Introduction
Corporate criminal liability (CCL) denotes the extent to which a corporate entity may be guilty of the criminal acts committed by the members constituting that entity. Even if the corporations have legal standing similar to that of individual human rights at the same level, it is also in theory possible to put them on trial for the illegal acts perpetrated by an agent of the corporation. The evolution of corporate criminal liability in the case of India and the case of the USA has followed different paths attributable to their respective systems of law and economic order. In this case, 'Lifting the Corporate Veil' practices are thus aimed at the top level management. Most Indian Courts are inclined to impute criminal liability based on the acts and state of mind of the company's directors and senior officers. New provisions like the Companies (Amendment) Act, 2020 and 2019 have been introduced for the purpose of reducing crime in corporations by facilitating minor offences while deterring serious crimes, to encourage doing business in the country whilst still holding the law in its rightful pedestal1.
On the other hand, in within the principles pertaining to employment relationships and the scope of duty of care, the USA's position is less guilty, since it is not necessary for ostensible authority to be proven – the actions of the employee can be attributed to the corporation even if the corporation had no knowledge or was not involved concerning the criminal act. This broader scope also entails the 'collective knowledge' doctrine where criminal intent can be ascribed to the corporation by virtue of the aggregate knowledge of its employees. The United States of America also employs deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs) where the companies enter into an agreement to pay penalties and make compliance changes instead of going to trial.
Corporate Criminal Liability in India
Historical Context and Legal Framework
The idea of corporate criminal liability or culpability in the scope of India has undergone a sea-change with the passage of time. As there was no such recourse even under the Indian law. However, with the corporate activities increasing in size, number and scope, the requirement for legal intervention as a barrier to inappropriate and unlawful corporate behavior was recognized.
In the case of "Iridium India Telecom Ltd. v. Motorola Inc.2" proved to be a milestone as it highlighted the issue of corporate criminal liability onto the canvas of the Indian legal system. In that case, the Supreme Court stated that a company could be made liable for crimes for which human beings are liable if there is a demand for mens rea. This process applied the doctrine of 'alter ego', wherein the persons directing the corporation were considered to be the corporation with respect to their actions and intentions. This judgment was the first in which the problem of criminal liability of corporations was addressed under the Indian legal framework.
As far as the culpability of corporations is concerned in India, there are two concepts. One is within the Indian penal code and another is provided in the Companies Act, 2013. In terms of the provision in Section 273 of IPC, a corporate body would be liable even for an act performed by their agent in pursuance of the objectives of the said corporate body. Therefore, companies and their directors would be liable under Section 4504 of the Companies Act, 2013 in relation to any criminal activities. It also mentions making certain classes of persons who are in charge of the company liable for being prosecuted for such wrongful acts.
Key Doctrines and Judicial Interpretations
The Doctrine of 'alter ego' is crucial when it comes to finding corporations guilty of a crime in India, since it attributes the acts and the intention of persons who are in control of the companies, such as managers, directors and other executives, to the companies. This in simple terms, denotes the loosening of the corporate veil and imputing or attributing the aims and conduct of the offending persons towards the company. The case of "Sunil Bharti Mittal v. Central Bureau of Investigation5" is an instance in particular in which this rule was applied. The Supreme Court of India held that the criminal intent of individuals who controlled the corporation could as well be imputed to the corporation as well. The case concerned Sunil Bharti Mittal, the head of Bharti Airtel, and other executives who were charged with conspiracy to commit an offense in relation to the allocation of the 2G spectrum. The Court stated that – to the extent that an individual with responsibility in a corporation perpetrates a crime, the individual's culpable state of mind will likewise be attributed to the corporation, which exposes the corporation to liability for the crime. More so, this judgment restated the position that although a corporation is a legal person that can transcend time, it can only act through its representatives and any crimes committed by these representatives binds the corporation.
Furthermore, the case of "Standard Chartered Bank v. Directorate of Enforcement6" has broadened the horizons of corporation's criminal responsibility in India. This issue arose in a case concerning the liability of undertaking nastiness that is punishable with a sentence of incarceration but for which, as a matter of fact, the undertaking itself cannot be imprisoned. In specific terms, the offense pertains to the contravention of provisions of the Foreign Exchange Regulation Act7 (FERA) by the Standard Chartered Bank, and the bank contended non-liability for any offence which involves a term of imprisonment. The Supreme Court of India dismissed the opinion, stating that criminal culpability of a corporation does not depend on its ability to serve a custodial sentence. As a result, corporate entities can be punished by way of imposition of civil and criminal fines. The judgement thus explained that although imprisonment was not a suitable punishment for corporations, this did not mean that such corporations could not be punished financially.
