Shrikrishna and GP Mathur JJ, agreed and concluded that corporations are liable even where the offence requires a criminal intent.

Rajendra Babu J, dissented and opined that it is impossible to assign mens rea to a corporation and consequently they cannot be convicted.

On the second question, GP Mathur J was of the view that by not making corporates liable criminally just because they are juristic persons the courts would be avoiding their responsibility of imparting justice. Whereas Rajendra Babu and Shrikrishna JJ, agreed and held that legislative changes are necessary so as to make the corporates liable and hence the onus lies on parliament to exercise its legislative power so as to make corporates liable criminally.

The judgement was a split verdict thereby reducing its persuasive value. Moreover, it set forth the precedent that in order to make a corporate liable the legislature should explicitly provide for fine as punishment. However, in cases of disputes the court would decide on its own. Nevertheless, the punishment has to be restricted to fines only.

In the landmark judgement of Standard Chartered Bank v. Directorate of Enforcement, KG Balakrishnan, Arun Kumar and DM Dharmadhikari JJ agreed and observed that the intent of the legislature is to not give full immunity from prosecution to the corporate bodies for grave offences. They held,

�The court can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. This appears to be the intention of the legislature and we find no difficulty in construing the statute in such a way.�

They further added, �there is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment� and overruled the Velliapa Judgement on this point.

BN Srikrishna and N Santosh Hegde JJ dissented and took the stance of Velliapa Judgement and held:

It is to interpret the law, not to make it� If the legislation falls short of the mark, the Court could do nothing more than to declare it to be thus, giving its reasons, so that the legislature may take notice and promptly remedy the situation.

They further clarified, the corporations do not have a blanket immunity from criminal liability but, in the absence of any express legislature the courts cannot draft one mandating imprisonment as a part of punishment.

Iridium India Telecom Ltd. v. Motorola Incorporated

Apex court concluded, a corporation would be criminally liable 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 and henceforth it is necessary to ascertain the degree and control of the person or body of persons. It should be intense enough to be regarded that the corporation is thinking and acting through that person or body of persons.

Criminal liability of Director, Manager or Chief Executive Officer of a Corporation:
Law on this point is relatively clear and unambiguous.

Aneeta Hada v. M/s Godfather Travels & Tours Pvt. Ltd., Apex court held, the persons involved in the corporation can be vicariously liable criminally only when the company can be prosecuted subject to the contention in the petition and proof thereof. Same was held in Sunil Bharti Mittal v. CBI and Himanshu v. B Shivamurthy[4].

End Comment:
The concept of Corporate Criminal Liability has been vaguely established through various judicial pronouncements as a clear legislature is still lacking. We have seen Supreme Court framing laws wherever legislature is lacking such as the guidelines laid to prevent Sexual Harassment at Workplace in Vishaka v. State of Rajasthan, then why is it shying away from laying down the law on Corporate Criminal Liability?

Moreover, why is the legislature not considering the recommendations made by the Law Commission in its reports? Time and again we have seen corporates engaging in grave offences and we are in dire need to enact a well-structured legislature holding corporates and the brains working them liable and accountable for their acts and omissions. To summarize, the current law followed in cases of corporate criminal liability in India is the one laid by the majority in Standard Chartered Bank Case, imposing only fines as punishment irrespective of the graveness of an offence.

Moreover, suitable amendments should be made in CrPC in this regard and parliament should explicitly declare through legislation that courts can award fines as a punishment in lieu of corporal punishment where legislative sentence comprises of both.

  1. The Queen v. Birmingham and Gloucester Rly. Co, (1842) 3 Q.B. 223.
  2. Terrorist and Disruptive Activities (Prevention) Act 1989, s 3(4)
  3. [2000] 3 All ER 182 (CA)
  4. (2019) 3 SCC 797

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