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CRIMINAL LIABILITY OF CORPORATE BODIES IN INDIA:AN ANALYSIS

INTRODUCTION

The primal form of trade, dating back to the palaeolithic era, started when people started to exchange their items and cattle. They are also known to use obsidian (a natural glass rock) as a valuable commodity as a medium of exchange. This can be described as the origin of modern trade, money. The medium of exchange changed from place to place in the same way that languages spread as they were transmitted from one group to another and adopted different styles and pronunciations to them.  The conventional economy began to refine itself. These transactions taking place between people led to improved quality of trade but they also raised the concerns of people because the value of goods being exchanged was high and a need for security rose. The economy has evolved at every junction, it’s never stable and it keeps getting chaotic. The quality of goods and production rates are ever-changing with the advancements in the technology used for the procurement of resources. Hence, came the establishment of companies and corporations which became responsible for the momentous change in the economies of different countries.  Corporations exist as an integral part of human society and impact institutions like the markets, society, and the environment around us. 

WHAT ARE CORPORATE BODIES? 

As defined by Section 2(11) of the Companies Act, 2013, corporate bodies are private or public companies, small companies, partnerships, foreign companies, etc. which have acquired a legal existence. It can also be described as a culmination or coming together of shareholders, a board of directors, and a group of government auditors.                                                                                          

Tracing back to its roots, a corporation exists today because of the perpetual changes in the economy which are responsible for the distribution, production, and consumption of resources and the flow of currencies. These are legal entities with the components of stocks, stakeholders, and permission to hold assets, and even remit taxes. The growing presence of multinational businesses necessitates the implementation of more effective national-level measures, and it is the state’s responsibility to guarantee checks and balances on corporations.

CORPORATE CRIMES

Corporate crimes refer to those crimes committed for the benefit of a company, usually by using unfair means. Even though these crimes pester all corporations, the constitution doesn’t explicitly classify corporate crimes in a specific branch. Owing to their reach and extensiveness, these corporations are capable of committing a range of crimes, ranging from- physical harms like factory disasters, industrial hazards, industrial pollution, manufacturing harmful products, etc. to economic harms like fraud, insider trading, impersonation, scams, etc.

Some famous corporate crimes are-

Grievous industrial disasters like these still scare people as the majority of these have left a never-ending impact on the lives and health of millions of people.

In today’s date, such grave crimes committed by large corporations are on the rise but there is no specific penalty for these and there is no decided compensation to the victims because of the vast nature of crimes and the ambiguity in defining them. The impact of various acts undertaken by these corporate bodies is high and affects a huge amount of people.

Corporate crimes come under the category of white-collar crimes which are crimes committed by corporate bodies in the business world. Examples as – bribery, fraud, blackmail, etc.

CRIMINAL LIABILITY OF CORPORATE CRIMES

The vastness of corporate crimes is extensive due to their immeasurable authority and ambit. A large number of corporate criminal liability has become a plague in the business world.

Criminal liability means the responsibility for any criminal behavior incongruent with the legal protocols in a country that causes harm to someone or something.

There are 2 essentials of criminal liability-

The above elements have been derived from a Latin maxim- ‘actus non facit reum nisi mens sit rea’, which means that to prove a criminal liability against someone, along with the action or omission, an element of a guilty mind has to be essentially proven. This means that a person cannot be accused of criminal liability based on an act or omission unless they have criminal intent behind it.
With the surfacing of corporate crimes, the concepts of vicarious liability and strict liability were introduced. Under this, criminal liability can be accused against corporations who are not traditional “individuals”. 

Following are some types of crimes committed by corporations for the sake of earning wider profits-

  • Green Crimes- to minimize expenditure, and maximize profit, an industry decides to not abide by the environmental provisions and stops treating effluent waste from their factory.
  • Crimes related to labor and workforce- many corporations defy any labor and employ security protocols.
  • Corporate frauds- these are crimes that refer to illegal falsification and trickery aimed at manipulating people into entering into business deals that give a wrongful gain to the fraudster in monetary terms.

DIFFICULTY IN DETECTING CORPORATE CRIMINAL LIABILITY

Criminal offenses require an aim, which can’t be created by an organization without a brain. A business also lacked its own body, which might be imprisoned. A company, on the other hand, can commit a crime. Liability notions have evolved in various countries by attaching actus reus and mens rea to businesses, accepting organizations’ culpability in criminal action.

The corporate bodies have no physical existence. They do not think or act on their own, they cannot have their actions or intentions. Because of such a complex nature, it is extremely difficult to prosecute corporations-

  • Failure to find criminal intent
  • Impossibility of imprisonment as punishment
  • The privilege of Corporate Bodies
  • Transnational nature of crimes

CORPORATE CRIMINAL LIABILITY IN INDIA

With the rising number of corporate crimes, however, the policymakers of India found it necessary to form legislations that make the prosecution of these corporations fairly easier. In the IPC, Section 11 includes a company in the ambit of the term ‘person’ to determine corporate criminal liability. Even after the formation of several legislations, the question of corporate criminal liability remained an unsolved riddle and many such crimes went unpunished.

Recently, the law of attribution was applied to resolve these cases. The Law of Attribution refers to attaching a crime to a defendant as a representative who did not directly commit the crime. It is now possible through this law to prove mens rea behind a corporate crime by attributing this crime to the company’s directors. If the controllers of the operation of the company, like directors and managers, had criminal intent or mens rea, the corporation could be held liable through these officers. The concept of attribution holds that the company’s or body corporate’s “alter ego,” i.e., the person or group of individuals in charge of the company’s activities is attributed to the corporation for criminal purposes. Mens rea is thus attributed to the corporation based on its alter ego.

To prosecute for corporate criminal liability in India, two requirements have to be proven-

  • The act should have been committed in the scope of employment
  • The act should’ve been committed for the benefit of the company

JUDICIAL DECISION

In the infamous case of Sunil Bharti Mittal v Central Bureau of Investigation (CBI), it was ruled that if an individual or officer commits a crime on behalf of an organization, they can be held liable alongside the corporation. For this, however, the active engagement of the individual in the crime has to be proved.

In the case of Shiv Kumar Jatia v. State of NCT of Delhi, the Hon’ble Supreme Court held that criminal proceedings cannot be called out against someone just because they hold a position of authority in a company. The active engagement of that person in committing the crime has to be essentially proven to prosecute them.

Hence, if a director actively takes advantage of their position to extort money from another individual, the name of the company is liable, alongside the company for the crime of corporate extortion.

CONCLUSION

As society advances and modern structures come into the picture, crimes and misdemeanors accompany the various benefits. To keep enjoying these benefits and to ensure a more equitable distribution of these advantages, the authorities need to prescribe certain rules and regulations for these structures to follow and fix certain penalties for not following these.

It is however acknowledged that the Indian Government has taken steps to curb this modern crime. But the advanced white-collar criminals have been able to find glaring loopholes in these legislations. Furthermore, these rules and regulations prove to be insufficient, keeping in mind the extensive authority and jurisdiction these corporations hold. Because of this inefficiency, certain amendments are necessary.

Under Indian criminal law, corporate criminal responsibility refers to the extent to which a firm, as a legal person or a separate legal organization, is accountable for the actions of its workers. Reforms are extremely crucial to curb the frightening industrial disasters, environmental degradation, in-market frauds, money laundering, etc. which not only instil a sense of mistrust in the minds of individuals against corporations but also discourage many businesses from entering the Indian market. 

Author(s) Name: Aakansh Prakash (Amity Law School, Noida)