CORPORATE CRIMINAL LIABILITY

PROJECT
ON

THE EVOLUTION OF THE POSITION OF COURT ON THE CONCEPT OF

CORPORATE CRIMINAL LIABILITY IN INDIA

SUBMITTED BY:
AASHISH DAHARIYA

FIFTH YEAR

SECTION-B

ID- 211127

WBNUJS
 TABLE OF CONTENT

THE EVOLUTION OF THE POSITION OF COURT ON THE CONCEPT OF CORPORATE

CRIMINAL LIABILITY IN INDIA....................................................................................................... 0
SUBMITTED BY: ....................................................................................................................................... 0
INTRODUCTION ........................................................................................................................................ 2

THE DOCTRINE OF ATTRIBUTION ............................................................................................................ 2

INITIAL POSITION OF COURTS ................................................................................................................. 3
The debate on mens rea ...................................................................................................................... 3
The debate on Interpretation of Penal Statutes ................................................................................... 3
CURRENT POSITION OF LAW ................................................................................................................... 4
The Standard Chartered Case............................................................................................................. 4
Majority Opinion ............................................................................................................................ 5
Minority Opinion ............................................................................................................................ 6
The Motorola case ............................................................................... Error! Bookmark not defined.
AUTHOR’S CRITIQUE AND CONCLUSION ..................................................................................... 7

1
 INTRODUCTION

It has been a matter of much debate, whether criminal offences were applicable against
companies in India. In the last two decades this debate over the criminal liability of a
company has grown rapidly in light of laws on securities, antitrust and environment. It is a
fact that a company cannot have mens rea and for any criminal conviction the intention to
commit the act was a pre-requisite and also a company could not be imprisoned which were
the two most important matters of discussion. Hence, it became a huge discussion as to how
hold the company responsible for the criminal offence and punish them accordingly.

In the paper, the author has analyzed how the position of the Courts in India evolved on the
subject of criminal liability of a company. The author explores the “Doctrine of Attribution”
which actually governs the system of criminal liability of a company in the first part of the
paper. Then, the author has put a special emphasis on the Standard Chartered v. Directorate
of Enforcement1 case and has tried to discuss the various interpretative techniques utilized by
the courts in India to determine the Corporate Criminal Liability under the penal statutes of
India. Furthermore, the author has concluded the paper with shedding some light on the
Indian Telecom Limited v. Motorola Inc.2 case.

THE DOCTRINE OF ATTRIBUTION

For anyone to be held guilty under the criminal law, it is important to prove that he had mens
rea or the intention to commit the crime which becomes unfeasible to prove in case of
company. The Courts in England came up with the Doctrine of Attribution to pierce this
corporate veil.3 This doctrine suggests that the company can be held liable if mens rea or the
intention to commit the crime is attributed to those who are the “directing mind and will” of
the company.

1
(2005) 4 SCC 405 (Hereinafter “Standard Chartered”).
2
(2011) 1 SCC 74 (Hereinafter “Motorola”)
3
See Lennard’s Carrying Co. Ltd. v Asiatic Petroleum Co. Ltd. [1915] A.C. 705 and H.L Bolton Co. Ltd. v. T.J.
Graham and Sons [1957] 1 Q.B. 159.

2
 INITIAL POSITION OF COURTS

The debate on mens rea

In Sunil Chandra Bannerjee v. Krishna Chandra Nath4 the High Court of Calcutta said that
company cannot possess mens rea that is required for cheating and hence, acquitted a bank.
The High Court of Bombay in State of Maharashtra v. Syndicate Transport Co. (P) Ltd. 5said
that to determine whether a company could be held responsible for an act of its employee for
criminal offence would depend upon whether company meant to commit that act and the
position held by the employee. Furthermore, in Esso Standard Inc. v. Udharam Bhagawandas
Japanwalla6 the High Court of Bombay said that when the intention of the company is
expressed in the memorandum of the articles of association or in a meeting of the board of
directors or in a general body meeting then only it can be established. However, a company
could not be punished as it was a juristic person was held by the court in Kusum Products v.
S.K. Sinha7.

