"Corporate crime kills far more people and costs, taxpayers, far more money than
a street crime"-Anita Roddick
A corporate crime is a type of white-collar crime; which mainly related to
crimes committed for dishonest monetary gain. A corporate crime is a crime
committed by a corporation (an artificial juristic person who is different from
a natural person) in pursuance for the gain of the company. In simpler terms, an
unlawful act committed by an individual or a group of individuals, for the gain
of the company constitutes a corporate crime.
When a crime is committed by individuals who work for the company; the main
dilemma before the court while trying the case stands on identifying the main
culprit. The corporation itself cannot commit a crime so it's obvious that the
people working for the company are behind the unlawful act. And it becomes easy
for the actual perpetrators to hide behind the veil of artificial legal entity.
The court faces another problem while dealing with cases regarding corporate
crime and that is the pronouncement of punishment. A corporation whose existence
is intangible can't be awarded the punishment of imprisonment.
In the case of State of Maharashtra v. Syndicate
 there was a hire and
purchase agreement between the plaintiff and defendant that a certain bus is to
be transferred to the plaintiff's company for payment on a certain date. But on
the date of the agreement, the bus was not transferred to the plaintiff. The
plaintiff alleged the defendant u/s 405, 406 and 420 of IPC; for violating the
terms and conditions of the agreement. The court was of the view that since the
party to the case from the defendant's side is a company the corporeal
punishment mentioned in the above-mentioned sections cannot be pronounced.
Actus Non Facit Reum Nisi Mens It Rea
This maxim means that an act doesn't make one guilty till there is ill intent
for doing the unlawful act.
In criminal law there are two important factors in a
- The guilty intent of the culprit (Mens Rea)
- The unlawful act committed with that intention (Actus Reus)
When it comes to corporate crime the Actus Reus is easily established, but when
it comes to proving mens rea it becomes an impossible task.
In the case of Zee telefilms Ltd v. Sahara India Co. Corp Ltd
 a company
charged with defamation was discharged of its liability because of the absence
of mens rea.
So how can the actual perpetrators be caught? Who should be awarded the
punishment of imprisonment if not the corporation? Who shall be responsible for
the unlawful acts committed in the name of the corporation? The next part of the
article will clear all these doubts.
Current scenario of Corporate Criminal Liability in India
In the current Indian scenario, the position regarding corporate criminal
liability has changed to a great extent. Over time courts have developed certain
doctrines which aid as the deciding factor in the pronouncement of punishment
and on who will the liability of the crime will lie. In the case of Municipal
Corporation of Delhi v. J.B Bottling Company
, the court said that wherein
punishment is both fine and imprisonment, the company can be awarded the
punishment of only fine.
Doctrines related to corporate criminal liability
The doctrine of Vicarious LiabilityVicarious liability is a concept under the law of torts, it simply means 'if an
act is committed by X, the responsibility and the liability of the act will fall
upon Y'. This kind of liability mainly exists where the type of relationship is
of principle-agent nature, wherein the principle will be liable for the acts
committed by the agent.
When we look at corporate criminal liability through the glass of vicarious
liability, we can understand the fact that the relationship of a company with
its employee is similar to principal and agent.
The concept of corporate criminal liability has also been included in the
companies act, 2013, by increasing the liability of the directors. It holds that
not only the directors but also the officers involved in the unlawful act and
every key managerial personnel within the corporation who knows did not move to
stop the act will also be held responsible for the crime.
The Supreme Court while referring to section 145 of the Negotiable instruments
act, said that the person who is responsible for the performance of the business
of the company can be held vicariously liable.
The doctrine of IdentificationThis doctrine means that the corporations will have to take responsibility for
the person with authority who makes policies on behalf of the corporation. This
theory focuses on the fact that the function and performance of the company are
the results of its employees.
The doctrine of Collective BlindnessCourts have found that even when a single person of the company wasn't at fault
the company was still held liable. So the collective knowledge of all the
employees is attributed towards the corporate crime.
The doctrine of willful blindnessUnder this doctrine, if an unlawful act has been committed in the company and
the authority of such company does not take action against the act then this
doctrine can be applied.
