Abstract
Understanding the Dimension of Corporate Criminal Liability in India, US and UK
The paper deals with explaining the concept of corporate criminal liability, from the time when there was no concept to set the liability on the company for default and till present how this concept has developed. The researchers have discussed doctrine of alter ego in their paper to explain the criminal liability of the company whereby under this doctrine treat director/shareholder and company as same entity. The researchers have discussed various cases dealt by Supreme Court to explain the concept starting with Iridium India Telecom Ltd. v. Motorola Inc. and then reaching to in Sunil Bharti v. CBI. The changing dimension of law of law with the recent changes brought under Company Amendment Act 2019 and Company Amendment Act 2020 to meet the needs and bringing newer approach. The researcher has done a comparative study to explain the approach of corporate criminal liability in India, the UK and the USA to explain the concept of corporate criminal liability in these 3 countries
Introduction
In a primary legal system, it is usually seen that corporations face criminal liability which was not the case earlier where the corporation was not charged with any offence and it was only charged when there has been where there is any kind of public nuisance claims against the corporations.[1] The situation with US and UK was such that any charge of public nuisance was attached with the corporation which can occur because of their non-feasance [2] Thus it can rightly be said that an artificial agency working as the corporation would not be guilty for the omission of the corporation as there lies a duty on the corporation to do a certain task. After laying down this principle the court started to lay grounds for private commercial entities just like quasi-public corporations.[3] Later after laying down the precedent the corporation was started to be held liable for misfeasance even no intent is required.[4]
It was until 1909 that the US apex court was the 1st in setting up to hold the corporation liable for the crime that requires any kind of intent.[5] However, this version has received many criticisms at that point in time as it was being contrary to the spirit of criminal law where the whole idea is punishing the wrongdoer. The division being the liability of the corporation for the crime was that it requires criminal intent. In the case of Indian pretext, we see that here the apex court on various instances has restated that in case of criminal offence the legislature intends to prescribe punishment for criminal offence along with fine.[6]
However, in a situation where we are discussing companies at length, the several High Court are of the view that companies would not be necessarily liable for any kind of punishment as we cannot send the company behind the bars.[7] Then came the case adjudged by the apex court A.K. Khosla v. T.S. Venkatesan where the judiciary took the task to handle of not being able to attach the concept of mens rea with that of a company unless the statute demands it to exclude.[8]
Then came the case of Standard Chartered Bank and Ors. v. Directorate of Enforcement and Ors.[9] where the apex court took the stand to give clarity which was later followed by the legislature as we see for setting a company, criminally liable we have IPC, 1860, Section 27 of SEBI Regulation which lays down that a person who is in charge of the company would be liable for any misappropriate action committed by the company if he is an officer in charge for that company (as he is the person who is managing the company) adding to it Section 450 of Companies Act 2013 where fine is being imposed over the company and the officer who is responsible for any criminal action that company has done additionally Section 179 (1) of the Companies Act, 2013 it gives power to BoD of the company to do an act which is listed otherwise it would be liable for criminal charge it acts is done outside the ambit.
The researchers have focused on the idea behind the doctrine of alter ego and the validity behind its reverse application by leading up to statutory change. Where we have made an attempt to analyse the situation of corporate criminal liability in India, the UK, and the US so that we can get an idea of how other jurisdictions have been dealing with this situation.
Understanding the Position of Law
The actions taken by a company can be the reason where a company can be set liable for criminal liability if they are overriding their action, it is seen that single-judge bench in the case decided by the apex court in Assistant Commissioner, Assessment-II, Bangalore v. Messers Velliappa Textiles Ltd[10] where the technicality arises in the matter of criminal charge that arise against a company it was seen that position of Income Tax Act, 1961 the company have alleged to have violated which in this case private company violated and they were required to face imprisonment along with fine and from this case, it was derived that corporation would not be imprisoned as it is vividly clear that it does not have physical existence and here fine was being imposed along with physical imprisonment and thus one cannot be coupled with imprisonment one cannot be imposed over other we can thereby understand that by the meaning of the doctrine of alter ego which brings out an exception for a defaulted company which is separate from its director/shareholder whereas per doctrine of the corporate veil the director of the company can be said to be a single entity.
