Consentia on Law

COMPARATIVE STUDY OF CORPORATE CRIMINAL LIABILITY WITH REGARD TO INDIAN AND USA LEGAL SYSTEMS

“A company can only act through human beings and a human being who commits an offence on account of or for the benefit of a company will be responsible for that offence himself, just as any employee committing an offence for a human employer is liable. The importance of incorporation is that it makes the company itself liable in certain circumstances, as well as the human beings”[1].

                                                                                                                                   — G. Williams

INTRODUCTION

The notion of Corporate Criminal Liability has become most debated and burning topic of the Corporate Jurisprudence. Relevant questions arise in dealing with this concept is whether  a corporate body as an artificial person is capable of committing a crime and can it be sued or not, if yes then who is to be held liable for such crimes? If we look at in traditional sense then the answer would be ‘No, a corporate body can’t be held liable because it is a separate legal entity distinct from its members, officers and employees and itself they don’t have mind which is one of the essentials in criminal law for the commission of an offence’. But in modern times, the scenario has been changed and the corporate bodies by virtue of the theory of corporate organs or the alter-ego doctrine[2] are being held criminally liable.

With regard to the punishment of the corporate body for business crimes, the courts are not able to take strict actions, due to lack of specific and effective laws. Inadequate laws have shortened the hands of the courts in sentencing the punishments of higher grade like death penalty and imprisonment (Both rigorous and imprisonment for definite time) which are required to put deterrence in anti-social elements that use the corporations as a vehicle to achieve their personal interest. The courts are bound to award them only fines in the name of punishments. The author, in this paper, is trying to find out plausible solutions in respect of emerging problems of corporate crimes through the comparative study of the status of the doctrine in India and the USA.

EVOLUTION OF THE DOCTRINE OF CORPORATE CRIMINAL LIABILITY

INDIA

In India, the doctrine of Corporate Criminal Liability was come into existence after the gross negligence of the Union Carbide Corporation Ltd. which resulted in widespread damages and massacre in Bhopal Gas Leak Tragedy Case[3] in 1984, when it became our need to pierce the corporate veil to bring the actual perpetrators of the disaster out for trial and to punish them for their inhuman acts but unfortunately at that time there were no any judicial interpretations or specific laws to tackle such problem in the archaic penal code[4]. Since then with emergence in law many branches of the Indian law have been grown up including the concept of Corporate Criminal Liability. But the statutory authority and the judicial precedential authority is not yet capable of imposing harsher punishment to create deterrence. The landmark authority in this regard is Standard Chartered Bank and Ors. v. Directorate of Enforcement and Ors.,[5] in which a Constitution Bench of the Apex Court overruled the previous views on the doctrine of Corporate Criminal Liability. The Apex Court went through to award complete justice by imposing fines in lieu of following literal and strict interpretation rule which is the basic requirement of the penal statutes. The court in this case felt urgent need of effective laws to avoid the exemption of the actual perpetrators.

USA

The doctrine of Corporate Criminal Liability in the American Jurisprudence was evolved by the influence of the English Common Law. In 14th century, the fictional entities came into existence in the English Common Law but the importance of the corporate bodies grew with the spread of industrialization during 16th-17th century. Hence in 17th century there was no concept of vicarious liability, it was very difficult to hold a corporation criminally liable. Evolution of principle of vicarious liability in 19th century opened a way for English courts to hold the corporations liable for the acts of their officers, agents, and employees because while doing so they were acting within the course of their employment. Therefore, in this way first time in 1842 a corporation was held liable for failing to fulfill a statutory duty.[6]

The evolution of the principle of vicarious liability altered the history of American laws regarding criminal liabilities of the corporations. In the beginning of the 20th century, the United States of America adopted the principle of Vicarious Liability to hold the corporations criminally liable[7]. The USA SC in the landmark case New York Central & Hudson River Railroad Co. v. United State, [8]provided a platform for coming future cases for holding the corporate bodies liable for the criminal acts done by their employees having mental element.

