J CORPORATE CRIMINAL LLt\BILITY

Qrigin of CorPorations: ~J~~' ~J,

Jn simple language, corporation means a group of individuals coming together
to carry on a business. Corporation is a creation of law, a business entity
I'tTognised by law. Though, English law establishes the origin of modern
corporation in the fourteenth century or so, yet some authors' are of the view
that the origin of corporation could be sought in the twelfth century or
perhaps in the Roman law where, juristic person was said to have been
re cognized.

Cenerally, the common law did not allow a corporation to be convicted of a

crime. There were exceptions and these exceptions were based on the
doctrine of respondent superior or vicarious liability - the ma~ter is liable for
the conduct of his servant in the course of employment. The doctrine of
,'iea rious liability was created in the la"" of tort in the seventeenth century in
order to provide compensation to third parties and justified on the ground
that since the master acquired the bendit,; of the servant's work, he should
also carry the burdens.

VVhile the common law recognized the appropriateness of vicarious liability

{c)!'tori compensation, it rejected vicarious liability for crimes since crimes
required mens rea or guilty mind. T'he mere existence of the master-servant
re lationship was not considered to be a sutficient criterion tc)r imputing
pcr:';()llal i~lult to the master. However, there were three common law crimes
wilit'li did not require Inens rea. These include public nuisance, criminal libel
and contempt of court. In these catew)ries of oflences, the courts applied
vicarious liability, allowing the master (which could be either an individual or a
corporation) to be convicted tor oHences of his servant. Apart from these
vicdrious liability exceptions, corporations were immune from liability under
the criminal law.

The court,; in early twentieth century began to dismantle the corporate

imrnunity from criminal law by holding that words like everyone in criminal
st ..llutcs could include corporations. Courts also rejected the argument that
corporations cannot be held criminally liable for offences committed by their
oHil'ers rcx reasons of being ultra vIi-es unless those employees were expressly
ordered to commit the act in question.

However, the most challenging obstacle to imposing criminal liability on

corporations was the diHicult:y of attributing mens rea to an artificial person - a

Edwards; "Organization structure and organization crime", in Gilbert Geis and

I GIOS~;,
Ezra Scotland (Eds.) "White collar crime, theory and research" Sage Publications (1980)
p./)3.
 2

corporation. The breakthrough came in 1915 when the House of Lords in

I,clIllarr/\ LarrYliJg ("'0. Limited, v. Asiatic Petroleum Co. laid down the 2

general principle of directing mi.Q.d (identification theory). In this case

Vis('(nlllt Haldane stated that "corporation is an abstraction. It has no mind of
its ()wn any more than it has a body of its own; its active and directing will
must consequently be sought in the person of somebody who for some
purposes may be called an agent, but who is really tl1e directing mind and will
of the corporation, the very ego and centre of the personality of the
corporation". Subsequently, in R II. Fane RO/)Jilson Ltd, the Canadian COUIt
applied the principle of directing mind and held that there is no reason why a
corporation which can enter into binding agreements with individuals and
()thl~r corporations cannot be said to entertain Inens rea when it enters into an
agreement which is the gist of a conspiracy and a false pretence.

Over the past century, the concept of a corporation has shifted from the
HoUon of an enterprise headed by one entrepreneur, who both owns and runs
the going concern, to that of an organisation where stock ownership becomes
separated from the control of the corporation's affairs, the latter being
managed by a professional, hired and self·perpetuating bureaucracy. Further,
the individual shareholder's role has changed from part-owner to investor,
and its importance has diminished in large corporations where the most
significant shareholders are collective entities. T'he attachment of the
shareholder to the corporation is becoming secondary and indirect, reflecting
the hld that· corporations serve a variety of interest~ besides those of
shareholders, including those of their employees, customers and the
community at large. And hence, it has been observed that "the corporation
can no longer be identified with a single homogeneous group of individuals.
Its decisions and activities are the resultant of and are responsive to a
complicated set of interests and contlicting claims"~. This is the more
significant change for the purposes of the criminal law and for imputing
corporate criminal liability on the corporations.

The law recognized the system of small independent corporations.5.

CO) poralions are of two kinds:
(<:I) Corporation Aggregate, and
(b) COrI)()ration Sole.

