Open Access Research Article
THE CORPORATE VEIL: EXPLORING CORPORATE CRIMINAL LIABILITY IN INDIA THROUGH JUDICIAL PRISMS
Published Paper
Article Details
AUTHORED BY - SAI MANI AMBATI
Abstract
Complexity of Corporate Criminal
Liability in India is explored in this article via examples of veil piercing
and reverse veil piercing. It examines the intricacies of holding businesses
liable while analyzing legal precedents, taking into consideration elements
like mens rea and limitations of responsibility. Examining the justifications
for breaching the corporate veil, examples of tax evasion, unified entities,
public interest, and fraud prevention are provided. The changing picture is
underscored by cases where the corporate veil was removed to impose criminal
culpability. The paper also examines the distinctive method used by Indian
courts to implement the idea. Although reverse piercing is rarely employed, its
possible effects are considered. To balance corporate responsibility and legal
requirements, the paper concludes that consistent regulations are necessary.
Corporate Criminal Liability is being
scrutinized on a global scale for keeping businesses accountable. In India,
discussions about prosecuting companies, lifting the veil, and a novel idea of
reverse piercing are sparked by this difficult issue. This article explores
Indian Corporate Criminal Liability by examining significant instances, grounds
for veil piercing, and reverse piercing. Through a legal analysis, it reveals
how corporate accountability is changing. It identifies legislative obstacles
and suggests fixes, particularly for environmental justice, while promoting
all-encompassing corporate responsibility improvement.
“Piercing the corporate veil to
subject corporations to criminal liability” - WordPress the debate about unveiling the
corporate veil and corporate criminal culpability is clear and explores the
conflict between a corporation's identity and avoiding criminal accountability.
[1]Similar
to this, the research “Corporate Criminal Liability - A Critical Legal
Study”- Acclaims explores how to hold corporations responsible. [2]India's
corporate veil theory is examined in “Pardey ke Peechey kya hai” by Kunal
Bhardwaj and Tharun Chowdhary (Manupatra), which supports acknowledging
reverse piercing.[3] To fill
up gaps in empirical understanding, the research uses data collecting and
quantitative analysis as its technique.
Criminal responsibility for corporate
acts and those of its personnel is referred to as corporate criminal liability.
[4]While
detractors claim that penalizing businesses for crimes is ineffectual since
people are responsible for the crimes [5]and
stakeholders bear the responsibility, court instances show the intricacies.[6]
In Maharashtra High court held it is
impossible to prosecute businesses for crimes that carry a risk of physical
harm or incarceration since such a sentence cannot be properly inflicted on a
business.[7]
In Velliappa Textiles Ltd.
Case, Court used legal maxims “Lex non cogit ad impossibilia” and
“Impotentia excusat legem”[8] to
decide that the business could not be punished under particular ITA portions
demanding both a fine and incarceration. Court was unable to order detention
since it lacked a physical body. When there are several viable readings, the
court emphasized giving preference to those that prevent penalty.[9]
In Khosla v. Venkatesan,
both the were indicted with fraud. This case shows that showing “mens rea” and
having the authority to execute an imprisonment sentence are requirements for
corporate prosecution.[10]
Allahabad Court ruled, a corporation
shall not be imprisoned since it is a juristic person, although it can be
penalized if both punishments are mandated. Excess is prohibited, but
under-prescription might not necessarily be; the legal sentence corresponds to
the recommended punishment. [11]
According to Iridium Telecom
Ltd v. Motorola Co., companies can be held criminally accountable for
crimes committed in the course of conducting business by those in charge of
them, giving them the ability to “think and act” on their behalf.[12]
The Supreme Court rejected the idea
that such offences insulate corporations from prosecution in Standard
Chartered Bank and Ors. case clarifying that companies can be penalized
for offences requiring imprisonment and fine.[13]
In conclusion, Corporate Criminal
Liability involves holding corporations accountable for their actions,[14]
considering legal complexities, such as the inability to imprison a company [15]and
the requirement of “mens rea.” [16]Courts
recognize that corporations, through individuals in control, can be criminally
liable and subject to fines for certain offenses.[17]
Indian legal processes, notion of
breaching corporate veil is governed by certain rules, but with a case-specific
approach. There are several reasons to use this doctrine:
·
To combat evasion of tax: [18]
The Supreme Court in Sri Meenakshi Mills Ltd. Case, supported the
Income Tax department's right to expose business structures used for evasion of
tax [19]in
Vodafone International Holdings case[20]
·
Unified Entity of Associated Companies[21]:
Renusagar Power Co case, when related companies operate as
one unit. For the purpose of changing the duty rate, two such corporations were
regarded as one.[22]
·
True Transaction Nature Revealed:[23] Courts remove the curtain to reveal
concealed transactions. Real parties to a sale were revealed in Bharat
Coking Coal Ltd case[24].