It was in the case of Standard Chartered Bank v. Directorate of Enforcement[11] where the apex court overruled the earlier reasoning given by the apex court with the present bench consisting of 3 judge bench the court held that legislature did not mean to penalize the corporation for a less serious offence and the statute will only punish for serious or grave offence however the same bench did not indulge much on whether the company was capable enough to develop mens rea it means that company could be charged off criminal offence and similarly it would be liable to pay fines. This was taken further taken by the apex court in Iridium India Telecom Ltd. v. Motorola Inc[12].15 and in Sunil Bharti Mittal v. CBI[13],16 paving the way for a more nuanced approach to corporate criminal liability and holding companies more accountable for their actions, while finding ways to address procedural concerns inherent to criminal law. This was an implicit acknowledgment of the fact that criminal laws could not apply to corporations in the same way that they did to individuals and was, therefore, an essential milestone in paving the way for a more sophisticated approach to corporate criminal liability in India. Procedurally, it solved the conundrum of whether fines could be imposed on companies to the exclusion of any imprisonment when the offence specified that both were required. While application of the principle of alter ego saw light in the Iridium judgment where the apex court held that if their criminal charge against a person and he or she is the same person is in charge of the company then the criminal charge can also be levied against the company.[14] This judgment can be credited because of setting up a corporate criminal liability on the company where reliance on the doctrine of attribution was made to determine the controller in charge of the company will be liable for all the wrongful action which is made by the company.
The judgment can be seen as highly significant however there are a few the questions that still needs clarity such as:
1. What if there is one person who is managing all the affairs in the company
2. What are the liabilities which the company owes in case of default by the officer?
3. What is the nature and extent of the liabilities that can be imposed on the company?
4. In case of default what can be done to recompensate the shareholder?
Later in the case of Sunil Bharti Mittal v. CBI, where the apex court after looking at the doctrine of alter ego as laid down in Iridium judgment in deciding corporate criminal liability where the liability of the company can be set on person managing the affairs of the company by using the principle of alter ego. In the above case, the principle of alter ego was applied in reverse order who is in control of the company however the respondent interjected to this by contending that offence requires malicious intention as here case was not strictly liable as the companies were acting through their directors and thus finally it is their mens rea which was involved and thus it needs to be scrutinized.[15]
The court then relied on the precedent established by the Iridium judgment which sets forth that when an offence that requires criminal intent is committed by the person in charge of the company then such criminal offence is also committed by the company. In this case, the reason for summoning the director was that they were managing the affairs in the company and this shows that will of the companies is represented by the director.
The court held that in instances where the company is accused party the director will be incriminated in the situation when there are sufficient evidences to show against the director which shows there is criminal intention in the act that has been committed or where the statute itself prescribes that vicarious liability arises for the act of the director though the company, in this case unnecessarily reliance is placed on doctrine of alter ego and finally the matter was set aside summoning the director, in this case, it can be seen that special court has failed to record its satisfaction against the director and that is why Supreme Court held that where an order fails.[16]
Changing dimension in Law
The setting up of corporate criminal liability by Indian courts has been changing with time a solution to meet the needs of the future can be attributing the liabilities to corporations and thus it needs a legislative backing and thus Indian legislature has tried in making the environment conducive by placing reasonable penalties for any wrongful act done by the company this is a step towards creating a balance to ensure business-friendly environment.
With the introduction of the Companies Amendment Act, 2019 the legislature brought several criminal offences under Companies Act 2013
under civil defaults, and in the year 2020 with Companies Amendment Act 2020, it brought certain principles such as:
1. Recategorizing 23 offences out of 66 compoundable offences.
2. Eliminating 7 compoundable offence.
3. Setting the limit over the punishment of 11 compoundable offence through fine by removing the provision of imprisonment.
4. The gravity of penalties was reduced with respect to 6 provisions that were recently passed in the Companies Amendment Act 2019.
5. Maintaining the status quo for the offences which are non-compoundable Acts.[17]
The motive of the government was clear from their initiative by the introduction of Companies Fresh Start Scheme, 2020 from which it can be seen that it pardoned the delay in filing with ROC in the case where the registrar has proceeded by instituting criminal proceeding against them another thing which is to be noted here is bringing of In-House Adjudication Framework[18] by placing an online platform that deals with a compoundable offence which replaced the previous process of adjudication under the National Company Law Tribunal.
