OFFENCES BY COMPANIES: A LEGAL AND PRACTICAL PERSPECTIVE

Author: BERADAR AKASH, CHRIST ACADEMY INSTITUTE OF LAW 

Edited By: Ritesh Singh Shekhawat, MJRPU, Jaipur

ABSTRACT

This blog aims to analyze legislation and landmark case laws relating to corporate criminal liability under Indian laws as well as the main doctrines governing it. Further, it extends to which the Penal Code of 1860, and the Companies Act, of 2013 can be used to prosecute corporate crimes. Dispersed among the posts, the blog offers thorough explanations of various case laws, which show how corporate entities are legally penalized for such misconducts, and, as such, presents a comprehensive treatise for any individual involved in corporate governance or legal practice, business owners and investors, in particular.

KEYWORDS

Offences by companies, Legal Provisions, Case studies, Doctrines, Judicial precedents, Measures Taken

INTRODUCTION

Corporate firms are one of the important sources of contribution towards the development of the economy of the country. However, they are involved in criminal activities, which brings certain difficulties to stakeholders. Companies, associations, or bodies are also supposed to be liable for offenses under Section 11 of the Indian Penal Code 1860, which considers ‘person’ for this purpose. This blog discusses the critical aspects of corporate crime and the legal provisions, ordinances, judicial decisions, and doctrines underlying the criminal accountability of such corporate entities.

‘Offenses by a company’ means that any individual who is in a policy-making and managerial capacity and is involved in the commission of the offense is held responsible for it along with the company unless the individual provides sufficient evidence that the offense was committed without his or her knowledge and further, the individual had no knowledge that the offense was being committed.

‘Corporate criminal liability’ means a crime committed by any employee or agent during his course of employment that benefits his or her business. Person commits any illegal activities that benefit the company then it can be held liable for the acts of his employee.

Iridium India Telecom Ltd vs Motorola Inc, 2011[1] – this case outlines the Apex Court decision concerning the liability of the companies and will be held responsible and punishable for the illegal activities committed by the person or organization during employment.

LEGAL PROVISIONS

A legal framework on IPC 1860 & Company Act, 2013

Indian Penal Code, 1860 Provisions

  • Section 11[2] Defines “Person” which states that it “includes any company or association or body of a person, whether incorporated or not making them liable for a criminal offense.”
  • Section 34[3] states that “when a criminal act is done by several persons in furtherance of the common intention of all, each of such persons is liable for that act in the same manner as if it were done by him alone”
  • Section 120B[4] of the IPC deals with Punishment for Criminal conspiracy
  • “Any persons or party committed a criminal conspiracy they shall be punishable with death, 1-year imprisonment or for life or rigorous imprisonment for a term of two years
  • Other Sections 141 to 149[5] of the penal provisions deal concerning unlawful assembly, which can be used for applying companies as they engage themselves in illegal acts
  • According to the Companies Act, 2013 Sec 447[6] deals with the Punishment for committing fraud- “Any person who is found to be guilty of fraud shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to a fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud”

CASE STUDIES

Nirav Modi and PNB Scam, Aug 2018 [7]

Nirav Modi is an Indian business tycoon who owns the company Firestar Diamond International Pvt ltd. He involved himself in a fraud case where in the investigation was found and charged by the Indian government with criminal breach of trust and cheating, corruption, money laundering, and criminal conspiracy

IL & FS Insolvency case[8]

In this case, specifically, due to its mismanagement, the company went into a bad state, and statutory auditors were held guilty of misconduct by ICAI

Sterlite Copper case 2018[9]

Sterlite Copper is a subsidiary company owned by Vedanta Ltd it was been in a huge controversy and led to the shutdown of the company because of its pollution and environmental harm to nature. The court gives the verdict under Sec 120B, Sec 277, and 278 of Penal Code 1860

Sahara chit-fund scam case

Sahara fraud case serves as a lesson in cheat and deception by involving in large-scale chit-fund fraud. The court applied Sec 120B which is Criminal conspiracy, 420 cheating under IPC with 447 Punishment for Fraud of the Companies Act, 2013.

This case study provides a clear and comprehensive understanding of the illegal activities committed by the person or organization.

VARIOUS DOCTRINES

Doctrine of Attribution: According to this doctrine the intention of committing any crime or offense is attributed to those who are the directing mind and will of the companies. Men’s rea is attributed to the organizations based on the alter ego of the company

Iridium India Telecom Ltd vs Motorola Inc, 2011 the court stated that criminal liability would arise as soon as the offense is committed with means rea and the apex court resolved the position concerning criminal liability of entities or companies

The doctrine of Vicarious Liability: This doctrine states that the officials of the corporations shall be held accountable and responsible for the acts of the company under their position. The master shall be responsible for the actions of his Agent in the course of employment.

Identification doctrine: This is an English doctrine that enables to identification of the person whose actions and intentions can be considered or attributed to an entity’s decision.

