Corporate entities, like deities, are legal persons for the purpose of Indian law. Both are powerful, but one distinguishing feature is that corporate bodies are not above rule of law and justice. Therefore, if they commit an offence, they can be prosecuted.
Two essential ingredients of an offence are a guilty mind (mens rea) and a guilty act. But does a company or firm have a mind at all? It is only natural persons who can be said to have a mind. So some judges rule that it cannot commit an offence. It has no body; ergo, it cannot be imprisoned either. Mercifully, most corporations have deep pockets. Therefore, they can be fined, but within the limits of the colonial laws that were written in the days of annas.
The question of punishing a corporation came up recently in the Supreme Court in a criminal case filed by Iridium India Telecom Ltd against Motorola Incorporated. The allegations were cheating and criminal conspiracy. The magistrate in Pune started proceedings against Motorola. It moved the Bombay High Court against the prosecution. The high court quashed the proceedings giving several reasons, one of them being that a corporation was incapable of committing the offence of cheating as it has no mind. According to the high court, although a company can be a victim of deception, it cannot be the perpetrator of deception. Only a natural person is capable of having a guilty mind to commit an offence.
However, the Supreme Court set aside the high court’s finding and asserted that a corporate body can be prosecuted for cheating and conspiracy under the Indian Penal Code. The offences for which companies can be criminally prosecuted are not limited only to the specific provisions made in the Income Tax Act, the Essential Commodities Act, and the Prevention of Food Adulteration Act. Several other statutes also make a company liable for prosecution, conviction and sentence.
The court allowed the prosecution to go on, stating that companies and corporate houses can no longer claim immunity from criminal prosecution on the ground that they are incapable of possessing the necessary mens rea for the commission of criminal offences. The legal position in England and the United States has now crystallised to leave no manner of doubt that a corporation would be liable for crimes of intent. This is the position all over the world where rule of law supreme.
The English law was set out in H L Bolton (Engg) Ltd vs T J Graham in the following words: “A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability, the fault of the manager will be the personal fault of the company.”
The Indian courts have also followed the same principles. The leading judgment of recent times is in the case, Standard Chartered Bank vs Directorate of Enforcement. The Constitution bench of the Supreme Court stated in that decision that “there is no dispute that a company is liable to be prosecuted and punished for criminal offences. A corporation may be subject to indictment or other criminal process, although the criminal act is committed through its agents.”
But since a corporate entity has no body like humans, it cannot be imprisoned in serious crimes. “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 imprisonment. Corporate bodies undertake activities that affect the life, liberty and property of the citizens. The corporate vehicle now occupies such a large portion of the industrial, commercial and sociological sectors that amenability of the corporation to criminal law is essential for a peaceful society with a stable economy. There is no immunity to the companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment and fine.”
However, acts of individuals in a company are subject to criminal law and they can be sentenced to imprisonment for cheating, conspiracy and misappropriation. Such persons, who lack political clout, are seen suffering prosecution almost every day in a scam-ridden society.