2'4 WJL5) AC 705 at 71(3 (H.L.)

3 (19/11) 76 CCC 196 at 203 (All a C.A.)

I .1\1.
Corporation Aggregate is an incorporated body having membership of several
persons. It is formed by number of persons known as share holder who pool
their resources to create a fund known as capital to start with and it works for
common interest of all the share holder and prime being profit making6•

Cc2!I!orate Criminal Liability in India:

Criminal Liability is attached only those acts 111 which there is violation of
Criminal Law i.e. to say there cannot be liability without a criminal law which
prohibits certain act" or omissions. The basic rule of criminal liability revolves
around the basic Latin maxim actus 11011 fc7citreumJ nisi mens sit rea. It means
that to make one liable it must be shown
~
that act or omission has been done
which was forbidden by law and has been done with guilty mind.

Hence every crime has two elements one physical known as actus reliS and
other mental known as mens rea. This is the rule of criminal
7 liability in
technical sense but in general the principle upon which responsibility is
premised is autonomy of the individual, which states that the imposition of
resl )ollsibility upon an individual flows naturally from the freedom to make
rat ic)( lal choices about actions and behaviour.8

Rc( ently, The in Standard Gnartered Bank & Others v.

Supreme Court
Directorate 01' l';"nforcement & Others\ considered the issue as to whether a
company, or a corporation, being aj~ristic person, could be prosecuted for an
oUenee for which mandatory sentence of imprisonment and tine is provided;
lllld when found guilty, whether the court has the discretion to impose a
sentence of fine only. 'I'he Supreme Court held that there is no dispute that a
company is liable to be prosecuted and punished for criminal offences.

Although there are earlier authorities to the effect that corporations cannot
commit a crime, the generally accepted modern rule is that except for such
crimes as a corporation is held incapable of committing by reason of the fact
that they involve personal malicious intent, a corporation may be subject to

hSalmond; "Salmond on Jurisprudence", ~Fitzgerald P J. (Edt.), lJ niversal Law Publishing

Pvl., cw Delhi, 2002 p. 305-328

7Actus reus connotes those result of human conduct which is forbidden by law and hence
cow,titutes of Human action; result of conduct and act prohibited by law\ One other hand
mellS rea is generally taken as blame worthy mental condition: Russell, W.O., Russell on
Crime p.l7-51 (l.W.e. Turner Ed., New Delhi; Universal Law Publishing Pvt., 2001) .

8A. Ashworth, Principles of Criminal Law p. 79-81 (Oxford: Clarendon Press, 1991) cited
hy Fisse, Reconstructing Corporate Crimina! Law: Deterrence, Retribution, Fault, and
Salldiolls, 5G S. Ca.l. 1.. Rev. 111·1

'I (:WO!j) I. sce 5:·H)

indicllnent or other criminal process, although the criminal act is committed
through its agents.

Corporations playa significant role not only in creating and managing business
but also in common lives of most people. 'T'hat is why most modern criminal
law systems l(:>reseethe possibility to hold the corporation criminally liable for
the perpetrati()Jl of a criminal offence. The doctrine of corporate criminal
liability turned from it's infancy to almost a prevailing rule.1O But, because a
corporation is not a natural person and cannot be subject to one of the most
important sentencing options, namely, imprisonment, it requires special
consideration ill an inquiry into sentencing law. Punishing a corporation
undermines the theoretical foundations of criminal law, which presupposes
that crimes involve an act and a culpable mental state. Corporate criminal
liabilit.yor corporate crime is very difficult to define because this phrase in
present day scenario covers wide range of offences. However for
U) lclerstanding purpose it can be defined as illegal act of omission or
cOl1lrnission, punishable by criminal s;'lilction committed by individual or
grollp of individual in course of their occupationll• It can be even defined as
sOCiallyinjurious acts committed in course of occupations by peoples who are
managing the affairs of the company to further its business interese2.Corporate
criminality also represents a kind of instrumentalities through which the trust
of the people continues to be' betrayed by persons in positions of
respollSibility, authority and power in the business sector. Corporate crime
has been defined as "the conduct of a corporation or of employees acting on
behalf of a corporation, which is proscribed and punishable by lawm3• In this
sense, "Corporate criminal Liability" refers to the imposition of criminal
liability on either the corporation or its employees and agents. The latter is
also referred to as white-collar crime.