STATUS OF SENTENCES AND LAW RELATING TO IT

INDIA

Basically Indian law recognizes mens rea as most important ingredient to be proved.  Mens rea is a doctrine represented through a maxim ‘actus non facit reum, nisi mens sit rea’ which means ‘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 a guilty mind’. Corporations are artificial person having recognized by the law as a person but can’t be held liable because as a natural person it does not have a mind that is responsible for the commission of the offence, as per the traditional phenomenon.

With the change in time the views of courts are being changed and they are holding corporate bodies criminally liable. Statutory provisions in India to deal with such matters are Sections 45, 63, 68, 70(5), 203 etc. of the Companies Act, 1956 make the officers personally liable for their acts. Except Companies Act there are few other statutes i.e. the Negotiable Instrument Act, Essential Commodities Act, and Income Tax Act etc.[9] The Companies Act, 2013 has brought certain adaptations having modern approach in statutory provisions, these adaptations are sections 34, 147(5), 224, 282(3) etc.[10]

In making the employees criminally liable, IPC must be considered in accordance with its provision there are some kind of offences which only talk about the punishment of imprisonment, the question of putting a corporate body in prison arise. Therefore sanction given through that particular section won’t be applied.

Due to inadequacy of law courts are also not capable in taking any action in this regard. In a case the Assistant Commissioner, Assessment-II, Bangalore and Ors. v. Velliappa Textiles Ltd. and Ors,[11] according to the court Corporate Criminal Liability cannot be imposed without making necessary changes to the statutory authorities. If there is no possibility of fine in any provision of the IPC then a judge can’t at his discretion award fine in lieu of imprisonment.[12] In 2005 in Standard Chartered Bank and Ors. v. Directorate of Enforcement and Ors[13]the Court sentenced the actual perpetrator with fine instead of imprisonment the reason is very obvious that a corporate body can’t be imprisoned. The Court in this case gave preference to the justice expect the practice which was going on from the beginning.

USA

Dealing with corporate crimes, the USA has statutory authority of the Sarbanes-Oxley Act, 2002, which contains provisions dealing with internal control (to ensure that a corporate body cannot be used as a vehicle to threat the society, again) on corporate bodies and their accounting procedures. This Act compelled to the United States Sentencing Commission for enhancing the Guidelines dealing with corporate frauds and relating offences. Therefore the Federal Sentencing Guidelines adopted by the United States Sentencing Commission, are the other instrument of the American Criminal Law, dealing with the crimes in corporate sector. These two instruments of American Criminal Law introduced an innovative approach by inclusion of a lot of new crimes and punishments which may have never been considered in the past. In other words it can be said that the Act changed the entire mechanism of sentencing.

Some of the crimes added in the new criminal law were mail frauds, wire frauds, and false SEC fillings etc.[14] Not even single, there were many faces from whom the veil was pierced and they were equally treated as natural persons for their criminal acts which have been committed in their authoritative capacity. Former CEO of the WorldCom, Mr. Bernie Ebbers is one of them. He was sentenced for imprisonment for 25 years and another big name in respect of this matter is Jeffrey Skilling, former CEO of Enron, he was sentenced for imprisonment for 24 years. Sanjay Kumar, Computer Associations and Walter Forbes, Cendant are the persons who sentenced for long term imprisonment while their companies didn’t fail because of fraudulent activities.[15]

One more beginning came with the case Apprendi v. New Jersey[16]the Court restored the power to exercise a discretion especially when jury decides without giving clear reasoning with a view to guide the court to sentence the perpetrator. In another important case Gall v. United States[17], the court made it clear the trial judge will also have power to exercise such discretion. The case of Gall may be a milestone in reducing the corporate crimes.

CONTRIBUTION

The author in this paper has tried to find out the background of the notion of the corporate criminal liability and laws relating to it, in India and the United States. The sole purpose of the laws is to protect the society from the evils. Law for the betterment of the society has put certain restrictions upon all the persons within the society itself. For those who don’t abide law it has prescribed the punishments, the purpose of the punishment is threefold: reformation, restriction and retribution i.e. reformation of the offender so that he mat blend into the society and no longer remains a threat to the existing peace and tranquility within it, restriction upon the offender to make him/her realize the consequences of his/her actions and retribution for the victim and his/her family member. The three R’s as described above, form the very backbone of our criminal justice system. Another vital objective of punishment is to create deterrence or apprehension of such punishment in the mind of other corrupt elements in the society as well as the offender himself.

