Should India Introduce Corporate Criminal Liability?

‘There is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition, without deception or fraud.’ [1]

Corporate crimes have always been in the news and can best be defined as “illegal acts committed by corporate employees on behalf of the corporation and with its support.” [2]   The consequences are far reaching and is said to be very severe as corporations are inflicting a kind of damage to the society that individuals acting alone cannot conceive of inflicting. The FBI estimated that 19,000 Americans are murdered every year by street criminals whereas about 56,000 Americans die every year at work or from occupational diseases. They are sometimes prosecuted as homicides or as criminal violations of workplace safety laws. Even then majority of corporate crime and violence goes undetected as corporations tend to ‘win’ (with the help of generous research grants and the promise of endless job opportunities) the backing of most government and unlike all other criminal groups major corporations have enough power to define the law under which they live and to influence prosecutors not to bring criminal charges. [3] Another major obstacle is the attribution of criminal liability on corporations which makes the crime more complicated and hard to detect. The Enron era is a glaring example where we witnessed a history for revelations of corporate wrongdoing around the world. [4] In response not only did the Federal Government adopt innovative strategies such as the Sarbanes-Oxley Act 2002, the Thompson Memorandum followed by the Mcnulty Memo etc. to investigate and criminalise the corporations [5] , UK and other nations too has legislated to criminally prosecute corporations for their wrong doings.

The corporation being an artificial entity, having limited liability has become a recognized business dogma in the western world for over 200 years where maximizing profit is considered to be the only function of a corporation. Hence criminalization of corporations was held to be devoid of any meaning as they lacked the necessary mens rea and actus reus requirement. But, this perception changed with the global economic developments where criminal jurisdiction was not left untouched. [6] Corporate criminal liability is not a new phenomenon in England which is evident from many cases of old decade. In 1635 a corporation was held liable on a presentment for nonfeasance [7] and by mid nineteenth century it was established that a corporation is indictable for breach of duty but not for crimes involving personal violence. Thereafter a theory of corporate acting was developed by the decision of ‘The King vs City of London 8 St. Tr’ [8] . where the corporation was held liable for the misdeeds of the agents. Later borrowing the doctrine of vicarious liability from law of torts corporate criminal liability was further extended. [9] As it is accepted today, the growth of corporate criminal liability has been slow due to the difficulties associated when it comes to guilty mind but however the decision of the Supreme Court in ‘New York Central case [10] that a corporation can be convicted has marked a new beginning. Now an explosion of corporate criminal liability is seen from the criminal prosecutions of firms like Archer Daniels Midland, Exxon, Drexel Burnham, and many others. [11]

Whereas corporate criminal liability has had a long history in common law jurisdictions, it is relatively new to states which adhere to continental legal tradition. Yet the notion is spreading rapidly as states such as France, Italy and others have introduced the concept of punishing a corporation. [12] Today the numerous workplace deaths, fraud, bribery, anti – trust law violation, price fixing has drawn public attention and has become a political issue. Even then there are certain jurisdictions which are reluctant to criminalise corporations and one such nation is the Germany which still believes in the age old doctrine of ‘societas non potest delinquere’ and refuses to impose criminal sanctions thereby staying entrenched to administrative sanctions. [13]

The complexity of the corporate structure poses difficulty in allotting responsibility for unlawful behaviour and the conventional method of punishing a corporation reflects the idea that only a person within the corporation can be guilty illustrating the identification doctrine where the acts are attributed to the person who is the directing mind and will of the company. This view is under-inclusive as its application is not feasible in large companies which have many layers of management and personal involvement by senior management is low. [14] To address this, overseas jurisdictions have concentrated on the organisational fault of the corporation where much attention is given to understanding the decision making process, the policies etc. [15]

In the UK several attempts has been made to hold a corporation criminally liable. Over time the courts have played a dominant role and adopted new approaches in this regard while the Legislature has enacted significant pieces of legislations to make sure that corporate crimes no longer remain unexplored. The recent enactment of Corporate Homicide and Manslaughter Act 2007 and the Bribery Act 2010 enshrines the interest the authorities to deter corporate crimes and protect the society from its impact. [16] However it is yet to be seen as how different is the Manslaughter Act from the Health and Safety Legislation of 1974 and how the responsibility between middle and senior management is to be ascertained as the Act does not define senior management with clarity but one positive inclusion is the prosecution of Crown bodies which so far enjoyed immunity [17] and it will also be interesting to see how the bribery Act stifles corporate corruption.

