Corporate Criminal Liabilities


    Corporate Criminal Liabilities can be defined as a crime that is being committed by the individuals or members of associations for the sole purpose of making profits by doing some act or omissions in doing some act which is forbidden by law. Corporate Criminal Liability has two models which include a) Derivative Model b) Organizational Model.

    According to the statutes provided the company/corporate is a separate legal entity which means that the company has its own identity different from that of shareholders.

    As the corporate has its separate identity so while punishing the corporate the legislation is facing some sort of difficulty because while giving punishment for the criminal action of the company the two main obstacles arise which are being discussed here. So through some amendments brought by the legislation tries to solve those obstacles so that in the future the legislation will properly be able to solve the case and will also be convenient while punishing the corporate.

    When the corporation is criminally liable it not only affects the business of the 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 that in case of punishment to be imposed on corporations it has been suggested that fine should be imposed rather than punishment.

    Recently the company act 2013 was amended and the parliament with the consent of the president has introduced the company (amendment) act 2020. This amendment was done with the main objective of improving the ease of doing business in India and also de-criminalizing various minor offenses and regulating producer companies, amongst other aspects.

    Deadlocks of corporate criminal liability

    1. Mens rea

    The very first problem that comes in way of the judges is the problem with the mens-rea. Mens-rea means the criminal intent or the evil mind. In criminal offenses, not only the actions or the omissions of the persons are considered but also consider the intent or the mental state of the person. So while viewing the cases the question arises in front of the judges how can the court decision or think of the intent or the mental state of the company.

    Although the company has its separate legal identity how the company can think as a human being about its profit it is only the individuals or the members of the corporate who thinks about the company’s profit so how can the company be held liable for the actions committed by its members. As it is one of the important elements it can’t be ignored also while delivering the punishment to the corporate.

     This is what is being discussed in the case of Motorala Inc. v. Union of India, the Bombay high court repealed a proceeding against the corporation for alleged cheating as it come to the conclusion that it was impossible for a corporation to build the required mens-rea as it is one of the essential ingredients of the offense. Therefore, the corporation couldn’t be prosecuted under section 420 of the IPC.

    Subsequently, the concept of alter ego was evolved in India to tackle the problem. The alter ego doctrine is similar to the concept of personification of the legal body. The Corporation is considered as the alter ego of the individual. Thus, the corporation can be made liable for the criminal act of the individual done in the scope of his/her employment. Mens-rea of the individual is considered to be the mens-rea of the corporation itself.

    2. Imprisonment

    As the company is considered as a juristic person, so as being a person the company can be punished according to the statutes for its wrongdoing. There are some provisions that provide mandatory imprisonment for a person and also include the company. So when the company is held guilty under this type of punishment in which compulsory imprisonment was provided in this situation the courts become confused that how the company can be sent behind the bars even after being considered as a person the company can only be punished through the fines. In the case of M.V. Jawali v. Mahajan and Borewell Co.

    The SC faced a similar situation in which the Company was found guilty under Section 276B read with 278B of The Income Tax Act, which provides compulsory punishment of at least 3 months, but the Court found itself in a trouble about how to imprison a company.  J. Mukherjee said that –

    “Even though given the above provisions of Section 278B, a company can be prosecuted and punished for an offense committed under Section 276B the sentence of imprisonment which has got to be imposed thereunder cannot be imposed, it being a juristic person and we believe that the only harmonious construction that can be given to Section 276B is that the mandatory sentence of imprisonment and fine is to be imposed where it can be imposed namely on persons coming under categories (ii) and (iii) above, but where it cannot be imposed, namely on a company, fine will be the only punishment.”

    Criminal Liability

    Therefore, the solution as of now is that the punishment of corporates relating to imprisonment would not apply to it instead of that it will be liable for a fine. Although the court cannot imprison a corporate body it can charge the greater amount of fine in such cases in comparison to what it charges to the person who is capable of being imprisoned for the same offense.

    Recent amendments brought in company act 2013

    1. De criminalizing of minor offences – The Amendment has done away with imprisonment as a consequence of contravention of certain provisions of the Act for various offences under the Act. In addition to this, the fines or penalties have been reduced, modified and omitted for these offences. By way of example, imprisonment has been eliminated as a punishment for contravention of provisions in relation to buyback of securities, disclosure of interest by directors, financial statements and Boards’ report, formation of companies with charitable objects, disqualification of directors and constitution of audit, stakeholder relationship and nomination and remuneration committee. Similarly, penalties and fines have been omitted/modified/reduced for contravention of provisions in relation to filing of annual return with Registrar, variation of shareholder rights, transfer of securities, alteration of share capital and reduction of share capital, among others.
    2. Definition of Listed Companies – The definition of Listed Companies in S. 2(52) has been amended to exclude certain companies from issuing specified classes of securities, in consultation with SEBI. In the definition, it is stated that such class of companies would not be considered as Listed Companies. Further, under section 23 of the Act, a sub-section 3 has been inserted Act empowering the central government to allow certain public companies to list their securities in foreign Jurisdiction.
    3. Rights Issue – The Amendment has amended S. 62 of the Act and has reduced the time period for providing offer letter to the existing shareholder under Rights Issue process to less than 15 days or such lesser number of days that may be prescribed. Earlier, the time period was between 15 to 30 days.
    4. Declaration in respect of Beneficial Interest – By way of amendment, few conditions for Significant Beneficial Owners (SBO) have been inserted under S. 89 of the Act, such as filing of declarations with respect to beneficial interest in the shares of the company and to file returns with the registrar intimating such beneficial interest. The contravention of the provisions would lead to imposition of penalties. The Amendment also empowers the Government to exempt any class or class of persons unconditionally from complying with the requirements of the section.
    5. Periodical Financial Results – By amendment, new section 129A has been inserted to empower the government to prescribe by rules such class or classes of companies that would be required to prepare the financial results of the company on periodical basis, as prescribed. Further to obtain the approval of Board of Directors and complete audit or limited review of such periodical financial results in such manner as may be prescribed. Also, to file a copy with the Registrar within the period of 30 days of completion of the relevant period with such fees.

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