As for the author’s contribution author would like to propose some suggestions to deal with the problem of sentencing a corporate body. The suggestions are given below:

  1. A corporation, an artificial person must be punished as same as a natural person in accordance with the penal laws of the land.
  2. In lieu of death penalty, a corporation must be brought to the end. In this way, all the assets belong to the corporation must be forfeited by the Central or State Governments as the matter depend.
  3. If the actual perpetrators are guilty of crimes like sexual assault, murder etc. must be punished separately from the entity for such offence according to the IPC, 1860.
  4. A corporation, if found guilty, must be punished with excessive Corporate Social Responsibility (CSR) upto the extent of 3-4 times of the profit gained wrongfully by it.
  5. The fine imposed upon the corporations must be about 3-4 times of the profit gained.
  6. In sentencing all the above punishments the court must pierce the corporate veil and punish the actual perpetrator separately in accordance with the law for natural person. The punishment in this case would depend upon the gravity of the offence.
  7.  To support the victims in such cases certain compensation, according to the loss suffered, must be awarded.

CONCLUSION

The corporations are the artificial persons having no intention at all. They are run by the mind of the natural persons because they can think. If the corporations don’t have guilty intention they can’t be held liable, it was the presumption. But now this presumption is moving towards an end. The reason behind is alteration in law which is to promote justice rather than to follow the mechanism of the law technically. In this paper the author has tried to study the sentence pattern was being followed for a long time and the reasons because of which these laws are not capable of dealing with the business crimes in the modern times and includes some suggestions regarding to reforms the laws with a view to punish the corporate bodies for criminal purposes.


[1] Glanville Williams, Text Book of Criminal Law (2nd ed., Universal Law Publishing Co. Pvt. Ltd. 1961) 970.

[2] Sophia Mustafa, ‘Corporation’s Liability for Commission of Crime’ (Vol.-1 Issue-2, RMLNLU Law Review 2010) 66.

[3] Union Carbide Corporation Ltd. v. Union of India [1994] 4 SCALE 973.

[4] Indian Penal Code, 1860.

[5] [2005] AIR SC 2622.

[6] Anca Iulia Pop, ‘Criminal Liability of Corporations: Comparative Jurisprudence’ (2006) 52, < http://www.law.msu.edu/king/2006/2006_Pop.pdf&gt; accessed 25 August 2013.

[7] Allens Arthur Robinson, ‘‘Corporate Culture’ As A Basis of the Criminal Liability of Corporations’ (2008) 29-33, < http://198.170.85.29/Allens-Arthur-Robinson-Corporate-Culture-paper-for-Ruggie-Feb-2008.pdf&gt; accessed 01 September 2013.

[8] [1909] 29 S. Ct. 304, <Miriam Maisonville, ‘Rethinking Theories of Corporate Liability in Criminal Law: Pushing the Legislative Envelope- A Comparison of Canadian, American and English Developments’ <Corporate Criminal Liability: Some Insights, edited by P. L. Jayanthi Reddy, (1st edition, Amicus Books, Icfai University Press, 2008)>.

[9] Angira Singhvi, ‘Corporate Crime and Sentencing in India: Require Amendment of Law’ (vol.1 issue 2, International Journal of Criminal Justice Sciences 2006) < http://www.sascv.org/ijcjs/angira.pdf&gt; accessed 05 September 2013.

[10] The Companies Act, 2013.

[11] [2004] AIR SC 86.

[12] See supra note 10.

[13] See supra note 6.

[14] Peter J. Henning, ‘The Changing Atmospherics of Corporate Crime Sentencing in the Post Sarbanes-Oxley Act Era’ < Corporate Criminal Liability: Some Insights, edited by P L Jayanthi Reddy, (1st edition, Amicus Books, Icfai University Press, 2008)>.

[15] Id.

[16] [2000] 530 US 466.

[17] [2007] 128 S. Ct. 586 .

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