This doctrine helps one to understand the legal principles that are attributed to companies and officials in a different context, especially in cases that involve criminal liabilities

JUDICIAL PRECEDENTS

Chitra Rama Krishna & Ors vs SEBI 2023 [10]

The CBI court under this case held that the misuse of the NSE co-location facility, in which certain traders were given preferential access to trading data led to unfair advantage and financial irregularities the court applied sec 120B with 420 and 409 of IPC

Bhartiya Kamgar Karmachari Mahasangh vs M/S. Jet Airways Ltd, 25 July 2023[11]

This case involves the charges of Sec 406 & 420 where the accusations of Jet Airways for financial mismanagement & funds diversion 

Amazon.Com Nv Investment Holdings LLC vs Future Retail Limited 2021[12]

Here in the case, the future retail was accused of misrepresentation while in its dealings with Amazon. Here the dispute arose due to the breach of contractual obligation and was charged under Sec 420, 120B of Indian Penal Code.

CORPORATE GOVERNANCE 

Corporate governance plays a significant role in the prevention of corporate crimes. Companies that engage in CSR and environmental activities are likely to less engage in criminal cases. Ethical and transparency compliance programs are crucial in fostering a culture of integrity.

There have been many amendments to the Companies Act, to ensure and strengthen corporate governance but strict penalties imposition on the companies could make them abide and show the government’s commitment to stop these corporate crimes.

Looking further in the growing contemporary era, corporate criminal liability is likely be increase due to various factors like technology but that could help in preventing crimes.  There should be implementation of programs to be conducted for the prevention of criminal acts. Thus, a corporate legal framework with strict laws could bind the companies to follow and abide by the norms of the nations and reduce criminal activities.

MEASURES TO ENHANCE COMPANIES’ CRIMINAL LIABILITY FRAMEWORK

Encouraging Best Practices: It encourages corporations to bring out the best practices in corporate governance making clear accountability and transparency

Ament Existing Laws: Amending the existing laws or legislations could ensure the companies cannot evade their liability

Forster Ethical Culture: Companies should come up with an ethical corporate culture by ensuring the employees get the benefits of training encouraging them to become whistleblowers and providing protection to them

Adopting Monitoring Systems: Companies should include various policies and strict monitoring systems and work with the law enforcing authorities for clear communications

Leverage Technology: The adoption of new technological advancements like AI and blockchains could help them in compliance efforts.

Supporting CSR Activities: CSR activities by the companies not only help the companies gain a reputation but also reduce the risk of committing any criminal activities

CONCLUSION & COMMENT

Corporate criminal liability is vital for maintaining legal and ethical standards. Despite their role in economic development, companies must not be exempt from legal scrutiny. The Indian Penal Code 1860 and the Companies Act 2013 should enforce stricter laws to govern corporate crimes. The case studies and judicial precedents highlight the need for robust enforcement and adherence to legal standards. As corporate governance evolves, ethical practices and transparency will be key in reducing criminal activities. Continuous legal reforms and effective frameworks are essential to uphold justice and integrity in the corporate world.

REFERENCES

Legislations

  • Indian Penal Code 1860, s 11.
  • Indian Penal Code 1860, s 34.
  • Indian Penal Code 1860, s 120B.
  • Indian Penal Code 1860, s 141-149.
  • Companies Act 2013, s 447.

Cases referred

  • Iridium India Telecom Ltd vs Motorola Inc, (2011)1 SCC 74 (India)
  • Chitra Rama Krishna & Ors vs SEB (CBI Court, 2023).
  • Bhartiya Kamgar Karmachari Mahasangh vs M/S. Jet Airways Ltd, (2023) (Bom HC,25 July 2023).
  • Com Nv Investment Holdings LLC vs Future Retail Limited (2022) (SC)

 Others

[1] Iridium India Telecom Ltd vs Motorola Inc, (2011)1 SCC 74 (India)

[2] Indian Penal Code 1860, s 11.

[3] Indian Penal Code 1860, s 34.

[4] Indian Penal Code 1860, s 120B.

[5] Indian Penal Code 1860, s 141-149.

[6] Companies Act 2013, s 447.

[7] “Who Is Nirav Modi? | PNB Scam Case | Nirav Modi Case” (www.business-standard.com) <https://www.business-standard.com/about/who-is-nirav-modi>.

[8] Bar & Bench and Bar & Bench, “Explainer: The IL&FS Insolvency Case” (Bar and Bench – Indian Legal News, July 21, 2019) <https://www.barandbench.com/columns/litigation-columns/ilfs-insolvency-the-journey-so-far>.

[9] Shrishti Chauhan, “Sterlite Copper Case (2018),” vol 4 (2022) <https://ijaem.net/issue_dcp/Sterlite%20Copper%20Case%20(2018).pdf>

[10] Chitra Rama Krishna & Ors vs SEB (CBI Court, 2023).

[11] Bhartiya Kamgar Karmachari Mahasangh vs M/S. Jet Airways Ltd, (2023) (Bom HC,25 July 2023).

[12] Amazon.Com Nv Investment Holdings LLC vs Future Retail Limited (2022) (SC)