Open Access Research Article
A DETAILED STUDY OF EVOLUTION OF CORPORATE CRIMINAL LIABILITY
Published Paper
Article Details
A DETAILED STUDY OF EVOLUTION OF
CORPORATE CRIMINAL LIABILITY
AUTHORED BY - KASHISH
VAISHNAVI & MANSI
Abstract:
A sophisticated method of committing
crimes has been made possible in today’s world with the advancements in science
and technology, which has rendered the world limitless and out of bounds hence
enabling the corporate transactions and dealings to become globalized with the
use of communication networks. To characterize the development and evolution of
the idea of corporate criminal liability in India is basically a protracted effort
by the judiciary to impose obligations on non-fictitious people. This research
paper aims to analyse in depth the seminal legal decisions that helped to shape
and further evolve the idea of corporate criminal liability. Furthermore, the
paper will also highlight the pertinent legal frameworks and legislations
governing the corporate related crimes and fraudulent activities with the help
of relevant case laws to critically analyse the notion.
CHAPTER - I
1.1)
Introduction:
Globalisation, liberalism, and
privatisation have rendered corporations crucial to society, resulting in
massive corporate growth. Companies are treated differently by law than their
representatives. Corporations and businesses have become more dangerous and
violent criminals than individuals. Thus, how can courts punish criminal
corporations? One of the finest examples of how common law theories determine
corporate liability is vicarious liability under tort law, which makes
corporations accountable for employee torts. Common law India may answer
corporate tort liability concerns. However, corporate criminal liability
persisted. Corporations are legally distinct from persons. In addition to being
a legal entity, a firm has social and public duties and is used by the law to
meet social and economic needs. Companies should be criminally responsible for
corporate crimes. Corporate criminal liability covers a company's actions and
omissions. Some major rulings clarified corporation criminal liability.
A minor common law notion that
masters were criminally accountable if their servants produced a public
nuisance led to corporate criminal liability. That approach was expanded to
include complete corporation criminal liability by judicial interpretation of
common law and statute legislation, not legislative action. Countries with
civil law and no judicial interpretation have never considered corporate crime.
Whatever its merits, corporate criminal liability will undoubtedly expand.
Corporate criminal liability is
complicated and varied, drawing attention from law, business, and ethics.
Modern society values companies, so it's necessary to consider how they may be
held accountable. Corporate criminal liability lets businesses be punished like
individuals. This concept has changed over ages due to social, economic, and
legal changes. Corporate criminal liability's complex history, importance, and
ethical issues are examined in this research. This article investigates how
this legal concept has changed and how it affects corporate liability,
accountability, and justice today.
1.2)
Research Objective:
In this research paper, it has
essentially tried to provide a detailed study of the evolution of Corporate
Criminal Liability hence establishing the same with a critical analysis of
relevant case laws for the same. The main objective of the paper shall be to
derive :
·
The requirement and significance of the concept of
corporate criminal liability.
·
The extent to which a company or corporation shall be
liable for the repercussions of the
acts done by them.
·
Detailed analysis of the evolution of corporate
criminal liability and its application and impacts on the present world.
·
Interpretation of the legal framework on the said
concept with inclusion of various case laws and their analysis establishing the
variance.
1.3)
Research Methodology:
The organized method of gathering
data from multiple and various sources, interpreting it, evaluating it, and
further drawing a conclusion is known as research methodology. This paper includes
the usage of doctrinal method which entails diving deeply into the legal
sources for gaining insight from various case laws, contemporary and relevant
statutes, precedents, and research papers. The doctrinal method comes to its
conclusion by observation, inquiry, interpretation, surveys, etc. The topic of
"A Detailed Study of Corporate Criminal Liability" was the subject of
secondary research and analysis. An examination of case laws, statutes, and
research papers was done. The following legal tools and websites have been
utilized for research.
1. "SCC (Supreme Court
Cases)": This website enabled to
explore specific case laws that were relevant to the study themes and had a
significant impact on how the secondary research was developed.
2. Jstor: This website was important in the creation of
the research report. The benefits of it were most significant for the
Literature Review of this paper.