In Vodafone International Holdings case it was decided to
lift the veil on tax fraud by abusing the judicial system.[25]
·
Upholding Public Interest: [26]In
instances involving the public interest, Gotan Lime Stone case,
the theory combats corporate attempts to circumvent the law. [27]
·
Preventing fraud:[28] In Skipper Construction
Company case, to hold people accountable when a corporate name conceals
fraud.[29]
Shell company status was rejected in OIS Advanced Technology Pvt. Ltd.
case, which placed responsibility on the controlling persons.[30]
·
Government corporation Violations[31]: Bihar high court, held that the veil
is breached when a government corporation opposes the public interest.[32]
·
Contempt of court: [33]Corporate
identity is utilized improperly to disobey court orders, as was the case in Kanwaljit
Kaur Bhasin and Ors. case[34]
These examples demonstrate how the
concept, with its application suited to specific case circumstances, plays a
part in maintaining fairness and openness in company operations.[35]
Criminal responsibility for dishonest
business practices is enforced under Section 542 of the 1960 Companies Act.
This clause enables the personal liability of wrongdoers for their corporate
conduct. In the famous case of In Re:Shri Ambica Mills Ltd. case,
court could reveal the genuine nature of business fraud, this idea was
affirmed.[36] This idea
was mirrored in a recent decision, Nutritek case, emphasized,
piercing corporate veil allows for remedies against the firm, even if
alternative remedies are available.[37]
Criminal culpability may be imposed in addition to civil or administrative
sanctions when it comes to criminal infractions.[38]
Due to courts' considerable
discretion in this evolution, there is ambiguity in the requirements for veil
piercing. Although ideas such as group firms, shell corporations, and alter ego
are suggested, their practical applications are unclear.[39]
The notion of breaching the corporate
veil has been inventively applied in Indian legal situations:
Delhi Court in Prem Lata Bhatia
case held, when a single proprietorship had become a private business
transferred leased property. Eviction was refused notwithstanding conversion
since possession essentially remained with the same person.[40]
In Singareni Collieries case,
Indian subsidiary utilized the expertise of its overseas parent to satisfy
tender requirements.[41]
The Hyderabad Court cut through the subsidiary's facade to determine the
parent's qualifying experience by citing New Horizons Limited v. UOI.[42]
The case of J.B. Exports Ltd.
v. Rajdhani Power Ltd expanded the scope of veil piercing in situations
that support growth. the Delhi High Court found JB Exports and BVM to be one,
exempting BVM from subletting costs.[43]
This theory is seldom ever used in
India. [44]As
seen in NEPC India v. SEBI, where (SAT) accepted concerns
regarding reverse piercing but did not address them[45],
courts have abstained from considering it. Reverse piercing has, however,
occasionally been vehemently argued[46],
notably in the case of SBI and others v. Kingfisher Airlines and
others, when a group of banks tried to collect debt from Vijay Mallya. Mallya's
controlling interests as the principal promoter, according to IDBI, made it
appropriate to attach his assets.[47]
Reverse piercing finds indirect use in the determination of criminal
responsibility attribution despite the absence of formal Supreme Court
instructions.[48] The
Supreme Court impliedly applied it in Iridium India Telecom
Ltd. case, allowing a person's mens rea, if they acted as an alter ego,
to be attributed to a company. [49]Aneeta
Handa & Ors v. God-father Travels reaffirmed, by stating that a
company may be subject to prosecution if the individuals in control of its
operations have criminal intent. Although criminal responsibility is
established, Indian legal system still lacks an acknowledgement of reverse
piercing.[50]
Intricate legal considerations
including mens rea, limited responsibility, and breaching corporate veil are
involved in holding companies criminally liable. To hold corporations
accountable, courts rely on principles like identification theory and alter
ego, are supported by pertinent case law. To ensure remuneration and corporate
responsibility, parent businesses be held accountable for subsidiary acts.
[51]“Piercing
the corporate veil” is used frequently, yet there aren't any established norms,
indicating necessity for uniform rules. [52]Collaboration
on a global scale helps harmonies methods. The development of corporate
liability law depends on finding a balance between responsibility and legal
certainty.
[1] (No date) Piercing the corporate
veil to impose criminal liability on Corporations. Available at: https://indiancaselaws.files.wordpress.com/2014/04/piercing-the-corporate-veil-to-impose-criminal-liability-on-corporations.pdf
(Accessed: 17 August 2023).
