Criminal liability of corporations has become one of the most debated legal topics of the 21st century. There has been a gradual and structural shift in the stance taken by courts around the world regarding the criminal liability of corporates. Initially, it was argued that corporations couldn’t be held criminally liable because, unlike human beings who are true subjects of law, corporations are legal fictions. This argument was rapidly abandoned due to the fact that the existence of corporations is an incontestable realty in the social, economic and juridical arenas of our society. Nowadays, a corporation has a distinct legal personality, and it can sue or be sued, can own and sell assets, or commit an offence that is civil or criminal in nature.
The old school of thought was that the corporate acts through its directors and officers, and should not attract criminal liability. It has been argued that since punishment such as imprisonment cannot be conferred on companies, there cannot be criminal liability on them. Major hurdles in attributing such liability on corporates were artificial juristic personality and absence of mens rea on the part of the corporate.
The Companies Act, 2063 of Nepal has provided for criminal liability for different directors, auditors and employees. Along with them, the Act has also provided for criminal liability for corporates under Section 160(o), (p), (r), (w), (x) and Section 161(g), but the courts in Nepal are reluctant to impose criminal liability on corporates (board of directors). In Nepal, there is uncertainty over whether a company can be convicted for an offence where the punishment prescribed by the statute is imprisonment and a fine.
THE INDIAN CASE
This controversy in India was first addressed in the MV Javali v Mahajan Borewell & Co and Others case in 1997 where the Supreme Court had held that mandatory sentence of imprisonment and fine is to be imposed where it can be imposed, but where it cannot be imposed –namely on a company — fine will be the only punishment. Indian courts, like western courts, now recognize criminal liability of a corporate.
But in the Velliappa Textiles case in 2003, the Supreme Court held that since a company is an artificial person, it cannot be physically punished with imprisonment. The court opined that there was no problem where the statute provides for imprisonment or fine, but where the statute provides for imprisonment and fine, the court does not have the discretion to impose fine in lieu of imprisonment. And therefore, the company cannot be prosecuted, as custodial sentence cannot be imposed on it.
A couple of years after this decision, however, the Supreme Court by a majority overruled its own judgment in the Standard Chartered Bank v Directorate of Enforcement (2005) matter. It held that companies could not be given immunity from prosecution merely because the offence committed prescribed a mandatory punishment of imprisonment. In the Iridium India Telecom Ltd v. Motorola Incorporated and Others case in October 2010, the Supreme Court of India held that a corporation is virtually in the same position as any individual and may be convicted under common law as well as statutory offences including those requiring mens rea. The criminal liability of a corporation arises when an offence is committed in relation to the business of the corporation by a person or body of persons in control of its affairs.
The Supreme Court of India held that corporations could no longer claim immunity from criminal prosecution on the grounds that they are incapable of possessing the necessary mens rea for criminal offences. The criminal intent of the ‘alter ego’ of the corporation, i.e., the persons or the group of the persons that guide the business of the corporation would be imputed to it. In another judgment in July 2011 in the CBI v. M/s Blue-Sky Tie-up Ltd and Others case, the Supreme Court of India reiterated the position of law held that companies are liable to be prosecuted for criminal offences and fines may be imposed on them.
Meanwhile, in Germany, the criminal liability of corporations is non-existent. Instead, Germany has implemented a comprehensive administrative-penal system that regulates corporate criminal wrongdoing. In the US and the UK, it has been a settled principle that corporates can be held criminally liable. Way back in 1909, in the New York Central and Hudson River Rail Road Co v UN case, the Supreme Court in the US had held that a corporation is liable for crimes of intent and stated: “We see no good reason why corporations may not be held responsible for and charged with the knowledge and purposes of their agents, acting within the authority conferred upon them.”
If it were not so, many offences might go unpunished and acts be committed in violation of law where, as in the present case, the statute requires all persons, corporate or private, to refrain from certain practices, forbidden in the interest of public policy.” In HL Bolton (Engg) Co Ltd v. TJ Graham & Sons, the Supreme Court of US said, “The state of mind of these managers is state of mind of company, and it is treated by law as such. So, you will find that in case where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of company.”
Fixing the criminal liability of corporates is a challenging legal matter since punishment such as imprisonment cannot be conferred on companies.
The development of the concept of corporate criminal liability in different countries reveals its important functions in our society and the recent judgments in India and US make it clear that corporations are liable to be prosecuted for offences committed by their agents/managers. Now Nepal should also be in sync with the legal and juridical trend in other countries such as India, US and the UK when it comes to interpretation of law in relation to criminal liability on corporates. However, because corporate criminal liability is only in its inception stage, this area of law is open to constant revisions and improvements. Only time and experience will bring out the best way of achieving the goals of corporate criminal liability.
The author is associated with the legal department of Nepal Rastra Bank