The development of the law relating to corporate criminal liability in India is

not only similar to that in English law, but also greatly influenced by the
Eng-lish Law. At one point of time, "corporations" were viewed as a
convenient shield to evade liability. However, under our present penal
structure, for an otlence by the corporation, both the corporation and its
officer can be made liable. The law on corporate criminal lia15ilityis however,

'0 Thiyagaraj;m, T. Sivanathan; "Corporate Criminal-concept", available at:

1111 p ://www.manupalra.com/Arlicles/arl1isl.asp ?s=Corporate/Commercial

" \.\ il!iallls, K.S.; 'Texl Book on Criminology", Universal Law Publishing Pvt., New Delhi,
'ClW u
ne>tconfined to the general criminal law in the penal code but it is, in fact,
scattered over a plethora of statutes with specific provisions for the same.

The need t(:>r proper law relating to corporate criminal liability in a legal
system, specially in the developing countries like India was observed by the
Supreme Court in the following terms:
((In India, the need for industrial development has led to the
establJ:<,hlnentof a number of plants and factories by the domestic
companies and under-takJiJg:sas weHas by Transnational Corporations.
Many of dJese liJdustries are engaged In hazardous or Inherendy
dangerous activities which pose potential threat to lIfe, health and safety
ofpel:50ns working In the factory, or residing In the surrounding areas.
Though wor1(JiJ/1" of such factories and plants is regulated by a 614
llUlnher oflaws oj'ou]" country, dlere is' no special legislation proViding
Ic)]" cOlnpell.';ationand damages to (Jutslders who may suffer on account

of any ll]{iustJialaCCident. JI4

Th(~ mc~jorlaw relating to Corporations in India is codified in The Company

Act, 1956 and the definition of "Corporation" as given in the Act under
Section 2(7) includes a company. Hence under Indian law the liability of the
corporation is essentially liability of the company only. Further, under Indian
law as well as under the English law, a Company is a creation of the law. It is
not a human being but is an artificial person. On incorporation, the company
acq uires a separate legal entity distinct from and independent of its members.
\\'hen a company is incorporated, all dealings are with the company and all
persons behind the company are disregarded, however important they may
he.

The :~eparate personality of the company is, however, a statutory privilege; it

must be used for legal and legitimate business purposes only. Where a
fraudulent, dishonest or improper use is made of the legal entity, the
concerned individual will not be allowed to take shelter behind the corporate
personality. '"['he court will break through the corporate shell and apply the
priIlciple of "Lifting of the corporate veil". The court will look behind the
corporate entity and take action as though no entity separate from the
members existed. In other words, the benefit of separate legal entity will not
be available and the court will presume the absence of such separate
existence's. The Companies Act, 1956 contains certain provisions16, which
empower the courts to lift the veil to reach the persons who are in fact

" Sillgh.K. J, in Charan LalSalw v u.o.J, AIR 1990 SC 1480.

.
Praveen, "Corporate Entity in existing lrg~d system-Its rights and liabilities under the
,', 1);L1al
Cotlstitution and other enactments", (2001.) (il CLA 96 (Mag).
re"pollsible l~r the culpable or wrongful act. The corporate veil can be lifted
in the following cases:
(l) Where the doctrine conflicts with the Public policy,
(2) Where corporate veil has been used for fraud or improper conduct,
W) Where the corporate facade is only an agency instrumentality,

(4) For determining the real character of the company,

(5) Where the veil has been used for evasion of taxes,
(6) In quasi-criminal cases,
(7) For investigating the ownership of the company,
(H)For investigating the affairs of the companyl7,
(9) Where the company is used as a medium to avoid various welfare and
labour legislations,
(10) In case.,.ofeconomic offences,
f 11) \Nhere the company is used for some illegal and improper purpose,
etc.