[2] (No date) Corporate criminal
liability a critical legal study - pen acclaims. Available at: http://www.penacclaims.com/wp-content/uploads/2019/03/V-Vijaya-Lakshmi.pdf
(Accessed: 17 August 2023).
[3] Manupatra (no date) Manupatra,
Articles. Available at: https://articles.manupatra.com/article-details/Pardey-ke-Peechey-kya-hai-A-Comprehensive-Analysis-of-the-Evolution-of-the-Corporate-Veil-Doctrine-in-India
(Accessed: 17 August 2023).
[4] Suri, P. (2022) The changing face
of corporate crime liability - directors and officers - India, The Changing
Face Of Corporate Crime Liability - Directors and Officers - India. Available
at: https://www.mondaq.com/india/directors-and-officers/1235108/the-changing-face-of-corporate-crime-liability (Accessed: 17 August 2023).
[5] (No date) Corporate criminal
liability a critical legal study - pen acclaims. Available at: http://www.penacclaims.com/wp-content/uploads/2019/03/V-Vijaya-Lakshmi.pdf
(Accessed: 17 August 2023).
[6] (No date a) Critical analysis of
doctrine of corporate veil - JETIR. Available at: https://www.jetir.org/papers/JETIR2207472.pdf
(Accessed: 17 August 2023).
[7] State of Maharashtra v. Syndicate
Transport, 1963 Bom. L.R, 197.
[8] Assistant Commissioner v.
Velliappa Textiles Ltd, (2004) 1. Comp. L.J. 21.
[9] Assistant Commissioner v.
Velliappa Textiles Ltd, AIR 2004 SC 86.
[10] A.K. Khosla v. S. Venkatesan, Cr
LJ. 1448, 1992.
[11] Oswal Vanaspati & Allied
Industries V State Of Uttar Pradesh (1993) 1 Comp. LJ 172.
[12] Iridium India Telecom Ltd v.
Motorola Incorporated Co, (2011) 1 SCC 74.
[13] Standard Chartered Bank and Ors.
v. Directorate of Enforcement and Ors , (2005) 4 SCC 530.
[14] Chauhan, Madhvender, “Corporate
Personality & Piercing of the Corporate Veil”, available at https://articles.manupatra.com/article-details/To-Pierce-or-not-to-pierce-A-General-survey-of-Doctrine-of-piercing-the-corporate-veil (Accessed: 17 August 2023).
[15] Anonymous, “Behind the Corporate
Veil: Using Corporate Entities For Illicit Purposes”, OECD REPORT ON THE MISUSE
OF CORPORATE VEHICLES FOR ILLICIT PURPOSES (2001) at p.7 also available at https://www.oecd.org/daf/ca/behindthecorporateveilusingcorporateentitiesforillicitpurposes.htm (Accessed: 17 August 2023).
[16] The doctrine of lifting the corporate
veil and the judicial trend in determining the criminal liability of
corporations (no date) Indore Institute Of Law. Available at: https://thelegalvoiceofindiaiil.com/volume-7/the-doctrine-of-lifting-the-corporate-veil-and-the-judicial-trend-in-determining-the-criminal-liability-of-corporations/
(Accessed: 17 August 2023).
[17] Khanna, V.S., 1995. Corporate
criminal liability: What purpose does it serve. Harv. L. Rev., 109, p.1477.
[18] Tim Prudhoe and Jessica Notebaert,
Piercing the Veil-An American Introduction, Trust & Trustees, Vol. 16, No.
9 (2010).
[19] Commissioner of Income Tax v. Sri
Meenakshi Mills Ltd., Madurai, MANU / SC / 0138 / 1966, Paragraph 13.
[20] Vodafone International Holdings BV
v. Union of India, MANU/SC/0051/2012, Paragraphs 167, 168.
[21] Banks To File Objections To
Heineken Impleadment Plea, NDTV, June 22, 2016, https://www.ndtv.com/business/banks-to-file-objections-to-heineken-impleadment-plea-1421817 Accessed: 17 August 2023).
[22] State of UP v. Renusagar Power Co,
MANU/SC/0505/1988, Paragraph 68.
[23] im Prudhoe and Jessica Notebaert,
Piercing the Veil-An American Introduction, Trust & Trustees, Vol. 16, No.
9 (2010).
[24] Subhra Mukherjee v. Bharat Coking
Coal Ltd, MANU/SC/3328/2000, Paragraphs 10,11.
[25] Vodafone International Holdings BV
v. Union of India, MANU/SC/0051/2012, Paragraphs 167, 168.
[26] Home (2023) Journal on
Contemporary Issues of Law. Available at: https://jcil.lsyndicate.com/
(Accessed: 17 August 2023).
