Criminal Companies and Compliant Regulators? Rethinking Corporate Criminal Liability in India
India’s corporate criminal liability regime looks formidable on paper. Yet from Satyam to IL&FS, the biggest corporate frauds continue to expose systemic failures in prosecution, regulatory coordination, and board-level accountability.
The last few years have witnessed a string of high-profile corporate fraud cases, each more complex and large in scale. While the legislative intent of the “Companies Act 2013 (Companies Act)” was to increase accountability of promoters, directors, and “key managerial personnel (KMPs),” the ground reality of implementation is otherwise. Despite having an advanced legal framework in place — including the “Indian Penal Code 1860 (IPC)”, the “Prevention of Money Laundering Act 2002 (PMLA)”, and oversight by regulatory agencies like the “Serious Fraud Investigation Office (SFIO)”, “Enforcement Directorate (ED)”, and “Securities and Exchange Board of India (SEBI)” — success of effective prosecution remains elusive.
The essay argues that the failures are not due to a deficiency of law but due to a confluence of systemic loopholes, regulatory duplication, and a failure of enforcement mechanisms. It explores the evolution of “corporate criminal liability”, dissects three emblematic case studies, and proposes legal reforms necessary for meaningful accountability in India’s corporate sector.
I. The Rise of Corporate Criminal Liability
“Corporate criminal liability” allows for penal consequences to be imposed on companies and their office-bearers for illegal acts committed under their watch or direction. Traditionally, the concept of mens rea posed a challenge to prosecuting companies. However, judicial doctrines like the “identification doctrine” resolved this by treating the intent of the “directing mind and will” — typically top-level management — as the “intent of the corporation” itself.
“Section 447 of the Companies Act” criminalizes fraud involving inducement to deliver property, suppression of facts, or abuse of position. The statute empowers SFIO to investigate serious fraud cases under Section 212. Complementary laws like the IPC and PMLA address corruption and money laundering respectively, while “SEBI’s Listing Obligations and Disclosure Requirements (LODR) Regulations” ensure disclosure and governance standards for listed companies.
Despite these legislative advances, the system falters when enforcement is attempted. Most corporate criminal cases in India stagnate post-FIR or charge-sheet filing, and are rarely prosecuted to conviction.
II. Case Studies of Failure: Satyam, IL&FS, and Nirav Modi
The Satyam case (2009) is one of the earliest and most cited corporate frauds in India. The company’s chairman, “B. Ramalinga Raju”, confessed to inflating company assets by over ₹7,000 crore. Though SFIO and CBI initiated investigations, and some of the top brass were arrested, the case revealed serious loopholes in director accountability and audit oversight. Independent directors and statutory auditors escaped with minimal consequences. The trial saw inordinate delays, and enforcement action lacked long-term deterrent effect.
The “Infrastructure Leasing & Financial Services (IL&FS) collapse” in 2018 was another case of systemic failure. Over 200 group companies were involved in complex inter-party transactions, masked defaults, and inflated asset values. Investigative reports by Grant Thornton pointed to large-scale mismanagement and insider deals. However, enforcement outcomes were limited, as the ED, MCA, and SFIO struggled to establish personal liability amid the company’s layered structure.
In the Nirav Modi-Punjab National Bank scam, LoUs worth ₹13,000 crore were fraudulently issued. While Nirav Modi’s extradition proceedings made headlines, enforcement bodies failed to hold accountable the top bank management and internal control officers who facilitated the scam. Investigations revealed breakdowns in SWIFT message reconciliation and internal audit protocols — yet regulatory penalties were meagre.
These cases illustrate a pattern — corporate frauds are not isolated incidents, but symptoms of regulatory complacency, agency overlap, and legal inertia.
III. Enforcement Fatigue: Why SFIO, ED, and SEBI Struggle
India’s corporate crime enforcement mechanism suffers from fragmented authority and lack of procedural synergy. The most significant challenges include:
1.Jurisdictional Confusion: The same fraud is often investigated by multiple agencies (SFIO, ED, SEBI, CBI), leading to duplicated efforts, delay in evidence gathering, and contradictory findings.
2. Low Conviction Rates: According to the SFIO’s 2021–22 report, conviction rates in serious fraud cases are below 10%. This undermines public confidence in enforcement.
3. Delayed Investigations: Agencies take months — sometimes years — to complete investigations. By then, evidence is lost, digital trails are erased, or accused flee the jurisdiction.
4. Protection of Board Members: The “Section 149(12) of the Companies Act” provisions restrict the liability of independent directors to situations where wrongdoing has occurred with their active knowledge, consent, or negligence. This strict burden of proof safeguards passive board members even in extreme cases of fraudulence.
5. Lack of Coordination Protocols: There is no written policy to determine which agency will have responsibility for an investigation or when to upgrade the investigation from regulatory offense to criminal prosecution.
Together, these problems result in regulatory fatigue and a culture of impunity.
IV. Legal Gaps and What Must Change
To improve corporate criminal liability, there is a requirement for a multi-dimensional reform agenda. The below can improve enforcement:
1.Enshrine Board Responsibility: Modify Section 447 to make directors and KMPs strictly liable where gross negligence is proved to have occurred, even in the absence of active intent.
2. Special White-Collar Crime Benches: Assign fast-track benches of the National Company Law Tribunal or economic offences courts to exclusively hear corporate fraud cases within defined time limits.
3. Auditor and Audit Firm Responsibility: Increase rotation requirements, impose harsh penalties for audit failure, and allow claw backs of auditor fees in fraud-ridden firms.
4. Define Multi-Agency Protocols: Clearly delineate role — e.g., SEBI for securities fraud, SFIO for corporate accounting fraud, ED for money laundering — with time-bound coordination frameworks.
5. Internal Vigilance Audits and Whistleblower Empowerment: Companies above a threshold should mandatorily disclose whistleblower complaints and resolutions in board reports.
Such reforms would ensure not only reactive punishment but also proactive deterrence.
Conclusion
India’s current framework for “corporate criminal liability” is built on a solid legislative foundation — yet its enforcement record remains poor. From Satyam to IL&FS, enforcement has been delayed, fragmented, and often diluted. Without stronger laws, streamlined agency coordination, and faster trial mechanisms, the deterrence value of corporate criminal liability remains weak.
To restore public and investor confidence, India must evolve from being lenient on white-collar crime to being strategically aggressive in enforcement. Only then will corporate actors realise that criminal fraud — whether through accounting tricks or boardroom complicity — will carry real consequences.
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