The situation that was seen earlier was that penal consequence came for the company where they had to face loss of goodwill which led them to take criminal prosecution. And last, has to pay fines the reason why fines seem to be shortcoming is the company can violate the law even after paying fines and this can prove to be dangerous which can be much lesser than the violation which is committed by the company and thus now the non-judicial body is being set up known as Adjudication Authority under ROC or Registrar of Companies under the regulation of Central Government.
The certain relaxation which is brought by the Companies Amendment Act 2020 will make the executives of the company act in a protected manner where there are shielded from any kind of liability for any act which would be considered an offence. The steps taken in the form of CAA 2019 and CAA 2020 can be said to be positive changes in turning India business-friendly however hurdles remain in the execution. Although the classification of minor error into civil wrong can be seen as a welcome step and this could render them insufficient in acting in a deterrent way for a certain class of companies.
The dispute in relation to the corporation can be dealt with easily if the criminal offence which is present in the Act can be treated as a civil offence whereby the applicability of arbitration and mediation and by this way the offences would be redressed sooner for establishing the liability. In the case of Sunil Bharti Mittal, the two principles are laid down
1. When the statute itself clarify on the vicarious liability of the director for the act done by the company.
2. Enough evidence exists against the director to identify their role and criminal intention for the commission of the crime.[19]
And, thus legislature needs to find newer ways so that larger companies don’t get away from their liabilities which they owe from the likelihood of their criminal intention.
Corporate Criminal Liability India
There are offences in the Indian Penal Code which describe the offences of serious nature where under a corporate body also may be found guilty, and the punishment prescribed is a mandatory custodial sentence. In the case of Standard Chartered Bank vs. Directorate of Enforcement,[20] it was held that the company is liable to be prosecuted and punished for criminal offences. The Supreme Court rejected the notion that the company could avoid criminal prosecution in cases where a custodial sentence is mandatory. As the company cannot be sentenced to imprisonment, the court cannot impose that punishment, but when imprisonment and fine are prescribed as punishment the court can impose the punishment of fine which could be enforced against the company. In Aneeta Hada vs. Godfather Travels and Tours Pvt. Ltd.[21] in this case, the dispute was related to deciding the liability of corporate in dishonour of cheque. The Supreme Court discussed the extent of vicarious liability in the case of corporate. The company being a juristic person is liable for the acts of others. In the other case of Iridium India Telecom Ltd vs. Motorola Inc.,[22] the Supreme Court held that in all jurisdictions across the world which are governed by the rule of law companies and corporate houses can no longer claim immunity from criminal prosecution on the ground that they are not capable of possessing mens rea.
Criminal liability encompasses two elements: actus reus (guilty act) and mens rea (guilty mind). There is no dispute that a company is liable to be prosecuted for criminal offences. However, the company being an artificial person cannot have the requisite mens rea, hence the question of whether a company could be prosecuted for an offence for which the mandatory sentence is imprisonment.
The law has evolved from the position that a company cannot be prosecuted for offences that require the imposition of mandatory imprisonment[23], to the position that the mens rea of the ‘alter ego’ of the company (i.e., the person or group of people that guide the business of the company) will be imputed to the company as laid down by the Supreme Court in Iridium case[24].
Today, the settled position of law is that if a company commits a criminal offence, the liability rests with the directors in two ways:
- When the offence committed by the company involves mens rea, it would normally come down to the intent and action of the individual acting on behalf of the company. Thus, an individual who has perpetrated an offence on behalf of the company can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent.
- Where the statutory regime itself attracts the doctrine of vicarious liability by specifically providing for such liability.
There are various legislations including foreign exchange regulations, tax, labour and environment laws that attract the doctrine of vicarious liability by specifically providing for liabilities of a person-in-charge and/or directors in the case of an offence being committed by a company. Further, directors are liable under certain penal statutes such as inter alia the Insolvency and Bankruptcy Code, 2016 and the Prevention of Money Laundering Act, 2002. Interestingly, the Prevention of Corruption Act, 1988 (POCA) does not provide for the vicarious liability of directors in the same manner as provided in other legislation referred to above.