1.4)
Hypothesis:
1.
The
historical development of corporate criminal liability showcases a convergence
between the legal traditions of common law and civil law, so contradicting the
conventional understanding of their difference in this particular domain.
2.
The
prevalence and significance of corporate liability has seen a notable rise in
recent decades, mostly attributed to the escalating intricacy of corporate
structures and the global expansion of commercial operations.
3.
The
negative perception around corporate criminal liability significantly
influences the standing and economic sustainability of corporations, hence
impacting their long-term viability and shareholder value.
1.5)
Literature Review:
The issue of corporate criminal
liability has been a topic of ongoing academic investigation and legal
discussion, with a diverse range of literature examining its objectives and
ramifications. This framework involves the imposition of criminal liability on
corporations for the conduct of their employees, a concept that has its origins
in legal precedent and continues to be upheld in contemporary legal systems.
The current body of literature exhibits a division of opinions, with proponents
highlighting the practical advantages of strong enforcement, gathering of
information, and deterrent, while detractors raise concerns over the complex
procedural aspects and potential negative consequences on social perception.
The paper authored by Mr. Khanna offers a contemporary analysis of the
underlying rationale behind the imposition of criminal liability on businesses.
It puts up a proposition for a potential shift in the prevailing paradigm by
calling for a modified version of corporate civil liability.
The article investigates the
historical and theoretical aspects of corporate liability in both German
and Anglo-American contexts. The prevailing discourse often portrays the
evolution and contention of these two legal systems during the 19th century.
This essay critically analyses a complex comparison study in order to question
established conventional beliefs. The author demonstrates that the concept of
corporate criminal liability was extensively acknowledged and embraced across
both common law and civil law systems during the Middle Ages. The essay
presents evidence that demonstrates the existence of criminal liability for
firms in England prior to 1800 and in Germany after to 1800, thereby
challenging the prevailing notion. The ongoing examination of historical
trajectories and legal theories pertaining to corporate liability contributes
to the academic discussion around this significant area of corporate law and regulation.
·
13 Improving the Effectiveness of Corporate Criminal Liability: Old
Challenges in a Transnational World – By Jonathan Clough[3]
The book authored by Jonathan Clough
offers a thorough analysis of the dynamic terrain of corporate criminal
liability within the framework of an ever-expanding globalised society.
Clough's publication provides a comprehensive examination of the various
obstacles and intricacies encountered by legal frameworks in their endeavour to
establish corporate responsibility for their conduct. Clough's analysis delves into the
historical and contemporary dimensions of corporate criminal liability. The
objective of this study is to elucidate the challenges and limitations
associated with this particular legal paradigm. In order to address the issue
of corporate criminal liability, Clough suggests using various enhancements.
The book places significant attention on transnational concerns related to the
regulation of multinational firms, highlighting the imperative for
international collaboration. Clough's contributions are of immense value to
scholars, professionals, and policymakers with an interest in the fields of
corporate law, corporate governance, and the assessment of corporate criminal
liability within the contemporary global context.
The issue of corporate criminal
liability has been a subject of ongoing debate within the legal and academic
communities. In the present study, Mr. Khanna proposes the implementation of
legal accountability for instances of employee misconduct within corporate
entities. The present paper examines the discourse around corporate
accountability by conducting a comprehensive analysis of the historical and
legal aspects of corporate criminal liabilty. Lastly, the research assesses Mr.
Khanna's revised corporate social responsibility (CSR) plan. The Evolution of
Corporate Criminal Liability In accordance with common law principles, firms
are held accountable for instances of employee or shareholder misconduct. For a
considerable period of time, businesses have been held liable for the criminal
actions committed by their agents through the legal concept of vicarious
responsibility. The emergence of corporate criminal liability can be attributed
to the intersection of philosophy, legal concepts, and norms. The current state
of the law Contemporary legal frameworks regulate economic behaviour by use of corporate
criminal liability. Companies may face allegations of engaging in environmental
and financial misconduct. The reconsideration of this worldview is necessitated
by a multitude of causes. The current discourse revolves around the proposition
of holding companies accountable for illegal actions, and Mr. Khanna's article
effectively elucidates the rationale for this perspective.