The following prOVlSlons of the Companies Act, 1956 provide that the
Members or the Directors/officer(s) of a company will be personally liable if:
(l) A company carries on business for more than six months after the
number of its members has been reduced below seven in the case of a
public company and two in the case of a private company. Every
person who was a member of the company during the time when it
carried on business after those six months and who was aware of this
t~lCt,shall be severally liable for all debts contracted after six monthsl8,
(2) The application money of those applicants to whom no shares has
been allotted is not repaid within 130 days of the date of issue of the
prospectus, then the Directors shall be jointly and severally liable to
repay that money with the prescrihed interese9,
(~i)an otlicer of the company or any other person acl'; on its behalf and
enters into a contract or signs a negotiable instrument without fully
writing the name of the company, then such officer or person shall be
personally liable20,
(4) 'The court refuses to treat the subsidiary company as a separate entity
and instead treat it as only a branch of the holding compani',
(!» In the course of winding up of the company, it appears that the

business of the company has been carried on with intent to defraud the
creditors of the company or any other person or for any fraudulent

17 Section 2(~9,Comp.mies Act, 1956.

IX Serlion 11.5, Companies Act, 1956.

1'1 Section 69, Companies Act, 1956.

 purpose, al those who were aware of such fraud shall be personally
liable without any limitation of liability22.

ThIIS, the protection of separate legal entity cannot be claimed in these cases
and the limited liability of the shareholder becomes unlimited if he is engaged
in these activities. The concept of "limited liability" restricts the liability of a
shareholder to the nominal value of the shares held by him. If he has paid the
entire amount which is payable towards his shares, he cannot be held liable
for the debts of the company, even if he holds almost the entire share capital
of the company. This rule, however, does not apply if the court lifts the
corporate veiland finds the shareholder responsible for the wrongful acr3• Not
less recently, in the landmark judgment of Kaplla Hingorani v State of Bihal\
the Apex Court analysed the rights and liabilities of a company vis-a.-vis the
Fundamental right,; and Human 7Rights of the individuals. The Court
observed:
"A company incorporated under the COlnpanies Act is ajuristic person
and has a distinct and separate entity vis-a.-visits shareholders. The
corporate ve/~ howeveI~ can in certain situations be pierced or lilled.
VJi77enel'era corporate entity is abused for an unjust and inequitable
pUlposeJ d1e court would not hesitate to blt the veIl and look into the
realities so as to identIfy d1e pe/:';ons who are gUilty and liable dlereo[
The veIl can indi~fJutably be bfted when the corporate personality is
f(mnr! to be opposed tojus/JceJ convenience and interest of the revenue
or worklnan or againstpublic li1terestJ~It has also been observed that a
.
corporation deemed to be (:StateJJwidlli1 the Ineanlng of Article 12 of
Lhe Constitution and actJng as agency of the government, would be
suf~iect to the same. binitatJons li1 the Held of ConsdtutJonal or
admlillstJ-a/Jvelaw as the government itself; though in the eyes of law
they would be distJilctand Independent legal entJtiel5•

C(;!!:Qorate Criminal Liability - The N ecessi~

III t he modern day world, the strong effect of activities of corporations is

incredible on the society. In the day to day activities, not only do the
corporations affect the lives of the people as a blessing but also many a times
proves disastrous which then falls under the category of crimes. For instance,
the Uphar Ciilelna tragedy or thousands of scandals especially the white collar
alld organized crimes can come within the category that requires immediate

22 Section 542, Companies Act, 1956.

Dalal Praveen, "Corporate Entity in existing legal system-Its rights and liabilities under the
2.1

Constitution and other enactments", (2004) 61 CLA 96 (Mag).

('oncern. Despite so many disasters, the law was unwilling to impose criminal
liability upon corporations for a long time. This was for basically two reasons
th at are-"6 :
(i) That corporations cannot have the lnens rea or the guilty mind
to commit an offence; and
(ii) That corporations cannot be imprisoned.

These two obstacles were managed to survive till late 20th and very early 21st
century.

There is no obstacle in the criminal law jurisprudence whatsoever to impose

criminal sanction on a corporation since it can have a mind of its own and also
cln environment wherein crime is nurtured. However, this concept still not
contemplated in the statutes in India.

In [mlia, certain statutes like the Indian Penal Code talk about kinds of
punishments that can be imposed upon the convict and as per Section 53
include death, life imprisonment, rigorous and simple imprisonment,
foti(~iture of property and tine. In certain cases the sections speak only of
inq Irisonment as a punishment like in case of offence under Section 420.
Thus the problem arises as to how to apply those sections on the companies
since a criminal statute needs to be strictly interpreted and in such statutes
there is no scope f(x corporations to,be imprisoned.