The debate on Interpretation of Penal Statutes

The principle of interpretation says that a penal statute must be constructed in a strict sense
and only in exceptional cases the principles of purposive construction be used in its
construction or interpretation. Before the Standard Chartered case, it was an accepted way to
interpret penal statute in a literal sense. The sense behind the strict interpretation of the penal
statute is that the cases which come under a reasonable reading of the statute should only fall
under the statute and not others.8
The question that whether a company can be held liable for criminal offences was discussed
by the Supreme Court in two major cases prior to the Standard Chartered case. The first one
was M.V. Javali v. Mahajan Borewell & Co.9 which was delivered by a 2 judge bench of the
Supreme Court.

4
AIR 1949 Cal 689
5
AIR 1964 Bom 195
6
1975 45 CompCas 16 Bom
7
1980 126 ITR804 Cal
8
Tolaram Relumal and Anr. v. The State of Bombay, (1995) 1 SCR 158; Girdhari Lal Gupta v. D.H. Mehta and
Anr, [1971] 3 SCR 748 , cited in Supra 2 ¶ 27.
9
M.V. Javali v. Mahajan Borewell & Co., (1997) 8 SCC 72 (Hereinafter “Javali”).

3
The company was liable under sections 276 B10 and 278B of the Income Tax Act, 1961, the
court adopted a liberal approach and used harmonious construction to held that the company
would be liable for the offence, but it is impossible to imprison the company and hence, the
company would be punished through fine only.11 This shows that the Court interpreted “fine
and punishment” as “fine or punishment” and hence, the Court imposed the punishment
against the company which was possible and practical.
Though, the decision given in the Javali case was over ruled by the Supreme Court in the 3
judge bench judgment in Assistant Commissioner Ass. II Bangalore v. Velliappa Textiles
Ltd.12 This case was related to the applicability of Section 276 C of the Income Tax Act, 1961
to companies which provides punishment through imprisonment and fine for evasion of tax.
The Court gave a literal interpretation to the provision and said that the mandatory
punishment of imprisonment could not be enforced against the company and hence imposed
only fine as a punishment.

CURRENT POSITION OF LAW

The Standard Chartered13 Case

This case dealt with the Section 56(1)14 of the Foreign Exchange Regulation Act, 1973.
Standard Chartered was the accused company which had allegedly floated the rules through
its management of foreign currency deposits.15

10
§276B of the Income Tax Act, 1961 reads as:
“ Failure to pay the tax deducted at source' If a person fails to pay to the credit of the Central Government, the
tax deducted at source by him as required by or under the provisions of Chapter XVIIB, he shall be punishable
with rigorous imprisonment for a term which shall not be less than three months but which may extend to seven
years and with fine.”
11
Supra note 9.
12
AIR 2004 SC 86 (Hereinafter “Velliappa”).
13
Supra note 1.
14
Section 56(1) of the Foreign Exchange Regulation Act, 1973 (hereinafter FERA) reads as;
Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes
any of the provisions of this Act[ other than section 13, clause (a) of sub- section (1) of 1[ section 18, section 18
A,] clause (a) of sub- section (1) of section 19, sub- section (2) of section 44 and sections 57 and 58], or of any
rule, direction or order made thereunder, he shall, upon conviction by a court, be punishable,-
(i) in the case of an offence the amount or value involved in which exceeds one lakh of rupees, with
imprisonment for a term which shall not be less than six months, but which may extend to seven years and with
fine: Provided that the court may, for any adequate and special reasons to be mentioned in the judgement,
impose a sentence of imprisonment for a term of less than six months;
(ii) in any other case, with imprisonment for a term which may extend to three years or with fine or with both.
15
Supra note 1 ¶2.

4
The main issue in the case was that whether Standard Chartered, as a corporation, could be
held liable under Section 56(1) of the FERA as not less than six months imprisonment and
fine was the minimum punishment that was given under Section 56(1) of the FERA.

