The Inception of Corporate Criminal Liabilities
The term Company has been defined as an association of persons for a common purpose who can be economic or non-economic and has been employed in some trade or business and have a share in profit and loss through this commonly established association.
Under section 20(2) of the Company act, 2013 company means a company incorporated under this act or previous company law.
Though companies are treated as separate legal personalities according to the companies act 2013. The person such as the board of directors and its core subordinate management is responsible on behalf of the company for any liabilities arising during its business.
The vicarious liability Principle holds one person responsible for the actions of others when they are working under their direction and supervision during their employment period. The term vicarious liabilities gained currency when the industrial revolution gave opportunities to Multinational corporations to expand their foot in different countries.
In the commonwealth vs Beneficial Finance Co Case :
Three corporations were criminally held liable for conspiracy to bribe, The first company for the act of its employee and second for the act of its director and the third for the act of its director. The court held that corporate criminal liabilities are necessarily vicarious due to the corporation being entities which are run by individuals.
A country such as England and the United state where industrialisation first began during the 18th century in its full scale.
The idea of criminal liabilities of corporate entities was first coined by them and the United state imposed the corporate criminal liabilities on the nonfeasance of quasi-public bodies such as municipalities that resulted in public nuisances.
In New York, Central and Hudson River railroad vs United states :
The Supreme court in 1909 did hold the corporation liable for a crime of intent. The case was beginning when effective enforcement of criminal liabilities against corporations was mooted.
The above development gave a fillip to the different countries on how rules and regulations, and statutes can be framed to control the conduct of companies who are operating in the domestic and international arena.
Though there was no defined law for corporate entities for their criminal liabilities in western and European countries until the 19th centuries.
Development of law on Corporate Criminal liabilities in India.
Corporate governance is vital for running any good business today. With the increasing incidence of corporate frauds and scams, Protecting the interest of all stakeholders is important. Company act 2013 has broadened the liabilities of its directors and another subordinate officer.
Under Section 477 Which defines punishment for fraud. Any person who will be found guilty of fraud will be given imprisonment which can be from 6 months to 10 years.
Under Section 129(7) offence committed in a financial statement by an officer will be awarded punishment which can be 1 year or a fine.
Iridium case
Section 182 prohibits the company from making any contribution to political entities such as Government control companies either directly or indirectly.
In the State of Maharashtra v. Syndicate Transport case
The Court held that a corporate body like a company acts through its Managing Directors, Board of Directors or authorized agents and the criminal act or omission of an agent including his state of mind, intention, knowledge or belief ought to be treated as the acts or omissions.
In the Standard Chartered and others vs Directorate of Enforcement case:
The Court held that under corporate criminal liabilities, the corporate body is liable for punishment for acts or fraud done by its officers or, director, No exception will be provided in prosecution if the crime committed by the company is serious,
The Supreme Court held that the legislature could not have intended to penalize the corporations for minor offences while excusing the company for serious crimes, simply because the statute prescribed that a fine is along with imprisonment. It laid down that companies could be prosecuted for criminal offences and punished with fines.
In Iridium India Telecom Ltd. v. Motorola Inc
The court took a more elaborate approach to corporate criminal liability and held companies more accountable for their actions while addressing procedural concerns inherent to criminal law. This was implied in the judgment that criminal laws could not apply to corporations in the same way
But it paved the way for a more refined approach to corporate criminal liability in India.
The Principle of Alter Ego
Alter ego principle states that a corporation is not having a separate identity from an individual or corporate shareholder. Alter ego gives the reason to hold individual shareholders personally liable for the debts of the company.
The principle of altered ego states that criminal liabilities may be attributed to a company for the acts of the individuals in control of the affairs of the company.
The principle of Alter Ego gained more importance in the Iridium Case court held that the acts of the individuals in control of the affairs of a company are attributed to the company and therefore the criminal accusations levelled against such individuals could be imposed onto the company too.
Recent Development in Corporate Criminal Liability Law
With the enactment of the Companies (Amendment) Act, 2019 the Government classified several criminal offences in the earlier Companies Act, 2013 as civil defaults. The Government is also in the further process to decriminalize another set of compoundable offences under the previous Act in the Companies Amendment Bill 2020.
The Companies Amendment Act 2019 has redefined 23 offences out of the 66 compoundable offences and has removed 7 compoundable offences.
It limited the punishment for 11 compoundable offences to only a fine by removing the provision for imprisonment.
It has recommended 5 offences be dealt with under alternative frameworks (such as the in-house adjudication mechanism) and reduced the gravity of penalties in respect of 6 provisions, which are moved to the in-house adjudication framework, maintaining the status quo in case of the non-compoundable offences under the Act.
Corporate environmental criminal liability has also gained momentum in modern times due to environmental hazards caused by corporate houses through their investment such as illegal coal mining and deforestation, and unsustainable infrastructure development in geographically fragile areas which has caused floods and drought in that region. For example, the Uttarakhand flood disaster of 2013. Drought-hit Kutch and Saurashtra regions in Gujarat.
India has also joined the race to gain the status of a developed nation, a world power. This has invited multi-billion investments in the Indian domestic market by foreign institutional investors, but at the same time, this investment has caused significant environmental damage. For Example, The Bhopal gas tragedy was a reminder for the government that without proper regulatory measures, foreign investment can not be good for Indian society and the economy in the long term.
In modern times, multinational corporations really believe that they are contributing to national development and society. But their investment always comes with the idea of how better return can be achieved on capital deployed by them in the market. Environmental concern is not on their list in the first instance while making an investment.
Conclusion
Companies have an important role to play in the growth of any nation. Corporations contribute a certain part of their profit to social development through constitutionally mandated corporate social responsibility. The government has to take a reasonable approach while determining the civil and criminal liabilities of Corporate entities.
Too much intervention through rules and regulations will hamper the business of the company and also will distort the image of the Indian economy in the world market which will further restrict the investment in the economy by a multinational corporation and ease of doing business ranking of the country.
But at the same time effective mechanisms should be devised to deal with corporate fraud and any financial irregularity committed by the company. There should be optimum punishment which will deter the company or its director from indulging in any illegal activities while acting in the office.