Coing with the above viewpoint and with the growing trend of corporate
criminality, the Courts in India have finally recognized that a corporation can
have a guilty mind but still were reluctant to punish them since the criminal
law in India does not allow this action.

In 171C A.s',,,'is·talltComlni5sione0 Assessment- II, BangaJore and Ors. v.

VeJkJppa TextJJes Ltd. and 01:5.27, B.N. Srikrishna]. said that corporate
criminal liability cannot be imposed without making corresponding legislative
changes. For example, the imposition of fine in lieu of imprisonment is
required to be introduced in many sections of the penal statutes. The Court
was of the view that the company could be prosecuted for an offence involving
rupees one lakh or less and be punished as the option is given to the court to
impose a sentence of imprisonment or fine, whereas in the case of an offence
involving an amount or value exceeding rupees one lakh, the court is not given
a discretion to impose imprisonment or fine and therefore, the company
cannot be prosecuted as the custodial sentence cannot be imposed on it.
The legal difficulty arising out of the above situation was noticed by the Law
Commission and in it,; 41 sl Report, the Law Commission suggested
amendment to Section 62 of the Indian Penal Code by adding the following
lines:
"In evelY case 111 which d1e offence IS only punishable with
linpri'ionlnent or with linpri'iOnment and fine and the oflender is a
company or other body corporate or an association of IndividllalS~it
shall be cOlnpetent to the court to sentence such offender to fine only."

This recommendation got no response from the Parliament and again in its
47''' Report, the Law Commission in paragraph 8(3) made the following
reo >mmendation:
((In many of the Acts, relaang to economic olknces, imprisonment is
Jnandatory. Where the convicted person /5 a corporadon this provision
becOlnes unw()rkable~ and it is desirable to prOVIde that In such cases~it
shall be competent to d1e court to impose a fine. This difficulty can arise
under d1e Pena! Code aJso~but it /5 hkt:ly to arise inore fTequendy In the
case of economic laws. We, therefore~ recommend that the follOWing
provi5/on should be Inserted li1the Penal Code as~say, Secaon 62:
J. In every case li1 which the offence /5 pun/5hable With Impnsonment
only or With linpnsonment and fjne~ and the offender is a
cOl[Joradon, it shall be competent to the court to sentence such
offender to fine only.
2. In every case in which the offence is punishable With impnsonment
and any other punIshment not beli1g fine and the offender is a
cOl[Joraaon, it shall be cOlnpetent to the court to sentence such
offender to fine.
3. In dll:s'secaon, corporaaon means an Incorporated company or
other body corporate~ and Includes a firm and other associaaon of
lildi~iduals. "

But the Bill prepared on the basis of the recommendations of the Law
Commission lapsed and it did not become law. However few of these
recommendations were accepted by the Parliament and by suitable
amendment some of the provisions in the taxation statutes were amended.

T'he Court decided that as the company cannot be sentenced to

imprisonment, the court cannot impose that punishment, but when
imprisonment and tine is the prescribed punishment the court can impose the
punishment or fine which could be enforced against the company. Such
discretion is to be read into the section so far as the juristic person is
concerned. or course, the court cannot exercise the same discretion as
regards a natural person. Then the court would not be passing the sentence in
accordance with law. As regards company, the court can always impose a
sentence of tine 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 difliculty in construing the statute in
such a way. We do not think that there is blanket immunity for any company
frO!n any prosecution for serious offences merely because the prosecution
would ultimately entail a sentence of mandatory imprisonment.

Fine is the most common punishment in every part of the world and it is a
punishment the advantages of which are so great and obvious that we propose
to authorize the court~ to inflict it in every case. Imprisonment, transportation,
bcmishment, solitude, compelled labour are not equally disagreeable to all
men. With fine the case is different. In imposing a fine it is necessary to have
regard to the pecuniary circumstances of the offender, as to the character and
magnitude of the otlence.