Majority Opinion16

The majority interpreted on the lines of earlier case by saying that the penal statute must be
constructed in a strict sense and hence gave a purposive interpretation of the Act. The Court
said that “The distinction between a strict and a liberal construction has almost disappeared
with regard to all classes of statutes so that all statutes, whether penal or not, are now
construed by substantially the same rule”17. Furthermore, the rule of strict construction would
not direct to leave loopholes for the offender to escape by giving a pedantic and narrow
construction of a section.18 The Court further stated that such purposive interpretation
involves placing oneself in the chair of a reasonable legislator and hence, the intention of the
legislature at the time of legislating must be considered while interpreting a provision.19 As
this help in knowing what would be the actual intention of the legislature while legislating, if
they would have acted and formulated the legislation reasonably.20 An analysis of the Section
56 was carried out to determine the subjective intention of the legislature by the Court.

It was emphasised by the Court the legislative intended that the companies should be
prosecuted was explicit and clear for the crimes committed by them. It is clearly provided in
the Section 56 of FERA that when the amount in the offence exceeds Rs. 1,00,000/- then it is
mandatory to punish the accused by both fine and imprisonment. To the Majority, it appeared
to be impossible that the legislature proposed that organizations to be penalized for trivial
offenses, yet not for more noteworthy offenses.21 Hence, they argued that the legislator could
never have intended such a situation as they wanted to avoid such an impractical situation.

Hence, the court divided the offence into two parts (one where the amount in offence exceeds
Rs. 1,00,000/- and the other where it do not), so that the imprisonment of a company can be
avoided into trivial matters which would be an impractical situation. Thus, harmonious

16
Justice Balakrishnan, Justice Dharmadhikari and Justice Arun Kumar
17
Supra note 1 ¶ 28; William Craies and S.G.G. Edgar, CRAIES ON STATUTE LAW 532 (1971).
18
Id. ¶ 55.
19
Supra note 9 at p. 127 ; New India Assurance Co. Ltd. v. Nusli Nerille Wadia, (2008) 3 SCC 279 ¶ 51.
20
Id.
21
Supra Note 1 ¶ 11

5
interpretation was adopted by the Court to provide for the company to be fined while citing
Javali case.22

Under FERA there is no definition provided for the term person. Hence, the Court sees the
definition provided under the Indian Penal Code, 1860,23 and the General Clauses Act,
1897,24was seen as another indicator of the intent of the legislature to include the companies
and corporation within the ambit of person.25 Furthermore, the Court stated that the legislature
should have been aware that a juristic person cannot be punished with imprisonment and
hence, the legislature would have intended that for punishing companies only fine should be
used. A judgment under similar circumstances was cited of United States Supreme Court in
United States v. Union Supply Co.26 by Justice Balakrishnan wherein, the company was
punished with fine.

Minority Opinion27

Justice Srikrishna collectively delivered the minority opinion by upholding the judgment in
Velliappa case and gave a strict literal interpretation to the statute while refusing to impose a
liability on Standard Chartered. This statement shows the approach of the judges in the case:

“The Court cannot act as a sympathetic caddie who nudges the ball into the hole
because the putt missed the hole. Even a caddie cannot do so without inviting censure
and more. If the legislation falls short of the mark, the Court could do nothing more
than to declare it to be thus, giving its reasons, so that the legislature may take notice
and promptly remedy the situation.”28

They stated that it is not the court’s duty to fill up gaps in a statute and the interpretation given
in the majority opinion will amount to a legislative act disguised as a judicial one which is in

22
Id. ¶ 50.
23
§ 11 of the Indian Penal Code, 1860 the "person" is defined thus:
The word "person" includes any Company or Association or body of persons, whether incorporated or not."
Therefore a corporation has an identity distinct from the members who constitute it.
24
§ 3(42) of the General Clauses Act, 1897, defines the “person” as
“Person" shall include any company or association or body of individuals, whether incorporated or not”
25
Supra Note 1 ¶ 46
26
54 Law. Ed. 87, cited with approval in Supra note 1 ¶ 19
27
Justice Srikrishna and Justice Hedge
28
Supra Note 1 ¶ 66

6
fact out of the powers of the Court.29 Hence, it is not permissible to read “fine and
imprisonment” as “fine or imprisonment” as it would amount to rewriting the Section 56 of
FERA.30

They discredited the likelihood of interpreting the statute according to the circumstances by
imposing both the fine as well as the imprisonment on natural persons, while refusing to
impose solely a fine on companies.31

It was further stated that the use of the word 'shall' in the provision to impose a penalty in the
form of imprisonment and fine had the effect of making the dual punishment, of a prison
sentence and a fine, compulsory and binding.