The doctrine of attributionThis doctrine has proved to be revolutionary. It means that the people working
on the behalf of the company such as directors and key managerial personnel if
commit a crime being the agent of the company then the company can be held
liable. In this doctrine, the guilty mind or mens rea will be attributed towards
the directing mind and will behind a corporation.
In the case of Iridium India Telecom Ltd v. Motorola, Motorola sold a piece
of technology to Iridium accompanied by promises and assertions; which turned
out to be false. Iridium filed a case of cheating against Motorola.
Under IPC, cheating requires that there should be an intention to deceive. So
Motorola contended that Motorola Inc. being an artificial juristic person cannot
be held liable for an offence like cheating. Here Supreme Court held that in all
jurisdictions wherein a party to a case is an artificial person; can no longer
claim that being an artificial person they are not capable of possessing mens
rea. In such a case doctrine of attribution can be applied.
The doctrine of Alter EgoThis doctrine can be better explained with the following case:
Tesco Supermarket Ltd v. Nattrass In this case, it was held that a corporation is an artificial entity that is
different from its members. Such an entity is not acting with the help of its
employees or agents but it's performing and conducting itself in the form of
its alter ego that is in the embodiment of the corporation and the mind of these
members or agents is the mind of the company. So if the mind of the members and
agents is found to be guilty then the company will also be held guilty.
Over the course of years even after strict laws and doctrines established people
working for corporations have committed scams which are very important events in
the history of corporate governance. One such scam was the Satyam scam, where
there was nearly 7000 crore of misappropriation of funds. It is considered one
of the biggest corporate scam in the history of corporate governance. Let's look
into it in detail.
Satyam ScamSatyam computer services Ltd was an IT company started in 1987 in Hyderabad by
the Raju brothers, Ramalinga Raju and Rama Raju. After the successful running of
the company for many years, Ramalinga Raju's interest sided towards the real
estate sector which was booming. He then started buying properties thinking that
when real estate prices reach their peak he'll sell them to make more profits.
After a while the funds for buying property ran low, so what Ramalinga Raju did
was; he started misleading investors by dishonestly inflating his financial
statements. They showed that their company revenues, operating profits,
interest, assets and cash balance are very high and hence their company was
growing, which was not the case in reality.
With the dishonest inflation shown in the company financial records, the share
prices of the company also boomed. Looking at this increase in stock prices of
their shares, Ramalinga Raju and his brother sold their shares and by keeping
the rest of the shares as collateral in the bank they took loans. Ramalinga Raju
also appointed a few of his employees as the directors of the company and
brought property in their name.
After selling a few of his properties brought illegally. He used those funds in
Satyam and again manipulated company funds to show exaggerated financial
figures. He also forged fake sale invoices to show sale revenues. But to show
that the company is also making profits, he forged fake bank statements showing
that there is cash reserve in the bank. By showing fake financial figures he
kept attracting investors to invest money and the difference between fake
figures and original figures kept increasing.
During the recession in 2008, Ramalinga Raju's plan to sell the real estate
properties and fill the gap between his fake and original figures failed. In
2009 Ramalinga Raju confessed that Satyam Computers Services Inc has been
manipulating financial figures for more gains. After this confession, Ramalinga
Raju, his brother Rama Raju along with 9 other people were found guilty of
criminal conspiracy, cheating and criminal breach of trust and were punished
with 7 years of rigorous imprisonment and 5 crore Rs.
Corporate governance is a very shaky term when it comes to applicability. It
looks good in speeches and articles but when it comes to following basic
corporate etiquette, many companies fail. The rise of corporate scams has
rendered us thinking that there is an immediate need for stricter laws.
rise in people like Neerav Modi and Mehul Choksi, we need to rethink the laws
that govern our corporate system. Such crimes not only affect the working class
but all the sections and disturb the strata of society. Even though certain acts
make the directors and key managerial personnel responsible for a corporate
crime, but there are no unbending laws that directly punish the actual
The increasing numbers of corporate crimes also not only injures the economy of
the nation but also shows the great number of loopholes present in our laws.
This should be reason enough to motivate the authoritative people to take
immediate action and consider this issue of paramount importance.
- 2004 Cri LJ 1576
- 1975 Cri LJ 1148
- AIR 2011 SC 20
- UKHLI (31st March 1971)
- AIR 1970 SC 1776