The topic ‘Should India adopt criminal liability’ in this regard is worth examining to evaluate and observe which liability would help hand down justice especially after the Bhopal Gas Leak case which resulted in mass destruction. It is considered as the world’s worst industrial catastrophe in 1984 where due to the leak of methyl iso-cyanate  gas and other substances at the Union Carbide India Limited (UCIL) pesticide plant in Bhopal, Madhya Pradesh, India, 500,000 people resulted in being affected and despite public commitments to health and safety UCIL created or allowed to develop conditions whereby an accident was possible and further failed to mitigate the effects. [18] Its aftermath is still seen today. Meanwhile, the Supreme Court judgment delivered in 1996 by Justice Ali. M. Ahmadi is highly criticized for diluting the charges against the accused where on a petition moved by the accused, the Supreme Court had ‘amended’ the charges from Section 304 Part (II) (culpable homicide not amounting to murder) to Section 304-A (causing death by negligence) of the Indian Penal Code 1860. On June 7th 2010, 26 years after the tragedy, the trial of the accused, mostly former officials of the Union Carbide, concluded with a shockingly low punishment i.e. two years of imprisonment with a fine of Rs 1 lakh under main Section 304-A (causing death by negligence) of the Indian Penal Code making it a bailable offence. [19] The question now is if this is what we call criminal conviction, is it justified? The punishment does not justify the offence committed on that dreadful night, which is why it has been attacked from every corner. However the conviction of the accused did bring forth one fact that the model adopted in India for corporate liability is similar to that of UK i.e identification as we see that the head of the UCIL was charged for the offence. Although today it is an established fact that corporations can be criminally liable but so far India has not legislated on corporate criminal liability like the US, UK or Australian counterparts which I shall elaborate in my later chapters. The statutes in India do not yet include such developed jurisprudence and hence still makes the official responsible for all criminal acts. Some examples are sections 45, 63, 68, 70(5), 203, 542 etc of the Indian Companies Act 1956 which hold only the officials of the company liable and not the company itself and the various sections of the Indian Penal Code 1860 directs compulsory imprisonment failing to take a corporation into account since such a sanction cannot work against the corporation. [20] Apart from the above in India certain legislations which have provisions for corporate method of liability are Prevention of Food Adulteration Act, 1954 (Section 17), the Essential Commodities Act, 1955 (Section 10), the NDPS Act, 1985 (Section 38), the Trade Marks Act, 1999 (Section 114), the Income Tax Act, 1961 (Sections 276-C and 278-B).

In light of these disasters it is important to analyse the pros and cons of corporate criminal liability and compare it with civil remedies to conclude what is more justifiable or efficient. However when it comes to punishment the question still is controversial. Some commentators argue in favour of civil sanctions while others in favour of criminal sanctions. What is the adequate process in terms of punishment and what can be the justification to bring organisations within the framework of criminal law? If vengeance is the answer then isn’t punishing individuals do more justice? Lastly can the goal of criminal law be inclined towards rehabilitation? These are but few queries that I seek to answer in my paper wherein I will conduct an in depth study to reach a viable conclusion. In chapter 2 I shall delineate as to why it was presumed that corporations cannot be criminally liable, thereby throwing light on the augmentation of criminal liability as it is viewed today. I intend to throw light on the practicability in applying criminal liability on corporations discussing its pros and cons and whether civil remedies are more amenable and if so, then how can it be applied in India. The real question is which liability should India follow? Further down in chapter 3, I shall critically examine the various tests or models of ascription that has been adopted by the US, UK and Australia and as to how the courts have been adopting new approaches to impute mens rea on a corporation. Alongside I will discuss the current position involving corporate liability by analysing the recent legislative attempts while concentrating on what are the loopholes that still needs to be addressed and how successful they have been in convicting and deterring the crime. This analysis will further help in concluding as to which model can be adopted by India considering the present scenario where there is hue and cry on prosecutions of companies for dispensing justice. In my final chapter I will discuss as to what has been an overall impact of the court decisions and the enactments enlisting possible recommendations to bring about more stability in terms of corporate governance.