Presently, all _the penal provisions of various statutes include only fine as a
form of punishment that can be imposed on a company. So is the case with
judicial pronouncements on the aspect of sentencing. In addition to this, the
Law Commission in its 41" and 4Th Report~ also speaks of introducing only
line as an additional punishment to be imposed upon corporations in lieu of
fines. 'This restrictive thinking, according to Courts is based on the maxim lex
nOli cogit ad impossiblJia, which tells us that law does not contemplate
something which cannot be done.28 This reasoning in itself shows that the law
lacks in a non holistic viewpoint in the concept of corporate criminal liability.
The Courts have no doubt been eflicient in evolving the concept of criminal
liability of corporate and have imposed the same on the convicts but the only
way of punishing them that has been thought of is by way of fines. It is now for
the legislature..to evolve new forms of punishment~ and incorporate them in
the criminal justice system of the land.

Special Acts and Corporate Liability:

rT'he principle of vicarious liability has been incorporated iri various special
statutes, such as:
(i) The Negotiable Instruments Act, 1881 - Section 141
(ii) The Income Tax Act, 1961 - Section 278B
(hi) The Minimum Wages Act, 1948 .- Section 22C
(i,,) The Employees State Insurance Act, 1948 - Section 86A
(v) The Employees Provident Fund and Miscellaneous Provisions Act,
1952 - Section 14A
(vi) The Payment of Bonus Act, 1965 - Section 29
(vii) The Air (Prevention and Control of Pollution) Act, 1981 - Section 40
 (viii) The Water (Prevention and Control of Pollution) Act, 1974 - Section
47

Section 141 of the Negotiable Instruments Act, 1881 reads as follows:

Section 141: Offences by companies.

(1) If the person committing an offence under section 138 is a company, every
person who, at the time the offence was committed, was in charge of, and
was responsible to the company for the conduct of the business of the
company, as well as the company, shall be deemed to be guilty of the
offence and shall be liable to be proceeded against and proceeded against
ilnd punished accordingly;

Provided that nothing contained in this sub-section shall render any person
liable to punishment if he proves that the offence was committed without his
knowledge, or that he had exercised all due diligence to prevent the
commission of such offence.

Provided further that where a person is nominated as a Director of a company

by virtue of his holding any office or employment in the Central Government
or State Government or a financial corporation owned or controlled by the
Celltral Government or the State Government, as the case may be, he shall
not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section 0), where any offence

under this Act has been committed by a company and it is proved that the
offence has been committed with the consent or connivance of, or is
attribute to, any neglect on the pqrt of. any director, Manager, secretary, or
other office of the company, such director, manager, secretary or other
oflicer shall also be deemed to be guilty of that offence arid shall be liable
to be proceeded against and punished accordingly.

Explanation: For the purpose of this section. -

(a) "Company" means any body corporate and includes a firm or other
association of individuals; and
(l» "Director", in relating to a firm, means a partner in the firm.

But neither Section 1410) of the Act, nor the pari materia provisions in other
enactments give any indication as to who are the persons responsible to the
company, for the conduct of the business of the company. rr'herefore, we will
have to fall back upon the provisions of Companies Act, 1956 which is the law
relating to and regulating companies. Section 291 of the said Act provides that
su~iect to the provisions of that Act, the Board of Directors of a company
shall be entitled to exercise all such powers, and to do all such acts and things,
 47

Section 141 of the Negotiable Instruments Act, 1881 reads as follows:

Section 141: Offences by companies.

(1) [f the person committing an offence under section 138 is a company, every
person who, at the time the offence was committed, was in charge of, and
was responsible to the company for the conduct of the business of the
company, as well as the company, shall be deemed to be guilty of the
oflence and shall be liable to be proceeded against and proceeded against
and punished accordingly;

Provided that nothing contained in this sub-section shall render any person
liable to punishment if he proves that the offence was committed without his
knowledge, or that he had exercised all due diligence to prevent the
c( mllnission of such oHence.

Provided further that where a person is nominated as a Director of a company

by virtue of his holding any office or employment in the Central Government
or State Government or a financial corporation owned or controlled by the
eelltral Government or the State Government, as the case may be, he shall
not be liable for prosecution under this Chapter.

(2) Notwithstanding anything contained in sub-section (1), where any offence

under this Act has been committed by a company and it is proved that the
oflence has been committed with the consent or connivance of, or is
attribute to, any neglect on the PC)Itof. any director, Manager, secretary, or
other office of the company, such director, manager, secretary or other
oflicer shall also be deemed to be guilty of that offence and shall be liable
to be proceeded against and punished accordingly.