The reconsideration of corporate
liability has emerged as a critical topic in current legal and ethical
dialogues. Conventional conceptions of corporate liability frequently provide
legal protection to organisations, even though they may have been engaged in
activities that could cause harm. Academic scholars call for a fundamental
change in perspective, emphasising the need for a comprehensive and nuanced
comprehension of corporate responsibility. This reassessment necessitates a
concentration on the individual responsibility within organisations,
highlighting the significance of executives and decision-makers in influencing
corporate conduct. Moreover, there is a growing emphasis on evolving legal
frameworks and ethical considerations that highlight the significance of
corporate social responsibility. These frameworks encourage a more
comprehensive perspective on accountability, extending beyond mere financial
penalties to incorporate the broader societal and environmental repercussions.
Therefore, it is imperative to reassess corporate liability in order to promote
ethical and sustainable business practises in the contemporary day.
·
A Pragmatic
Critique of Corporate Criminal Theory: Lessons from the Extremity -by James G. Stewart[6]
The literature surrounding corporate
criminal liability engages in heated debates centered on three key inquiries.
Firstly, it questions the rationale behind applying a criminal justice
framework designed for individuals to corporate entities. Secondly, it
evaluates the utility of corporate criminal liability compared to civil
remedies. Lastly, it probes whether it offers additional value beyond holding
corporate officers individually responsible. This article critiques these
debates using international criminal justice cases, highlighting their
inadequacies in addressing issues like resource pillaging and complicity in
arms supply. It underscores analytical deficiencies rooted in a narrow
jurisdictional focus, ethnocentrism, and insufficient consideration of the
global impact of corporate crime, advocating for a more pragmatic and inclusive
approach.
The notion of corporate criminal
liability has generated significant discourse within the realm of legal
academia, particularly with regards to its potential negative ramifications.
The article examines the aforementioned debates, revealing a multitude of concerns.
Critics contend that the imposition of criminal liability on corporations could
potentially foster a counterproductive array of behaviours, including the
accidental promotion of the concealing of corporate misconduct and the
encouragement of scapegoating practises targeting subordinate personnel. The
existing body of literature delves deeper into the effectiveness of corporate
criminal sanctions in creating deterrence and raises questions about their true
ability to hold firms accountable or if they just function as symbolic
gestures. Furthermore, this study delves at alternative methodologies, such as
heightened regulatory measures and individual executive responsibility, in the
pursuit of more efficient and equitable procedures to tackle corporate
wrongdoing.
CHAPTER – 2
2.1) Analysis:
The progression of corporate criminal
liability is an ever-changing and dynamic phenomenon that has experienced
substantial transformations throughout its historical development. The analysis
of this evolution necessitates the examination of pivotal historical
advancements, current obstacles, and prospective future trajectories. This
paper enhances our understanding of corporate criminal liability's historical
and contemporary aspects and helps policymakers, legal practitioners, and
scholars navigate corporate accountability in a changing global landscape.
The historical evolution of corporate
criminal liability demonstrates a longstanding acknowledgement of the necessity
to impose accountability on corporations for their conduct. Corporate criminal liability
has undergone a transformative journey, originating from its mediaeval legal
origins and subsequently evolving within the frameworks of both common law and
civil law traditions. This evolution has been shaped by shifts in legal
doctrines and society norms, reflecting the dynamic nature of this concept. The
presented historical viewpoint poses a challenge to the prevailing narrative
that commonly distinguishes between states based on common law and civil law
systems. It brings attention to the historical recognition of corporate
entities' criminal liability, which was shared across different legal
traditions.
