By Dinesh Babu Eedi
question of making a company liable for for criminal offences committed by its directors,
managers, officers and other employees
while conducting business has
gained importance in criminal law jurisprudence
while being subject to debate. The traditional view was
that a corporation could not be guilty of a crime, because criminal guilt
required intent( mens rea), which a corporation does not possess. In addition,
a corporation cannot be imprisoned.
basic rule of criminal liability revolves around the basic Latin maxim Actus
non facit reum, nisi mens sit rea. It means that to make one liable
it must be demonstrated that (a) a
forbidden act or omission has been done
(b) with a deliberate intent. Hence,
in order to attribute criminal liability to a company, it must be proved that
there was a physical act i.e. actus reus and that there was an intention
to commit the act i.e. mens rea.
to counter the practical difficulty of sentencing companies to imprisonment
created by the legal fiction of law, the courts have developed what is termed
as the ’Doctrine of Attribution’. As per this doctrine, in the event of an act
or omission leading to violation of criminal law, the mens rea i.e.
intention of committing the act is attributed to those who are the ‘directing
mind and will’ of the corporations. Although this doctrine was developed in the
United Kingdom and has been in use in India since many years, the Supreme
Court’s recent Judgment in Iridium
Indian Telecom Limited
., [(2011) 1 SCC 74] (“Iridium”) has finally
resolved the debate whether corporations can be held
liable for offences inextricably possessing mens rea as one of the
Origin of the Doctrine of Attribution
The principle of vicarious liability was generally applied to hold corporations liable
for the acts of its agents. Companies were called on to make good the loss
occasioned by its agents when they acted in the course of their employment.
However, this principlewas not extended to pass on the liability of criminal
wrong to corporations. As such, corporations could act with impunity in all
To plug this loophole, courts in England pierced the corporate veil
and held that corporations are liable for
criminal and civil wrongdoings if the offences were committed through
the corporation’s ‘directing mind and will’. This attribution of liability to
the corporations later came to be known as the ‘Doctrine of Attribution’.
In Lennard's Carrying
v. Asiatic Petroleum
. (‘Lennard’)[i], trying an offence under the
Merchant Shipping Act, the House of Lords applied the doctrine of attribution
to identify Mr. Lennard, who was the owner of the ship and also responsible for
the management of the ship, as the ‘directing mind and will’ of the company.
Subsequently, in H.L Bolton Co. Ltd
., v. T.J Graham and Sons
(‘Bolton’) [ see end note 1],
the Court of Appeals likened companies to a human body and their brain to the
directors of the company, and confirmed the application of the doctrine of
attribution to criminal cases.
Indian approach towards doctrine of
attribution before Iridium
The debate on the liability
of corporations for offences with mens
rea as an essential component began much before the decision of the Supreme
Court in Iridium. Indian
High Courts were not inclined to declare
corporations as liable and rejected appeals
for punishing companies for criminal offences.
In 1964, in State of
v. Syndicate Transport Co. (P) Ltd.
[AIR 1964 Bom 195],
the Bombay High Court developed a very forward-looking approach in this regard
and in deciding a case in which a company was charged with cheating, criminal
breach of trust and dishonest misappropriation, the Court held:
“The question whether a
corporate body should or should not be liable for criminal action resulting
from the acts of some individual must depend on the nature of the offence
disclosed by the allegations in the complaint or in the charge-sheet, the
relative position of the officer or agent vis-a-vis the corporate body and the
other relevant facts and circumstances which could show that the corporate
body, as such, meant or intended to commit that act.”
In 1975, the Bombay High
Court, in Esso Standard Inc
Udharam Bhagwandas Japanwalla
, [1975 45 CompCas 16 Bom] (‘Esso Standard’) further noted:
“The law attributes to the
company intention of the officers of the company under certain circumstances.
The company's intention could be ascertained only when the company in a general
body or at the meeting of the board or in accordance with the memorandum or
articles of association has expressed that intention in the form in which it
should be expressed.”
However, the Calcutta High
Court in a series of cases did not apply the attribution principles adopted by
the Bombay High Court. In Sunil Chandra
v. Krishna Chandra Nath
[AIR 1949 Cal 689] the Calcutta High Court acquitted a bank, on the basis that a company cannot be said to possess mens rea to cheat. In Kusum Products
v. S.K Sinha
, [1980 126 ITR
804 Cal.] it held that a company being a juristic person could not be
The Supreme Court in 1997
in MV Javali
v. Mahajan Borewell
CTR (SC) 320] further 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. This ‘One Size Fits All’
approach was dismissed, in the Asst.
v. Velliappa Textiles
[(2003) 11 SCC 405] where the Supreme Court held that since company is an
artificial person, it cannot be physically punished to a term of imprisonment.
But the court also held that where the statute provides for imprisonment or fine, it is not a problem, but
where the statute provides for imprisonment and
fine, the court is not given the discretion to impose fine in lieu of
Supreme Court in the case of Standard Chartered Bank
[AIR 2005 SC 2622]
without making any reference to doctrine of attribution held that a company can
be prosecuted for offences which are punishable with mandatory imprisonment.
However, the Court left open the question of whether a company could be
punished for crimes requiring mens rea. Hence, till the pronouncement of
Apex Court ruling in the Iridium case, there were conflicting judgments
of various High Courts on attribution of criminal intent to a company.
Deadlock resolved by Iridium
The Supreme Court in the Iridium case discussed the doctrine of
attribution, not to adjudge the liability of the directors, but to determine
the liability of the corporation. The Apex Court held that
criminal liability of corporations would arise when the offence is
committed in relation to the business by a person or body of persons in control
of its affairs and when the degree of control is such that a body or body of
persons can be said to be its ‘directing mind and will’. The Court also held
that such mens rea would be
attributable to the corporation on the principle of ‘alter ego’ and upheld its
earlier decision in the Standard
Chartered case discussed supra.
Thereby, the Apex Court has finally resolved the position regarding criminal
liability of corporations.
In the Iridium case, the Supreme Court discussed the doctrine of
attribution to determine the liability of Motorola Inc
. This doctrine is applicable not only for the acts committed by
the directors of the company, but also for the acts committed by the company
through its promoters, who are controlling the affairs of the company. The acid
test is to determine the ‘mind and will’ of the controlling person vis-à-vis
the controlled company and is valid even when two or more layers above the
controlled company exist.
It will be very interesting
to see how the doctrine is applied in cases such as the liability of a company
for misstatement or non-disclosure in an information memorandum issued in
connection with an offering of securities. Although the decision is an important
step in promoting the use of criminal sanction to regulate corporate behavior,
it is important to note that the Supreme Court did not throw light on the
methods by which mens rea of a
company can be proved. Moreover, the risk factors and disclaimers contained in
the Private Placement Memorandum in Iridium
were disregarded by the Apex Court even though these provisions seek to
pass on risks of uncertainty to the investors.
In conclusion, although the
decision clarifies the position on criminal liability of a company and the
possibility of criminal intent, the prosecution of officers of the company or
promoters for the criminal acts of a company would depend on the facts and
circumstances of each case and is not likely to be applied very widely.
[ The author is a Senior
Associate, Corporate Practice, Lakshmikumaran & Sridharan, Hyderabad
A.C. 705 HL. Also see Rudd v. Elder Dempster & Co. Ltd.,  1 KB 566.
1 Q.B. 159 CA