Cumulatively, these cases highlight the notion that corporations cannot evade criminal sanction merely because of their legal personality - their corporate veil. The alter ego doctrine affirms that the motives and conduct of the individuals running the corporation are imputed to the corporation while the ruling in Standard Chartered Bank case allows for the prosecution of the corporate body for offenses that would attract imprisonment of individuals directors. These principles serve to guarantee the misdeeds of corporations do not go unpunished and they do not enjoy immunity from the impact of their unlawful deeds.
Developments in Recents Laws
The Companies (Amendment) Act, 2019 and 2020, brought changes in the landscape of corporate criminal liability in India. The provisions related to this rule were drafted with the aim of decriminalizing some acts under the Companies Act and creating a pro-business environment by revisiting the definition of some offenses' degree and treating some of them civil instead of crimes. The aforementioned amendments however kept stringent punishment for serious crimes therefore making it impossible for infringing corporations to evade responsibility for serious breaches of the law.
Corporate Criminal Liability in the USA
Historical Context and Legal Framework
In the United States, the concept of corporate criminal liability has been on the rise since around the early twentieth century. Though this form of liability has many legal theories, it is most often justified in the United States in terms of the doctrine of "respondeat superior." This means that if an employee of the corporation commits an illegal act while working for the corporation and doing so in furtherance of the corporation, the corporation may be held liable for the employee's actions.
The landmark decision "New York Central & Hudson River Railroad Co. v. United States8" (1909) is credited with setting the foundations of the concept of corporate criminal liability in the USA. In this case, the Supreme Court found that in furtherance of the business of the corporation, its agents could commit criminal acts for which the corporation would be liable irrespective of its lack of knowledge of the act. The Court found that the corporate veil was to be pierced in order to compel such a corporation to respect the laws of the land.
The USA has a well-established and considerable body of laws on corporate criminal liability where numerous federal statutes impose criminal sanctions on corporations. Some of the instances of these laws are the Foreign Corrupt Practices Act9 (FCPA), the Sarbanes-Oxley Act10, and the Racketeer Influenced and Corrupt Organizations (RICO) Act11. These laws prescribe severer punishment for crimes such as bribery, fraud, and racketeering perpetrated by companies.
Key Doctrines and Judicial Interpretations
In the United States, the doctrine of "Respondeat Superior" is fundamental to the issue of corporate criminal liability. This doctrine provides that a corporation may be criminally liable for the conduct of its agents as long as the conduct is within the scope of employment and intended, at least in part, for the benefit of the corporation. This wide reach of the doctrine has been subject to criticism in that it attributes criminal behavior to corporations even when there is no evidence of their involvement, participation, or even knowledge of the criminal acts.
The Doctrine of "Collective Knowledge" is another principle that enlarges the scope of corporations' criminal responsibility in the United States. This is to say that the knowledge of various persons can be combined when imputing knowledge to the corporation, even if no one person has full knowledge of the particulars of the wrongdoing, expanding the scope of when the corporation can be held liable. In other words, each individual employee may be innocent of the entire offense for which the corporation is liable, but taken together, their parts constitute knowledge of the offense.
The "Model Penal Code (MPC)12" presents a different position with respect to corporate liability in the United States. According to the MPC, a corporation can only be held liable for the acts of its agents when those acts have been authorized, requested, or condoned by someone in a position of authority such as an officer or board. Such an approach that is less in scope than umbrageous liability seeks to serve justice by not placing unreasonable liabilities on corporations for acts of employees who go against the organizations because this is done internal to the corporation.
In the past few years, and with particular regard to notable corporate collapses, the issue of corporate misbehavior in America has received a great deal of attention. Corporations have begun to face the aggressive threats of the Department of Justice (DOJ) which has focused on seeking out corporate criminal liability and imposes huge fines and other sanctions on the offending corporate entities. In relation to this, there was an increase in the number of concluding Deferred Prosecution Agreements13 (DPAs) and Non-Prosecution Agreements14 (NPAs), which serve as the tools for the entities so as to engage with the authorities and implement; rather than face criminal indictment.
Also, it has become the norm in the USA that almost all top corporate executives and even board members can bear personal responsibility for corporate crime. In 2015, the U.S. The Department of Justice announced the 'Yates Memo', which stressed the need to target individuals in charge when a company engages in anti-competitive behavior, thereby increasing the burden of responsibility placed on the executive class.
Comparative Analysis
Mens Rea and the Role of Corporate Agents
The concept of corporate criminality as applicable in India and that in the USA is that of mens rea, which refers to criminal intent. In the case of India, the attitude towards the concept of mens rea of the corporation comes by virtue of the "alter ego" doctrine, which posits that the intent of the persons controlling the corporation is the intent of the corporation itself. On the other hand, the USA employs the much broader "respondeat superior" theory which holds the corporation liable for the misconduct of its employees, even when the corporation was not aware of that misconduct.