This issue came up for consideration in 2015 in the Sunil Mittal / 2G Spectrum case[25], wherein the Supreme Court of India quashed the criminal charge against Sunil Bharati Mittal (Chairman-cum-Managing Director of Bharti Cellular Limited) since there was no vicarious liability of director provision in POCA. The Supreme Court was faced with the issue as to when a director/person in charge of the affairs of the company can be prosecuted for an offence committed by the company. The three-bench court relying upon the law laid down in Iridium stated that the ‘principle of attribution’ is applied to impute a criminal intention to the company on account of the criminal intention of its ‘alter ego’ and cannot be applied in a reverse scenario to make the directors liable for offences committed by the company.
In light of the rising incidents of scrutiny and enforcement by the Government and its agencies, the presumption (moral and not legal) is that since a person is the directing / controlling mind and will of the company, his status in the company will determine his culpability in a crime committed by a company. However, this is extraneous to the law discussed above.
For determining the culpability of any person, a trial court is bound to apply its mind and also to ‘form (to its satisfaction) and record’ its opinion[26] that there is sufficient ground for proceeding / initiating criminal proceedings against any person based on the material available on record. Though the judicial precedent is unambiguous about this legal position, it is rarely observed in practice. There are instances where a person has been summoned by the trial court as an accused even though he was not even called for interrogation or was not even named in the FIR or the charge-sheet[27] and in some cases where a probing agency had recorded in the charge-sheet itself that it did not find any material to implicate him[28].
In current times, there are instances where the directors are arraigned as accused in a criminal prosecution, in high profile scams where there is public money involved, without any evidence on record of the involvement of such directors. This leads to such directors being forced to knock on the doors of the courts to seek redressal and thereby resulting in a burden on the criminal justice system. This is especially ironic given the fact that a trial court is empowered[29] to summon any person as an accused at any stage of the trial, only if evidence surfaces against him as was also highlighted by the Supreme Court in the 2G scam case.
Though the legal position under the POCA has undergone a change recently with the 2018 amendment, which provides for (a) prosecution of a commercial organization, ‘if any person associated with such organization gives or promises to give any undue advantage to a public servant…‘[30]; and (b) if a commercial organization is held guilty of giving a bribe, and it is proved that it was with the consent or connivance of a director, then such director will also be punishable[31]. It further provides a defence to a commercial organization to prove that it had in place adequate procedures to prevent persons associated with it from undertaking such conduct. The effort seems to be to make a distinction between non-compliance attributable solely to a personal deviance/neglect of a person and a systemic failure of an organization. This new amendment is yet to be tested.
Concerning the criminal liability of non-executive directors (NED) and independent directors (ID) specifically, the Companies Act has introduced the ‘knowledge’ test (including through the Board’s processes) for IDs and a NED[32] (not being a promoter or a KMP) similar to a standard vicarious liability of directors’ provision. However, this immunity granted to NEDs and IDs is limited only to the offences under the Companies Act and not under any other legislation. A few recent episodes of the Supreme Court passing certain drastic interim orders to attach bank accounts of IDs of certain real estate companies appear to be cases of judicial reaction to bad facts in those cases.
In our view, the law laid down by the Supreme Court in 2015 in the Sunil Mittal case on the criminal liability of directors is still the final word on the subject. Therefore, each case must be adjudged from the viewpoint of the criminal liability of directors under the current legal regime, away from the hysteria created by various actors demanding a ‘face’ to be held accountable in infamous public scams.
Corporate Criminal Liability in the UK
In the case of corporate criminal liability in the UK, it can be seen that a corporation can be prosecuted for a crime which is committed by an individual who is acting on behalf of the company whenever-
1. Parliament has itself enacted specific legislation to identify criminal offences for the corporate class
2. Whenever the vicarious liability is attracted for any kind of regulatory offence it does require any kind of proof in regards to a mental fault.
3. The offences which are committed by individuals who are managing and directing the will of the corporation [33]
Usually, in the UK the last set of scenarios is called identification theory and its application is the same as that of the Doctrine of Alter ego. This theory works in limiting the wide ambit which arises on the company due to vicarious liability because of the act and omission of the company.[34] Where it becomes important to understand the state of mind of the company and action to set the liabilities which the company has committed.