Thus, the concept of corporate
criminal liability can be inferred from the two sections of the Indian
Penal Code including section 11 which basically gives the definition of the
term ‘person’ and section 2 which makes every person liable to punishment for
any violation of the IPC. There are a few theories that exist in order to help
detect a corporate criminal liability including the vicarious liability theory
and identification theory. Qui facit per alium facit per se, which
implies that he who acts through another acts himself, and Respondent Superior
which implies to let the master answer, form the cornerstone of the doctrine of
vicarious liability. There are two stages that must be taken to implement this
theory which includes what constitutes the actus reus of the acts performed by the employee and that due to the
employer-employee connection, the Company must be held liable for the decided actus
reus. On the other hand, the identification theory implies that a company
basically functions like the brain, nerves, and hands of a human body and that
the Company's managers and directors represent the organization's guiding
principles and exert control over other employees' behaviour. The Company's
hands are represented by its employees. They are merely the Company's
subordinates and agents; they have no authority over it and therefore, the
managers' mental condition mirrors that of the company. Initially, the Indian
judiciary held the view that a company could not be held criminally liable due
to its status as a legal entity, which inherently lacks the cognitive ability
to engage in criminal behaviour, sometimes referred to as "mens rea."
The case of Sunil Banerjee vs. Krishna Chandra Nath[8]
established that the bank in question did not possess the requisite
mens rea, or culpable mental state, sufficient to be charged with the offence
of cheating. The bank, in its abstract configuration and organisational
framework, possesses an inherent immunity from legal repercussions for engaging
in fraudulent practises owing to its non-physical nature. In the case of State
of Maharashtra v. Syndicate Transport [9] which pertains to a legal
dispute within the jurisdiction of Maharashtra, the Court rendered a verdict
stating that a firm cannot be held liable for prosecution in cases involving
offences that entail penalties of corporal punishment or imprisonment, such as
perjury, bigamy, or rape. This phenomenon arises from the inherent nature of
corporations, which renders them immune to incarceration, given their legal
status as entities established by statutory provisions. With the exception of
specific situations, it is generally considered acceptable to assign legal
liability to a corporation for the illicit actions or omissions carried out by
its directors, authorised agents, or employees, regardless of their intention,
as long as they have acted or claimed to act within the boundaries of their
authority granted by the corporate entity or in pursuit of its goals.
The English case of Tesco
Supermarkets Ltd. vs. Nattras[10]
which is a landmark judgement where the company discounted washing
powder on store posters. When low-priced items sold out, shops replaced
them with standard items. Management failed to remove advertisements, so a
client paid more. Tesco was charged with misleading advertising under the 1968
Trade Descriptions Act for misrepresenting washing powder prices. The
corporation said it took all essential safeguards and should not be accountable
for the manager's actions. An independent store manager could not hold the
Corporation accountable for the acts, the Court ruled. A company runs through
live persons because it lacks cognitive and physical skills, the Court said.
Only when a person has responsibility for the Company or a specified area of
its activity can their actions and mental state be linked. Although criminal
breaches typically occur at lower organisational levels, this strategy is
limited because it applies primarily to upper management.
Consequently, the assigning of
liabilities to larger corporations becomes unattainable.
In order to establish the Company's
liability for crimes, it must be demonstrated that the individual in question
acted on behalf of the Company rather than in a personal capacity.In the case
of Kalpanath Rai versus the State[11]
a notable judicial decision was rendered by the court. This case
was situated within the scope of the Terrorist and Disruptive Activities
(Prevention) Act of 1987. The appellant, together with a representative from
the company M/s. East West Travel and Trade-Links Ltd, faced allegations of
providing shelter to individuals engaged in acts of terrorism. The Court in
this case made the decision that the Company, as a recognised legal
entity, does not possess the mental state of mens rea. Therefore, the court
examined the matter within the context of the Terrorist and Disruptive
Activities (Prevention) Act, which did not include any such provisions for
inflicting liability on the Company for any act done by its officer but
thereafter, the Court submitted that, in accordance with the laws such as the
Essential Commodities Act and the Prevention of Food Adulteration Act that even
corporations can be held equally liable for the conduct of persons holding the
managerial positions in the company. Therefore, the development of corporate
criminal liability in the court system is evident through these cases.
Furthermore, in the case of The
Assistant Commissioner versus Velliappa Textiles Ltd. and Ors.[12]the
corporation in question was subjected to prosecution for contraventions
specified in Sections 276C, 277, and 278 of the Income Tax Act. Both
imprisonment and a fine are prescribed as penalties for each of these sections.