One more aspect which the USA counterparts also make use of but which is absent in the Indian legal system is the so-called "doctrine of collective knowledge". This doctrine states that even if each employee of the organisation does not know all the facts comprising the commission of a crime, the corporation can still be charged with knowledge of the crime in question based on the knowledge of those who were employed by the corporation and who were involved in the crime. In India, such a doctrine does not exist which makes it difficult to bring any criminal prosecution against the corporate entity for the actions of the juniors without the active involvement of the top management.
Scope of Liability and Penalties
There are strict operational norms that corporations operating in the USA and India have to adhere to and often violations of these norms attract criminal liability in the two countries. The extent of liability positioned on the companies within their jurisdiction is however different. In the US for example, the "respondeat superior" doctrine is used in a manner that gives corporations a wide scope of liability where the employees can commit a number of offenses and the corporation takes the blame. This resulted in the imposition of heavy fines and sanctions on the corporations, especially those that have been charged with fraud, bribery, and violation of environmental statutes.
On the other hand, in India, corporate criminal liability is more restrictive with the emphasis being placed on the actions of those in the corporation who are responsible for its control. The law would impose fines and even penalties against such corporations in case they were deemed to have committed a crime, but the such system was not as prevalent and aggressive as it is in the case of the USA. The amendments to the Companies Act which sought to decriminalize some provisions are also indicative of the country's hybrid stance at corporate governance- progressively enhancing corporate accountability while remaining investor friendly.
Judicial Attitudes and Enforcement
Also, the approach of courts towards corporate criminal liability varies significantly in India and USA. In India, the courts have been reluctant in enriching the outlook of corporate crime liability and have looked mostly into the conduct of the top or the main directors. Doctrines such as "alter ego" and 'lifting of the corporate veil' do help in ensuring that where propounded such concepts, a corporation will not escape from serious crimes, however, still the overall picture is less aggressive than in the USA.
On the other hand, the USA has taken a much bolder approach with regards to corporate criminal liability, with every branch of the judiciary and the executive pursuing corporations for all kinds of crimes. As such, it is not surprising that the DOJ operates largely through more timeliness DPAs and NPAs where it imposes hefty sanctions on in-scope corporations without having to engage in protracted trial processes.
Conclusion
Ultimately, the contours of corporate criminal liability - as it exists in India and the USA - have undergone different evolutions, owing to different legal paradigms and their applications. The Indian approach, on the other hand, attempts to hold management liable under concepts such as eg 'alter ego' while adopting a more cautious approach towards corporate liability so that business consideration will not be at odds with legal accountability. The changes made in the law recently are to remove the stinging fungus of punishment from the minor flies while ensuring that the big sharks are properly dealt with.
On the other hand, the position in the USA is far more advanced and aggressive, using the "Respondeat Superior" doctrine to attribute stray corporate acts to the corporation even when the corporation had no knowledge of the act prior to its perpetration. There are also benefits to the USA's DPAs and NPAs global-quick resolving mechanism and harsh punishment.
Both countries will have to enhance their respective laws on the subject as corporate activities continue to become more complicated in order to create a corporate culture that appreciates the need for responsibility whilst at the same time encouraging economic development especially since there would be need for coherence of such laws in the operations of foreign corporations.
Footnotes
1. Afshan, R.S., & Prakash, P. (2023). Corporate Criminal Liability in India. International Journal of Finance and Management Research, 5(6), 109-117.
2.Iridium India Telecom Ltd. v. Motorola Inc., AIR 2011 SC 20
3. The Indian Penal Code, § 27, 1860
4. The Companies Act, § 450, 2013
5. Sunil Bharti Mittal v. Central Bureau of Investigation, AIR 2015 SC 923
6. Standard Chartered Bank v. Directorate of Enforcement, (2006) 4 SCC 251
7. Foreign Exchange Regulations Act, no. 46, 1973
8. New York Central & Hudson River Railroad Co. v. United States, 212 U.S. 481 (1909)
9. Foreign Corrupt Practices Act (FCPA), Public Law No. 95-213 (1977)
10. Sarbanes-Oxley Act, Public Law No. 107-204 (2002)
11. Racketeer Influenced and Corrupt Organizations (RICO) Act, Public Law No. 91-452 (1970)
12.Model Penal Code (MPC), 1962
13. Deferred Prosecution Agreements, 2013
14. Non-Prosecution Agreements, 2016
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