Now in the case of HL Boulton (Engineering) Co. Ltd v. T J Graham and Sons Ltd.[35] it was held that a company acts like a human body where it can be said it has brain and nerve centre which control all its function and all the decision making, it has hands which acts as a tool to act in accordance with the centre. While on other hand some people are servants and agents who are nothing more than hands to work cannot represent the will of the company, the director of the company is the key managerial person who is directing and controlling the will of the company and it can easily be said that what is the state of mind of managers of the company is the same as the state of mind of the company.
In the case of Tesco Supermarket v. Nastrass[36], in this case, it was held that to set liability on action taken by a person it should be the case where the person is not speaking or acting on behalf of the company and if he is acting on behalf of the company, directing the act with a guilty mind then the company is also guilty and this judgment served as precedence for St Regis Paper Co. Ltd. v. R.[37] whereby it applies to all criminal offences which is committed by some person on behalf of the company or acting on behalf of any authority[38]. In the UK it becomes important to see that directing minds of the company are identified and delegation authority is within the internal structure of the governance to determine corporate criminal liability.[39]
In the case of The Serious Fraud Office v Barclays PLC & Anr.[40] the judge was of the view that identification doctrine is narrow and the Parliament has the flexibility in deciding the offence that is part of corporate criminal offence and any offence can be added seeing the gravity of the issue.[41] With the advent of the Bribery Act 2010 and with the passing of the Criminal Finances Act 2017, the legislature has imposed liabilities on the corporation for preventing any kind of tax evasion by individuals that are associated with the company.
Corporate Criminal Liability: The US
Corporate criminal responsibility emerged in the United States in response to the industrial revolution and the expansion of the scope and importance of corporate activities. It focuses mostly on federal law, which is based on the respondeat superior[42] doctrine developed in tort law to establish corporate criminal liability. The early twentieth century was a formative period in the federal system for the doctrine of corporate criminal liability, as Congress dramatically expanded the reach of federal law in response to unprecedented concentrations of economic power in corporations and combinations of business concerns, as well as new threats to public health and safety. The doctrine’s origins and progress in application reflect a utilitarian and pragmatic approach to criminal law.[43]
Such corporate criminal liability is broad enough that the company could be held criminally liable even if an employee violates company policy. Even specific counter-instructions will not necessarily protect the corporation if the employee commits a criminal act while on the job. Under US law, even a company with a comprehensive compliance program can be held criminally liable for its workers’ criminal activities. Given the facts, it is simple for US government prosecutors to assign criminal liability to the corporation. As a result, US corporations are significantly more inclined to reach an agreement with prosecutors in order to avoid going to trial.
In addition to respondeat superior liability, the “collective knowledge” doctrine in US law makes it simpler to sue corporations. The government does not have to show that a single person had the knowledge to fulfil the intent element of a crime under this approach. Instead, the government may pool the information of a number of different business personnel to determine the company’s knowledge of the crime. This might potentially broaden corporate criminal liability in the United States to circumstances when no single employee is found criminally liable.
In New York Central & Hudson River Railroad v. United States (1909)[44], the United States Supreme Court first recognised the respondeat superior approach as suitable for imposing corporation criminal liability for intentional offence. Because an assistant traffic manager granted “rebates” on railroad rates to certain railroad users, the New York Central Railroad was convicted of bribery. Because of the rebates, certain users’ effective shipping rates were lower than mandated rates, which was illegal under the Elkins Act, which incurred criminal sanctions. The Supreme Court upheld New York Central’s conviction by applying the respondeat superior principle, concluding that New York Central was liable because one of its agents committed a crime while performing his duty.
The Court applied this broad standard to New York Central with little consideration given to whether respondeat superior was a suitable threshold for determining criminal intent. The Court concluded that the principle of respondeat superior was well established in civil tort law, but that “every reason in public policy” justified “go[ing] only a step farther” and applying respondeat superior to criminal law. Other American courts have followed New York Central’s lead, declaring that “there is no longer any distinction in essence between corporate civil and criminal liability, depending on the element of intent or wrongful purpose.”
