Shrish Chandra
Advocate, Allahabad High Court
Various sources of law and factual frameworks aim towards determining the scope of an employee’s actions, where numerous Federal courts have attributed the actions of its agents’ action on the corporation itself. The Hon’ble Courts have found that an employee’s actions can bind the corporation even where the corporation has implemented policies prohibiting the behavior of the agent that does not absolve/exculpate the employer from prosecution. When an employee’s conduct is contrary to the company’s compliance policies and specific directives, the company can still be held liable.[1]
In United States v. Parfait Powder, it was held that independent contractors might act for the benefit of the corporation thereby exposing it to criminal liability.[2]
A corporation is an abstraction wherein it does not have a mind or intent of its own but its active and directing will must be traced in the person or group of persons, who for some purposes may be called an agent/employees/directors, but who is really the directing mind and will of the corporation; the very ego and center of the personality of the corporation and whose collective will is the will of the corporation.[3] This had attribution to the agency theory of corporations.
In furtherance of the same reference can be drawn to another theory being the identification theory wherein the will of the organization will be attributed to the intent of the individual or the collective will of the collective individuals. However, while the former doctrine simply imitates tort principles, the latter adjusts these principles to the reality of corporate misconduct. Furthermore, the identification theory introduces the personification of the corporate body. According to this theory, the solution for the problem of attributing fault to a corporation for offences that require intention was to merge the individual within the corporation with the corporation itself. Unlike the agency theory, the individual employee is assumed to be acting as the company and not for the company. The theory de-emphasized the need for the development of vicarious liability. The agency theory has now been considered as unjust and lacking in defensible penal rationale.
Guilty Mind: Sine qua Non for a criminal indictment
The main underlying principle of the identification theory is the detection of the guilty mind, the recognition of the individual who will be identified as the company itself, who will be the company’s very ego, vital organ, or mind thereby operating to give effect to the alleged act which becomes the subject matter of indictment.
Tesco Supermarket v. Nastrass[4] is the leading authority in this area. Tesco Supermarket was a large chain store that was charged with an offence against the Trade Descriptions Act 1968 by selling goods to consumers at a price different than had been announced. The prosecution concerned the advertisement of soap powder at a reduced price. A shop assistant had mistakenly placed normally priced soap powder on the shelf. The manager had failed to ensure that the powder was available at the advertised price. There was a defence of due diligence which could be pleaded by the company unless the manager’s lack of due diligence could be attributed to the company. The question was whether the manager of the store could be identified with the company via the common law doctrine, or in other words, whether natural person or persons are to be treated as being the corporation itself.
In the modern-day world, the strong effect of the activities of corporations is incredible on society. The corporations/juristic personality have had a balanced effect on the society which happens to be both positive and negative. One such instance of negative impact was the Uphar Cinema tragedy or thousands of scandals especially the white-collar and organized crimes that can be categorized as one that requires immediate redressal. Despite so many disasters, the law was unwilling to impose criminal liability upon corporations for a long time.
The prime reasons for this are[5]:
- Lack ofmens rea.
- Implausibilty of imprisoning a jurisrtic personality.
Furthermore:
- Attributing acts to a juristic fiction, an obsessive focus was laid on theories of corporate personality wherein a more pragmatic approach failed to develop until the recent past.
- The legal thinkers did not believe corporations possessed criminal intent.
- Absence of criminal liability being attributed to corporate personality in the charters.
- Court’s conventional understanding of criminal procedure; for example, the physical presence of the accused being a necessity.
Interpretation of the Indian Criminal Jurisprudence.
Corporations may be held criminally responsible for the illegal/overt acts of its employees if such acts are related to and committed within the course of employment, committed in furtherance of the business of the corporation and its imbibed culture. Moreover, in organized crime networks, the culture and the objective of the corporation in itself is to commit crimes, authorized or acquiesced in by the corporation. In these cases, the corporation itself authorizes and sometimes directs its employees to enter into unethical business practices which are sanctioned by the organization structure.
Recent judgments by Indian Courts & Reported Legal Difficulties
The decision in Standard Chartered Bank and Ors. v. Directorate of Enforcement and Ors[6] intended towards providing complete justice to the aggrieved which could not be prejudiced in the garb of corporate personality owing to which the Court did not go by the literal and strict interpretation as required in penal statutes rather imposed fine on the corporate body for securing the ends of justice.
The Court looked into the interpretation rule that all penal statutes are to be strictly construed. Moreover, the offence alleged is within the plain meaning of the words used and words shall not be strained on any notion, so as to give rise to the mischief that it must have been intended to be included and would have included if the thought of.[7]
Simultaneously, it also considered the legislative intent and held that all penal provisions like all other statutes are to be fairly construed according to the expressed legislative intent. It was of the view that here, the legislative intent to prosecute corporate bodies for the offence committed by them is clear and explicit there was no intent of its exoneration. If an enactment requires what is legally impossible it will be presumed that Parliament intended it to be modified so as to remove the impossibility element. These Courts have applied the doctrine of impossibility of performance [Lex non cogitadimpossibilia] in numerous cases including the aforementioned.[8]
Finally, the Court decided that as the company cannot be sentenced to imprisonment, it should lay emphasis on imposing fine. Such discretion is to be read into the section so far as the juristic person is concerned rather than a natural person As in regard to the company, the court can always impose a sentence of fine 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 difficulty in construing the statute in such a way. We do not think that there is blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment.
Conclusively, criminal jurisprudence aims and perseveres to protect the societal interest it tries to strike a balance juristic person, its operation, the societal interest. Therefore on occasions of corporate criminal responsibility, the ambit of theories such as the aggregate will and vicarious liability cannot be the operating mechanisms/theory towards determining the criminal liability and they are specifically one of civil culture. The principles of criminal law never transfer the liability and the sanction is defaulter specific. But the juristic cannot be subjected to criminal sanctions which lead to imprisonment but simply stand restricted to fine therefore bringing in Section 212 of the Companies Act, 2013 an investigation shall be carried out so as to identify the offender and subject him to concerning liability. This in other words can also be referred to as the theory of piercing through the corporate veil so as to identify the perpetrator operating under the garb of the corporate veil and possessing the attributable dishonest intention so as to be sanctioned for the overt acts committed.
REFERENCES:
[1] United States v. Automated Med. Labs., Inc., 770 F. 2d 399, 407 (4th Cir. 1985)
[2] United States v. Parfait Powder Puff Co., 163 F.2d 1008, 1009-1010 (7th Cir. 1947)
[3] This has been a result of the opinions expressed by the jury in the Haldane’s case.
[4] [1971] 2WLR 1166. [Tesco]
[5] Zee Telefilms Ltd. v. Sahara India Co. Corporation Ltd., 2001 (3) Recent Criminal Reports (Criminal) 292
[6] AIR 2005 SC 2622
[7] TolaramRelumal and Anr. v. The State of Bombay MANU/SC/0057/1954 and Girdhari Lal Gupta v. D.H. Mehta and Anr. MANU/SC/0487/1971
[8] State of Rajasthan v. Shamsher Singh, 1985(Supp.) SCC 416