Explanation: For the purpose of this section. -

(a) "Company" means any body corporate and includes a firm or other
association of individuals; and
(1)) "Director", in relating to a firm, means a partner in the firm.

But neither Section 141(l) of the Act, nor the pari materia provisions in other
enactments give any indication as to who are the persons responsible to the
company, for the conduct of the business of the company. Therefore, we will
have to fall back upon the provisions of Companies Act, 1956 which is the law
relating to and regulating companies. Section 291 of the said Act provides that
subject to the provisions of that Act, the Board of Directors of a company
shall be entitled to exercise all such powers, and to do all such acts and things,
as the company is authorised to exercise and do. A company though a legal
entity can act only through its Board of Directors. The settled position is that a
Managing Director is prima Jade, in charge of and responsible for the
company's business and affairs and can be prosecuted for offences by the
company. But insofar as other directors are concerned, they can be
prosecuted only if they were in charge of and responsible for the conduct of
the company's business.

A combined reading of Sections 5 and 291 of Companies Act, 1956 with the
definitions in clauses (24), (26), (30), (31), (45) of Section 2 of that Act would
shm\! that the following persons are considered to be the persons who are
responsible to the company for the conduct of the business of the company:
(a) the managing directorls;
(b) the whole-time directorls;
(c) the manager;
(d) the secretary;
(e) any person in accordance with whose directions or 'instructions the
Board of directors of the company is accustomed to act;
(f) any person charged by the Board with the responsibility of complying
with that provision (and who has given his consent in that behalf to the
Board); and
(g) where any company does not have any of the officers specified in
clauses (a) to (c), any director or directors who may be specified by the
Board ·in this behalf or where no director is so specified, all the
directors.

In the recent case of K. K. Ahuja v.' 11: K. Vora & Anr.29, the Apex Court has
interpreted the vicarious liability clause in the following manner:

(i) If the accused is the Managing Director or a Joint Managing Director, it

is not necessary to make an averment in the complaint that he is in
charge of, and is responsible to the company, for the conduct of the
business of the company. It is sufficient if an averment is made that the
accused was the Managing Director or Joint Managing Director at the
relevant time. This is because the prefix 'Managing' to the word
, Director' makes it clear that they were in charge of and are responsible
to the company, for the conduct of the business of the company.
(ii) In the case of a director or an officer of the company who signed the
cheque on behalf of the company, there is no need to make a specific
averment that he was in charge of and was responsible to the company,
for the conduct of the business of the company or make any specific
allegation about consent, connivance or negligence. The very fact that
the dishonoured cheque was signed by him on behalf of the company,
would give rise to responsibility under Sub-section (2) of Section 141.
· (iii) In the case af a Directar, Secretary ar Manager (as defined in Sectian
2(24.) af the Campanies Act) ar a persan referred to' in clauses (e) and
(f) af Sectian 5 af Campanies Act, an averment in the camplaint that he
was in charge aI', and was respansible to' the campany, far the canduct
af the business af the campany is necessary to' bring the case under
Sectian 141(l). NO' further averment wauld be necessary in the
camplaint, thaugh same particulars will be desirable. They can alsO'be
made liable under Sectian 141(2) by making necessary averments
relating· to' cansent and cannivance or negligence, in the camplaint, to'
bring the matter under that Sub-sectian.
(i,,) Other Oflicers af a campany can nat be made liable under Sub-section
(1) af Section 141. Other officers af a campany can be made liable anly
under Sub-sectian (2) of Sectian 141, be averring in the complaint their
pasition and duties in the company and their rale in regard to' the issue
and dishonour af the cheque, disclasing cansent, cannivance ar
negligence.

\-"'hile interpreting the afaresaid vicariaus liability clause, the Apex Caurt had
in fad gone a step further and observed that it is nat necessary to' prasecute
the company at the time af initiating prosecutian of its officers/Directars an
the strength af the vicariaus liability clause. The anly condition precedent for
such prasecution, the Apex Court held, is that there should be a finding that
the cantravention was by the company. See Sheoratan AgdlWaJ & Anr. v. State
0/ A1adhya PradesHo. The ratiO" af this decision has however been
s·ubsequently doubted by another bench af the Supreme Court in the case af
Aneeta Hada v. Godfather Tours & Travels (P) Ltd31 and the matter has been
referred to a Constitution Bench.