New York Central and its descendants have been criticized for failing to recognise the fundamental differences between civil and criminal liability, for failing to consider civil alternatives to imposing corporate criminal liability, and for failing to investigate alternative standards for imposing criminal liability on corporations.
Tort lawsuits, are largely intended to compensate one party for damage inflicted by another. The underlying assumption of tort liability is that it is more equitable for the tort-feasor to absorb the financial loss caused by its agent’s actions than it is for the individual victim. In most circumstances, except in rare tort cases, intent is not a factor in holding a company liable. There is no attempt to determine corporate intent because even the most honourable corporation can be held liable for its agent’s actions. Furthermore, while the fear of tort liability may prevent behaviour, the primary goal of a tort case is to collect damages, not to deter future actions.
In all criminal cases, however, the elements of purpose, deterrent, and stigma are essential. In practically every crime, the intent to break the law is a necessary element. The deterrent effect of criminal prosecutions is why they are pursued. This impact is aided by the stigma and shame associated with a criminal conviction, as well as the disabilities that come with it. In short, the concept of respondeat superior works well in tort law, it does not work well in criminal law.[45]
The failure of New York Central to investigate civil remedies for imposing criminal liability on companies is the second fault that is often brought up. In New York Central, the Supreme Court declared that not imposing criminal liability on corporations would “essentially take away the only means of effectively governing the subject matter and addressing the abuses targeted at”. This is a false statement. Criminal liability of responsible persons within the corporation and civil remedies against the corporation are the two main alternatives for imposing criminal liability on corporations. To be sure, when the Supreme Court decided New York Central in 1909, the prosecution of accountable corporate executives was unusual. However, the development of the “responsible corporate official” and strict liability doctrines has made such prosecutions more common and much easier since then. Furthermore, administrative regulation and supervision were only in their infancy in 1909. However, agencies grew tremendously in size, experience, and regulatory power during the twentieth century. Unfortunately, courts and legislatures have failed to reconsider the legality of applying respondeat superior to hold companies criminally liable. Failure to impose criminal liability on a company, as one judge remarked in upholding the conviction, “was to immunise the culprit who genuinely benefits and open wide the way for escape.”
The Court’s failure to consider the conceptual alternatives to Respondeat superior for establishing corporate criminal liability is the third fault addressed in New York Central. In New York Central, the Court assumed that respondeat superior was the only criterion available for imposing corporate criminal liability. Given the nature of the matter before the Court and the historical context of the opinion, such a rigid view of its options is understandable. However, given the substantial work published throughout the twentieth century highlighting the flaws in the respondeat superior approach and presenting other conceptual models, there is no need to stick to the Court’s too simplified decision of 1909.
Model Penal Code
Section 2.01 of the Model Penal Code (MPC) addresses some of the issues with the respondeat superior principle by imposing corporate criminal liability more narrowly. The Code’s approach is more in line with how corporate criminal liability is enforced around the world. Only few corporate agents are subject to criminal liability under the Code. It specifies that a corporation is liable for criminal behaviour “authorised, requested, directed, performed, or negligently tolerated” by the board of directors or a high management agent acting on the corporation’s behalf “during the course of his office or employment.” Anyone “with such responsibilities that [their] behaviour may reasonably be viewed as representing the corporation’s or association’s policy” is known as a high-level management agent.
The Code standard has been criticised for various reasons; despite being praised as an enhancement on respondeat superior’s breadth. The first criticism is that, given the size of many modern corporations, it is unrealistic. Because illegal activities are rarely conducted openly, obtaining the required proof that a high managerial agent engaged in, or even recklessly tolerated, illegal activity would be difficult, if not impossible. Second, the Code standard has been criticised because it encourages high-ranking executives to avoid learning of corporate wrongdoing. Because the Code only holds companies liable if higher-level executives are involved in or tolerate misconduct, a lack of awareness of wrongdoing shields companies from liability. Lastly, the Code standard has been criticized as being too narrow, because even if a clear corporate policy encouraged a lower-level employee to commit a crime, the corporation is not liable unless there is evidence of participation or knowledge by a specific corporate director or high-level managerial agent.