[27] State of Rajasthan and Ors. vs.
Gotan Lime Stone Khanji Udyog Pvt. Ltd. and Ors, MANU/SC/0058/2016, Paragraph
26.
[28] Naman Kamdar & Akash
Srinivasan, Solving the Bad Loan Crisis in the Unconventional Way: Is Reverse
Piercing the Corporate Veil a Solution? 12 NUJS L. Rev. 2 (2019).
[29] Delhi Development Authority v.
Skipper Construction Company (P) Ltd. and Ors, MANU/SC/2416/1996, Paragraph 27.
[30] OIS Advanced Technology Pvt. Ltd.
v. State of NCT of Delhi, MANU/DE/0167/2020, Paragraphs 24,25.
[31] Suri, P. (2022) The changing face
of corporate crime liability - directors and officers - India, The Changing
Face Of Corporate Crime Liability - Directors and Officers - India. Available
at: https://www.mondaq.com/india/directors-and-officers/1235108/the-changing-face-of-corporate-crime-liability (Accessed: 17 August 2023).
[32] Kapila Hingorani v. State of
Bihar, MANU/SC/0403/2003, Paragraphs 25,26,27,30,31.
[33] (No date) Corporate criminal
liability a critical legal study - pen acclaims. Available at: http://www.penacclaims.com/wp-content/uploads/2019/03/V-Vijaya-Lakshmi.pdf
(Accessed: 17 August 2023).
[34] Jyoti Limited vs. Kanwaljit Kaur
Bhasin and Ors, MANU/DE/0038/1987, Paragraph 21,22,30.
[35]
Nicholas B. Allen, Reverse Piercing of the Corporate Veil: A
straightforward path to justice, Number 3 Volume 85 Article 6, St. John's Law
Review (Summer 2011), https://scholarship.law.stjohns.edu/cgi/viewcontent.cgi?article=5588&context=lawreview.
[36] In Re: Shri Ambica Mills Ltd., Ex
... vs Unknown, 1986 59 CompCas 368 Guj
[37]VTB Capital v. Nutritek, [2012] EWCA Civ 80.
[38] Niranjan V., “VTB Capital: The
Consequences of Lifting the Corporate Veil”, available at https://indiacorplaw.in/2012/09/vtb-capital-consequences-of-lifting.html
[39] Harff v. Kerkorian, 324 A.2d 215,
200 (Del. Ch. 1974).
[40] Prem Lata Bhatia v. Union of
India, MANU/DE/8446/2006, Paragraphs 23,24,25.
[41] Prasad - Sushee Jnt. Venture vs.
Singareni Collieries Co. Ltd, M.D., Khammam and Ors, MANU/AP/0585/2015,
Paragraph 35.
[42] New Horizons Limited v.UOI, MANU /
SC / 0564 / 1995, Paragraph 43.
[43] J.B. Exports Ltd. v. BSES Rajdhani
Power Ltd, MANU/DE/0880/2006, Paragraphs 23,26.
[44] 12 NUJS L. Rev. 2 (2019), NUJS Law
Review http://nujslawreview.org/wp-content/uploads/2019/12/12-2-Naman-Kamdar-Akash-Srinivasan-1.pdf (Accessed: 17 August 2023).
[45] NEPC India Ltd. v SEBI (SAT,
Mumbai), MANU/SB/0050/2003, Paragraph 20.
[46] Koh Kim Teck v Credit Suisse Ag,
(2015) SGHC 52 (Singapore).
[47] SBI v. Kingfisher Airlines (DRT,
Bangalore), MANU/DR/0004/2017.
[48] Banks To File Objections To
Heineken Impleadment Plea, NDTV, June 22, 2016, https://www.ndtv.com/business/banks-to-file-objections-to-heineken-impleadment-plea-1421817.
[49] Iridium India Telecom Ltd. v
Motorola Incorporation and Others, (2011) 1 SCC 74 at paragraph 38.
[50] Aneeta Hada & Ors v.
God-father Travels, MANU/SC/0335/2012, paragraphs 23, 25.
[51] Cassels, Jamie, “The Uncertain
Promise of Law: Lessons from Bhopal”, 29 OSGOODE HALL L. J. 1 1991 at p.20.
[52] Chauhan, Madhvender, “Corporate
Personality & Piercing of the Corporate Veil”, available at http://jurisonline.in/?p=6237
Article Information
THE CORPORATE VEIL: EXPLORING CORPORATE CRIMINAL LIABILITY IN INDIA THROUGH JUDICIAL PRISMS
Authors: SAI MANI AMBATI
- Journal IJLRA
- ISSN 2582-6433
- Published 2023/09/06
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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