Finally, it was asserted that the adage 'lex non cogit ad impossibilia', literally means that the
law cannot contemplate or take cognisance of an act that is impossible. Therefore, this maxim
would only have persuasive value, in convincing the court to lay down that sentencing a
company or corporation is practically not possible to achieve. It was also stated that the above
maxim, on its own, does not grant liberty to any judicial institution to dissect the section as
per their own convenience and apply it selectively.32

The Motorola33 case

Although the Standard Chartered judgement has been a landmark ruling on deciding how to
construe penal statutes, the same failed to clarify whether a corporation could be held liable
and punished for a crime, that otherwise requires mens rea as a necessary element to qualify
as a crime. This issue was addressed and answered in the Motorola judgement.

In this case, the apex court discussed the Doctrine of Attribution. However, what set this
particular discussion apart from others on the same issue was that the instant discussion
revolved around determination of liability of the company, and not that if the directors. 34 It
was laid down that a company would be held criminally liable only in the situation when the
offence was committed by an individual or group of individuals who were in charge of
managing the affairs of the company or controlling it. Further, this 'control' exercised by the

29
Id. ¶ 74
30
Id. ¶ 69
31
Id.
32
Id. ¶76
33
Supra note 2.
34
Id

7
individual/s could be equated to them being the 'directing mind and will' of the corporation.35
The court then discussed the 'alter ego' principle and held that if the prior mentioned
conditions were fulfilled, then such mens rea could be assigned to the company and as a
consequence, it could be held criminally liable.36

The judges also held that the Doctrine of Attribution is not limited to the wrongful acts
committed by the Directors of a company. In fact, it could be extended to cover acts
committed by promoters, who significantly control the important affairs of a company, hiding
behind the veil of a corporation.37 The test is to identify the 'mind and will' of the individual
with respect to the company and applied even to such cases where there are more than one
layer above the controlled company.38

AUTHOR’S CRITIQUE AND CONCLUSION

The Law Commission in its 41st report recommended for fining of companies for offences
providing for “fine and imprisonment” by amendment in Section 62 of the Indian Penal Code,
1860 which was upheld in the 47th Law Commission Report. Furthermore, the Law
Commission in its 47th report went a step further and said that the Courts should impose an
adequate fine on the Company even in the cases where the punishment prescribed was only
imprisonment.39

The Court in the Standard Chartered case has refused to punish the company with
imprisonment for petty offences and hence, has rightly refused a pedantic reading of Section
56(1) of the FERA. The basic principle of criminal jurisprudence states that offences should
be punished taking into account the extent of wrong doing and harm involved and such a
pedantic reading would surely go against the basic principle.40

Therefore, the author observes that the majority opinion in the Standard Chartered case have
not outreached their judicial mandate as feared by the minority. They have used their common
sense while determining the subjective intent of the legislature and has infused the same into

35
Id
36
Id
37
Id
38
Id
39
Law Commission of India, Forty-Seventh Report on The Trial and Punishment of Social and Economic
Offences, ¶ 8.3.
40
Ratanlal Ranchhoddas and Dhirajlal Keshavlal Thakore, .RATANLAL AND DHIRAJLAL’S THE INDIAN PENAL CODE
(Chandrachud, Y.V. and Manohar, V.R eds, 2010.) p. 239; State of Punjab v. Man Singh AIR 1983 SC 172.

8
the legislation. They have rightly departed from the somewhat arcane rule of strict
interpretation of penal statutes and have just given effect to the intention of the legislature
which shows the true meaning or construction which should be given to the legislation.

Motorola case is also an important case which shows a way to regulate the companies’s
behaviour through criminal punishments. But, the Supreme Court in the Motorola case have
not specified the way by which mens rea can be proved by the prosecution.

With the passage of time the position of the Courts in India has been evolved to keep in check
the activities of the companies and Multi-National corporations which are very important in
this era of globalisation. Thus, the Courts are moving forward as can be seen by the Standard
Chartered and Motorola cases to set a proper position on Corporate Criminal Liability.