Both the respondeat superior and the Code standards have two conditions that may significantly limit their applicability and relieve some of the issues they raise, but the courts have interpreted these requirements so broadly that they have little meaning. The illegal act must be “within the scope of the agent’s employment” and done “for the profit of the corporation” under both conditions. The phrase “within the extent of employment” has been understood by courts to refer to conduct performed within an agent’s apparent scope of employment. Even conduct carried out by a corporate employee in violation of express corporate directions have been determined to be grounds for corporate criminal liability under this broad interpretation. This viewpoint is justified by the fact that the agent’s acts while employed by the firm look to outsiders to be within the agent’s authority. This broad view can be seen in United States v. Hilton Hotels Corporation[46]. If a supplier of products did not donate to an association founded to bring conventions to Portland, the purchasing agent at the Hilton Hotel in Portland, Oregon, threatened the supplier with losing the hotel’s business. According to the corporate president, such conduct was against company policy. The hotel’s manager and assistant manager both testified that the purchasing agent was specifically ordered not to threaten suppliers. Nonetheless, the court used the respondeat superior criterion to find Hilton Hotel Corporation guilty of antitrust breaches since the assistant manager appeared to be acting on behalf of the company to outsiders.
Although the respondeat superior test was used in Hilton Hotels, the dilemma of the rebel employee still exists under the Model Penal Code’s narrower standard because it also relies on vicarious liability. If a Hilton Hotel purchasing agent, for example, had “duties of such responsibility that his conduct may justifiably be expected to represent the policy of the corporation or association,” the agent would be a “high managerial agent” (MPC Sec. 2.01), and Hilton Hotels Corporation would be criminally liable.
In addition to watered-down interpretations of “within the scope of employment” and “for the benefit of the corporation,” the respondeat superior and Model Penal Code criteria have been made extremely broad by the introduction of the concept of “collective intent.” Even when it is impossible to identify a corporate agent with criminal intent, the notion of “collective intent” allows courts to determine intent on the part of a corporation. This is demonstrated in United States v. Bank of New England[47]. The Bank of New England was found guilty of failing to report cash transactions exceeding $10,000 to the US Treasury. A bank customer withdrew more than $10,000 from a single account on thirty-one occasions by simultaneously presenting numerous cheques in amounts less than $10,000 to a single bank teller. The bank contended that it was not liable since no bank employee had sufficient criminal intent to breach the reporting requirements, despite the fact that under applicable law a corporation’s criminal intent is imputed from an agent’s intent. According to the bank, the teller who processed the transactions was unaware that the legislation required the filing of the reports in the customer’s situation. Furthermore, the bank employee who was aware of the reporting requirements was unaware of the customer’s transactions. According to the bank, no single bank employee had sufficient mens rea[48] to be imputed to the corporation. Because of the “collective intent” of bank workers, the trial court dismissed the bank’s case. “The bank’s knowledge is the sum of what all of the employees know within the scope of their job,” the court stated.
Conclusion
We can see the approach of corporate criminal liability has changed over the year from the time when there was no concept of corporate criminal liability of corporation to now having the liability setting by the evolution of the doctrine of alter ego of company. Today corporate criminal activities are covered in various sectors like mining, nuclear, fishing, etc which shows us the fact there is ned of accountability and monitoring in the corporate sector. This liability makes both individual and corporation liable and when the individual liability becomes difficult to determine it becomes best to prosecute the corporation.
Nowadays we see there is an increase in a multinational corporation which calls for putting an effective mechanism both at the national and international level to ensure there remain checks and balances on the working of the corporation and by ensuring that the laws which are derived must be followed in the best possible manner to ensure there is proper regulation on the working of the corporation.
[1] Balakrishnan. K; “Corporate Criminal Liability – Evolution of the concept” (1998) Cochin University Law Review p.255.
[2] L.H. LEIGH, THE CRIMINAL LIABILITY OF CORPORATIONS IN ENGLISH LAW 16-18 (1969).
[3] James R. Elkins, Corporations and the Criminal Law: An Uneasy Alliance, 65 KY. L. J. 73, 91-92 (1976).
[4] New York Central R. Co. v. the United States, 212 U.S. 481 (1909).
[5] supra
[6] Asst. Commr. v. Velliappa Textiles Ltd., (2003) 11 SCC 405.
[7] Kusum Products Ltd. v. S.K. Sinha, I.T.O. Central Circle-X, Calcutta, (1980) 126 ITR 804.