Corparate Liability vis-a.-visIndian Penal Cade Offences:

l nlike the special acts, Indian Penal Cade daes not pravide far any pravisian
incorparating vicariaus liability upan an afficer/Directar af a corparatian. As a
result, in the event it is alleged that a corparatian has cammitted an affence
punishable under the Indian Penal Code, no afficer/Directar af such a
carporation can be vicariausly held liable far such affence. Sectian 11 af the
Indian Penal Cade defines persan as "The ward "person" includes any
Campany or Association or bady of persons, whether incorparated ar not".
Hence it cannot be contemplated that a campany or a carparation cannot be
made an accused for commission of offence under the Indian Penal Cade.

However, when a carparatian/company is made an accused under the Indian

Penal Cade, the liability of natural persons In charge of the
corporation/company is to be identified on the basis of the following legal
principle laid clown by the Supreme Court in the case of Maksud Saiyed v.
State of Gujrat & Ors.32 wherein it has been held as follows:
((lf11ere ajurisdiction is exercised on a complaint petition filed in terms
o[ Section 156(3) or Section 200 of the Code of Criminal Procedure~
dle Ma81~lrate is' required to apply his mind. Indian Penal Code does
not cont;1Jilany provision for attach/ilg vicarious liabIlity on dle part of
the Mallaglilg Director or Lhe Directors o[ Lhe Company when Lhe
accused I~'Lhe COlnpany. The learned Magistrate failed to pose unto
11linselfLhe correct question viz. as to wheLher Lhe complaint petition,
even Il'given face value and taken to be COITectIn its entirety, would
lead to Lhe conclusion Lhat Lhe respondents hereIn were personally
liable [or any offence. The Bank is a body corporate. Vicarious liabIlity
of Lhe MaIlaging Director aIld Director would arise proVided any
prOViSIon eXIst5in Lhat behalf In the statute. Statutes Ind1sputably must
contain pn:)V1~']onfiXIilg such VIeanous liabIlities. Even for Lhe said
pUlfJose~ 11- i'i obligatory on Lhe part 0/ dle COmplaInaIlt to make
reqUl~'ite allegations which would attTact Lhe prOVISIons COnsllL-utJng
vicaI'iousliabIlity.~~

In the case of Keshab Malllildra V"State o[ UP3, the Supreme Court dealt
with Section ~i5 of the Indian Penal Code to incorporate the concept of
constructive liability on Directors/officers of a corporation who had the
requisite culpable intention or knowledge to do the act. Section 35 of the
Indian Penal Code reads as follows: ((lf11enever an act; which IS Cnin1nalonly
be reason o/its beIng done wiLha CTJinIilalknowledge or IiltentJon, i5 done by
several perS0115~each of such persons !-rhoJOInS Iil Lhe act wiLh such
knuwledge or intena'on i5 liable /{)r dle act 1n Lhe same manner as 11'Lhe act
were done by h/in alone with Lhat knowledge or IntentJon. ~~The Supreme
Court interpreting the said section held (~S()RlT as LheremainIng Accused 2, 0
4 ;U1d12 are concerned dle Inaterial produced on record clearly indicates at
least pnina fflcie dlat Lhey beIilg at Lhe helm o/affairs have to face LhiScharge
fc)r dle alleged negligence and rashness of Lheir suborchnates who actually
operated dle Plant on Lhatfatefill night at Bhopal aIld for Lhatpurpose SectJon
35 of dle hldian Penal Code would also pnina facie get attracted agaIilstLhem.
A Inere look at LhatsectJon shows LhatIl'the act alleged against Lhese accused
IJt~comesCnininal on account o[ Lheirshanil!j' common knowlwdge about Lhe
defixtive running o[ Lhe Plant at Bhopal by Lhe remainIng accused who
represented Lhem on Lhe spot and who had to carry out Lheir directJons fTOln
tiJeIn and who were oLherwJsereqUli-ed to superVIse Lheir aca'vity, SectJon 35
of dle Indian Penal Code could at least pnina facie be IilVoked against
/-1ccl/sed2, 3; 4 and 12 to be read wiLhSectJon 304-A JPC~: While doing so,