The judgement of the Court has established that a corporation is not
susceptible to prosecution for infringements delineated in Sections 276C, 277,
and 278 in conjunction with Section 278. This phenomenon arises from the
requirement in each of these provisions for the imposition of a compulsory
prison term alongside a monetary penalty, so eliminating any choice for the
Court to exclusively impose a fine. The Court reiterated that the judiciary
bears the duty of determining and construing the law, as opposed to
participating in legislative endeavours. The resolution of the issue may solely
be attained via the intervention of the legislative entity.
In the case of Standard
Chartered Bank and Others versus Directorate of Enforcement and Others[13]
the Court was confronted with the issue of whether it is legally
permissible to hold a company or corporate entity accountable for actions that
carry a mandatory prison sentence. The Court determined that there exists a
firmly established principle that a corporation can be held criminally
accountable and subsequently prosecuted for offences. This is in contrast to
the viewpoint that argues that since a corporation cannot be subjected to
imprisonment, it should therefore be exempt from prosecution for more serious
offences. Such an exemption would result in a complete miscarriage of justice
and undermine the legislative intent. Hence, in such cases, the judiciary
possesses the authority to exercise discretion by opting to levy fines
exclusively, while disregarding the imposition of jail. These behaviours
directly affect life, liberty, and property rights. Companies must be held
accountable under criminal law to promote peace and a stable economy.
In the case of Iridium India
Telecom Ltd. vs. Motorola Inc and Ors.[14] ,
the court ruled that firms and corporate houses can have mens rea and cannot
claim immunity from criminal prosecution on the basis of its absence in all
rule-of-law states. The Court also found that a group that guided company
business having criminal intent, body corporate would be imputed.
If looked into the various amendments
regarding Corporate Criminal Liability in the Indian scenario, it can be noted
that the 41st Report of the Law Commission, issued in 1969, proposed a
modification to section 62 of the Indian Penal Code which suggested
amendment of the following provision by adding a few lines stating that in
cases where the offence is solely punishable by imprisonment or
imprisonment along with a fine, and the offender is a company, other body
corporate, or an association of individuals, the court shall have the authority
to impose a fine as the sole form of punishment. The Parliament however did not
provide any response to this recommendation but later on in 1972 according to
the 47th Report of the Law Commission, it was noted that numerous statutes
related to economic violations mandate the imposition of imprisonment as an
obligatory penalty. In situations when the convicted party is a business, this
provision becomes impractical, and it is preferable to establish that in such
instances, the court has the authority to levy a monetary penalty. This
challenge may manifest itself inside the framework of the penal code as well,
although it is anticipated to occur with more frequency in relation to economic
legislation. Consequently, it is now suggested that the subsequent stipulation
be incorporated within the penal law, specifically designated as Section 62
Which includes the term "corporation" that refers to
an entity that has been legally formed as a company or other type of corporate
body. This definition include not only firms, but also any other associations
comprised of persons.
In addition, another legislation
pertaining to Corporate Criminal Liability is the Essential Commodities Act of
1955. Section 10 of this act specifically addresses violations committed by
corporations. The court possesses the jurisdiction to divulge the identity and
whereabouts of the convicted corporation, the type of offence committed, the
conviction itself, and any additional relevant particulars. This disclosure may
occur through various channels, including newspaper publication or other
methods as directed by the court, with the corresponding expenses being assumed
by the company. The legislative framework known as the Prevention of Food
Adulteration Act of 1954 has many measures pertaining to the control and
management of food adulteration. Section 17 of the aforementioned Act
specifically applies to the transgressions committed by corporate entities. In
the event that the firm is determined to have engaged in the act, it will be
deemed culpable and be subjected to legal processes and associated fines.
Additionally, it should be noted that a corporation with various establishments
or branches has the option to designate distinct individuals under this
particular sub-section. The person nominated for each establishment, branch, or
unit is considered responsible for that establishment, branch, or unit. The
case of R.Banerjee vs. H.D. Dubey[15]
established that if a company commits an Act offence, the person nominated
under sub-section (2) as responsible for its business conduct will be punished.