[8] A.K. Khosla v. T.S. Venkatesan, (1992) Crl. L. J. 1448.
[9] Standard Chartered Bank v. Directorate of Enforcement, (2005) 4 SCC 530.
[10] Asst. Commr. v. Velliappa Textiles Ltd., (2003) 11 SCC 405.
[11] ibid
[12] Iridium India Telecom Ltd. v. Motorola Inc., (2011) 1 SCC 74
[13] Sunil Bharti Mittal v. CBI, (2015) 4 SCC 609
[14] Supra.
[15] ibid
[16] Ibid
[17] Companies (Amendment) Act, 2020, A Refreshing Change https://www.scconline.com/blog/post/2021/07/01/companies-amendment-act-2020-a-refreshing-change/.
[18] Corporate Criminal Liability: Principles of Attribution and Vicarious Liability Clarified https://www.mondaq.com/india/corporate-crime/372090/corporate-criminal-liability-principles-of-attribution-and-vicarious-liability-clarified.
[19] Ali Shalchi, Corporate Criminal Liability, HOUSE COMMONS LIBR. (March 25, 2022) https://researchbriefings.files.parliament.uk/documents/CBP-9027/CBP-9027.pdf.
[20] Supra.
[21] 2012 5 (SCC 661).
[22] Supra.
[23] Asstt. Commr. V. Velliappa Textiles Ltd. (2003) 11 SCC 405.
[24] Iridium India Telecom v. Motorola Incorporated and Others (2011) 1 SCC 74. Also see Standard Chartered Bank v. Directorate of Enforcement (2005) 4 SCC 530, Lee Kun Hee, President. Samsung Corpn., South Korea vs. State of U.P. (2012) 2 SCC 132 and Aneeta Hada vs. Godfather Travels and Tours (P) Ltd. (2012) 5 SCC 661.
[25] (2015) 4 SCC 609.
[26] Section 204 Criminal Procedure Code, 1973.
[27] Mr. Ravi Ruia, Director in Sterling Cellular Limited, 2G scam case.
[28] Mr. Sunil Mittal, CMD, Bharati Cellular Limited, 2G scam case.
[29] Section 190 and 319 of Criminal Procedure Code, 1973.
[30] Section 9, Prevention of Corruption Act, 1988.
[31] Section 10, Prevention of Corruption Act, 1988.
[32] Section 149(12), Companies Act, 2013.
[33] Ali Shalchi, Corporate Criminal Liability, HOUSE COMMONS LIBR. (March,27, 2022 https://researchbriefings.files.parliament.uk/documents/CBP-9027/CBP-9027.pdf.
[34] SMITH AND HOGAN, CRIMINAL LAW 178 (7th ed. 1992).
[35] H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd., [1957] 1 QB 159.
[36] Tesco Supermarkets Ltd. v. Nattrass, [1972] AC 153.
[37] St. Regis Paper Co. Ltd. v. R. [2011] EWCA Crim 2527.
[38] Supra.
[39] Corporate Prosecutions, CROWN PROSECUTION SERV. (March. 27, 2022) https://www.cps.gov.uk/legal-guidance/corporate-prosecutions.
[40] The Serious Fraud Office v. Barclays PLC & Anr. [2018] EWHC 3055 (QB).
[41] Supra.
[42] Respondeat Superior, Legal Information Institute, March 24, 2022, 10:34 PM), https://www.law.cornell.edu/wex/respondeat_superior.
[43] Sara Sun Beale, “The Development and Evolution of the U.S. Law of Corporate Criminal Liability”,Zeitshrift Fur Die Gesamte Strafrechtswissenschaft 126 27-54 (2014).
[44] 212 US 481 (1909): 29 S.Ct. 30: 53 L.Ed. 613.
[45] Supra.
[46] 1970 SCC OnLine US SC 86: 397 US 580 (1970): 90 S.Ct. 1307: 25 L.Ed.2d 585: 467 F.2d 1000 (9th Cir. 1972).
[47] 821 F.2d 844 (1st Cir. 1987).
[48] Mens Rea, Legal Information Institute, March 26th, 2022, 7:55 PM, https://www.law.cornell.edu/wex/mens_rea.
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