Crime without Punishment – Conundrum of Vicarious Liability in Criminal Law

A general organizational structure of a Corporation broadly consists of Shareholders, Board, CEO, Managers, and employees, and it acts through them, unlike a human being. A corporation also cannot possess an “intent” to commit a crime. These obstacles in attaching criminal liability to a corporation have given rise to an interesting issue of vicarious liability in criminal law. 

According to Salmond, ‘in general, a person is responsible only for his own acts, but there are exceptional cases in which the law imposes on him vicarious responsibility for the acts of others, however, blameless he himself is.’ 

Section 11 of the Indian Penal Code, 1860 defines the expression “Person” as including a company, association, or body of persons, whether incorporated or not. However, the Penal Code does not contain any provision for attaching vicarious liability on the Managing Director or the Directors of the company when the accused is the company. In almost all the offences under the Penal Code, one of the essential ingredients is the existence of the requisite criminal intent or knowledge. Hence a master will not be liable for the criminal acts of his servants unless it could be shown that he abetted the commission of the offence either by instigation or by any other method described in that section. Sections 154, 155, and 156 of the Code are, however, in the nature of exceptions to this rule. 

A person is criminally liable for the acts of another if they are a party to the offence. In Suresh vs. State of UP, reported in (2001) 3 SCC 673, the Supreme Court has observed that Section 34 IPC, recognizes the principle of vicarious liability in the criminal jurisprudence. It makes a person liable for the action of an offence not committed by him but by another person with whom he shared the ‘common intention’. However, it is a rule of evidence and does not create a substantive offence. 

As observed by the Supreme Court, in the case of SMS. Pharmaceuticals Ltd. vs. Neeta Bhalla, (2005) 8 SCC 89, the normal rule in the case involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provisions being made in the statutes extending liability to others. 

Undoubtedly, criminal liability can be fastened on a corporation, and doctrine of vicarious liability has been invoked specifically under various statutes such as the Prevention of Food Adulteration Act, 1954, the Negotiable Instruments Act, 1881, the Income Tax Act, 1961, and Essential commodities Act, etc., 

A perplexing situation arises when a corporation is sought to be prosecuted for offence under IPC where one of the essential ingredients is mens rea or the existence of the requisite criminal intent or knowledge.

The courts in England have rejected the notion that a body corporate could not commit a criminal offence by adopting the doctrine of attribution and imputation. The criminal intent of the “alter ego” of the company/body corporate i.e., the person or group of persons that guide the business of the company, would be imputed to the corporation.

Lord Denning in Bolton (HL) (Engg.) Co. Ltd. v. T.J. Graham & Sons Ltd. [(1957) 1 QB 159: (1956) 3 All ER 624 (CA)] reiterated the principle as follows: 

“A company may in many ways be likened to a human body. They have a brain and a nerve centre which controls what they do. They also have hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company and control what they do. The state of mind of these managers is the state of mind of the company and is treated by the law as such. So you will find that in cases where the law requires personal fault as a condition of liability in tort, the fault of the manager will be the personal fault of the company. So also in the criminal law, in cases where the law requires a guilty mind as a condition of a criminal offence, the guilty mind of the directors or the managers will render the company themselves guilty.”

American Jurisprudence is also in the same lines. In the 19 Corpus Juris Secundum, Para 1363 it has been observed:

“A corporation may be criminally liable for crimes which involve a specific element of intent as well for those which do not, and, although some crimes require such a personal, malicious intent, that a corporation is considered incapable of committing them, nevertheless, under the proper circumstances the criminal intent of its agent may be imputed to it to render it liable, the requisites of such imputation being essentially the same as those required to impute malice to corporations in civil actions.”

A two Judges Bench of Supreme Court of India in the case of Iridium India Telecom Ltd. v. Motorola Inc., (2011) 1 SCC 74 has applied the principle of “alter ego” to attribute mens rea to a corporation and has held that a corporation is virtually in the same position as any individual and may be convicted of common law as well as statutory offences including those requiring mens rea. The criminal liability of a corporation would arise 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 two Judges Bench also relied on the case of Standard Chartered Bank & Others vs. Directorate of Enforcement, (2005) 4 SCC 530, wherein the Constitution Bench considered the issue as to whether a company, or a corporation, being a juristic person, could be prosecuted for an offence for which mandatory sentence of imprisonment and fine is provided had held that there is no dispute that a company is liable to be prosecuted and punished for criminal offences.

However, mere application of the doctrine of “alter ego” is not enough to implicate the managing directors, directors and other employees of the corporation. It is also a well-settled principle that since all criminal offences are a creature of Statute, the amenability of a person to prosecute necessary depends upon the terminology employed in the Statute. 

In the case of Maksud Saiyed v. State of Gujarat, (2008) 5 SCC 668, the Supreme Court has held as follows:

“Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the Statute. Statutes indisputably must contain provisions fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability”.

Similarly, in Keki Hormusji Gharda v. Mehervan Rustom Irani: (2009) 6 SCC 475, it has been held as follows:

“Penal Code, 1860, save and except some matters does not contemplate any vicarious liability on the part of a person. Commission of an offence by raising a legal fiction or by creating a vicarious liability in terms of the provisions of a statute must be expressly stated. The Managing Director or the Directors of the Company, thus, cannot be said to have committed an offence only because they are holders of offices”.

The Judgment of the Supreme Court of India in Sunil Bharti Mittal vs. CBI, (2015) 4 SCC 609 has clarified many important principles of corporate criminal liability. Justice Sikri speaking for the three Judges Bench, clarifies applicability of vicarious liability and alter ego principle in relation to corporate criminal liability in the absence of any specific legislative mandate. It has been held as under:

“No doubt, a corporate entity is an artificial person which acts through its officers, directors, managing director, chairman etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. It would be more so when the criminal act is that of conspiracy. However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the Statute specifically provides so. Thus, an individual who has perpetrated the commission of an offence on behalf of a company can be made accused, along with the company, if there is sufficient evidence of his active role coupled with criminal intent. The second situation in which he can be implicated is in those cases where the statutory regime itself attracts the doctrine of vicarious liability by specifically incorporating such a provision. When the company is the offender, vicarious liability of the Directors cannot be imputed automatically, in the absence of any statutory provision to this effect”.

Recently, in the case of Shiv Kumar Jatia vs. State, AIR 2019 SC 4463, the Supreme Court has reiterated the principle as follows:

“An individual either as a Director or a Managing Director or Chairman of the company can be made an accused, along with the company, only if there is sufficient material to prove his active role coupled with the criminal intent. Further, the criminal intent alleged must have direct nexus with the accused”.

Conclusion:

The principles on the point can be summarized by stating that the Indian Penal Code, 1860 does not contain any provision for attributing vicarious liability upon the directors or other high-ranking officers of a company, even when the offence is said to be committed by the company, except if there is an abatement, the abettor may be joined with the principal offender or if there is a common or conspiracy involved. In the absence of any provision laid down under the Statute, a director of a company or employees cannot be held to be vicariously liable for an offence committed by the company itself. 

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