This study accepts that corporate
criminal liability may discourage and punish, but its effectiveness is
questioned. This evaluation emphasises balancing responsibility, company
innovation, and growth. Global corporate criminal liability is key to its
growth. Global corporations need global standards and processes to handle
misbehaviour claims in several jurisdictions. Accountability requires
international cooperation because the global economy is interconnected. The
paper suggests an integrated approach to corporate criminal liability, focusing
ethical corporate cultures and robust compliance procedures to eliminate
wrongdoing and encourage accountability. This strategy covers punishment,
prevention, compliance, and restorative justice. Prevention is better than
punishment, it suggests that culture, ethics, and compliance will shape
corporate liability.
CHAPTER-3
3.1) Conclusion:
Finally, corporate criminal liability
shows how law, ethics, and business intersect. This study investigated
corporate criminal liability's past, present, and future. The investigation
showed many major concerns, including corporate criminal liability's longevity
and the necessity to adjust to changing business activity. History says common
and civil law established corporate criminal liabilty in the Middle Ages. While
companies fix their faults, criminal responsibility rises. A study evaluated
corporate wrongdoing and legislative procedures to ensure corporate
responsibility. This method's deterrence, unjust firm fines, and unintended
harm to non-participants have been questioned. Commercial phenomena Corporate
criminal liability demands worldwide cooperation due to globalisation.
International trade improves jurisdiction, enforcement, and regulation.
Globalisation makes corporate
criminal liabilty global. Business ethics and compliance are part of the
comprehensive strategy. Businesses must support law and ethics. Prevention is
often better than punishment, and this proactive approach supports that.
Transnational concerns require international cooperation and government,
regulatory, and commercial coordination. International policies and
institutions are needed to hold firms accountable. Finally, evolving corporate
criminal liability contrasts responsibility with economic innovation. The
globalised economy and evolving corporate landscape will shape the old notion.
Legal, legislative, and corporate institutions balance accountability with
creativity.
Assess and improve company
misbehaviour prevention. Explore alternative responsibility frameworks, focus
prevention and compliance, and improve global cooperation. Corporate criminal
liability should penalise misbehaviour and foster accountability, connecting
business and society. Corporate criminal liability improves ethics, fairness,
and accountability.
[1] Frederic
P. Lee, Corporate Criminal Liability, 28 Columbia Law Review 1 (1928).
[2] Markus D.
Dubber, The comparative history and theory of corporate criminal liability,
16 New Criminal Law Review 203–240 (2013).
[3] Jonathan Clough, 13 Improving
the Effectiveness of Corporate Criminal Liability: Old Challenges in a
Transnational World XXXX (ANU Press 2017)
[4] V. Khanna, Corporate
Criminal Liability: What Purpose Does It Serve?, 109, no.7 The Harvard
Law Review Association 58, XXXX (1996).
[5] Gregory L. Diskant, Rethinking
Corporate Criminal Liability, 34, no.2 American Bar
Association 5, XXXX (2008).
[6] Stewart, James G. “A Pragmatic Critique of Corporate
Criminal Theory: Lessons from the Extremity.” New Criminal Law Review: An
International and Interdisciplinary Journal, vol. 16, no. 2, 2013, pp. 261–99.
[7] Arlen, Jennifer. “The Potentially Perverse Effects of
Corporate Criminal Liability.” The Journal of Legal Studies, vol. 23,
no. 2, 1994, pp. 833–67.
[8] Sunil Banerjee vs. Krishna Chandra Nath
AIR 1949 Cal 689.
[9] State of Maharashtra v. Syndicate
Transport AIR 1964 Bom 195
[13] Standard
Chartered Bank and Others versus Directorate of Enforcement and Others (AIR 2005 SC 2622)
Article Information
A DETAILED STUDY OF EVOLUTION OF CORPORATE CRIMINAL LIABILITY
Authors: KASHISH VAISHNAVI, MANSI
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/05/13
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
All research articles published in International Journal for Legal Research and Analysis are open access and available to read, download and share, subject to proper citation of the original work.
Disclaimer: The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of International Journal for Legal Research and Analysis.