INTRODUCTION

A Corporation is a group of individuals who come together to carry on a particular business that is recognized by law. During the 17th Century, corporations could not be held liable for any criminal activity. It was believed that as the corporation is not a natural person so it cannot possess any criminal intent. And the basic principle of criminal liability is based on the Maxim “Actus Non Facit Reum Nisi Mens Sit Rea” which is an act that does not make one guilty unless there is criminal intent. But behind these corporations, it is run by natural persons and the action of these persons could attract criminal intention, sometimes these actions result in economic loss as well as human loss to society.

The Theory of Corporate crime where corporations and individuals of such corporations punished emerged in the 20th Century.[1]  And India also took focus on such concepts after the Bhopal Gas Tragedy[2], and the Government took initiatives to strengthen the laws related to punishing the corporate bodies and its members. Remedies and Punishment were introduced for the Corporate Crimes and the laws were amended based on the theories of punishment. But these punishments were mainly in the forms of fines and imprisonment for the corporation and its individuals.  And the court is bound to impose only fines to the corporation for such crimes. This paper aims at discussing the nature of corporate crime and its punishment, the theory of punishment based on which corporate crime is being punished and whether the punishment provided for these crimes and the laws related to it is sufficient or not.

SCOPE AND OBJECTIVES

This paper seeks to study:

  • The Theories of Punishment
  • The reasons behind imposing different sentences to the corporation and its individuals for the same crime.
  • The Punishment provided in the Indian Legislation for Corporate Crime is sufficient.
  • The principle behind the punishment that is deterrence or reformative is achieved.
  • That Justice is provided to the persons who are affected by the Crimes committed by the Corporations.

CORPORATE CRIME

Corporate crimes mean violation of law and business ethics by any businessmen, enterprises, company, or people. Corporate crimes are a type of White Collar Crime. These crimes refer to the criminal act of the corporate managers which benefits the corporation. It is also called Organizational Crime.

Under some circumstances, the persons who committed the crime are separate from the company. But the corporate veil of the company has saved those faces from being punished.[3] As of now, there is no separate branch for the crime which is committed by individuals and corporate.

Corporate crime has a long-term effect on society in comparison to any other crimes. It gives rise to various types of crime, the damage it causes to society as social or economic consequences. The corporations which are being punished are only a few of the big companies of corporate wrongdoing. Many corporations are not being held responsible and continuously exercising their power without any obstruction from the law. The types of corporate crimes are Bribery, Fraud, Blackmail and Counterfeiting.

THEORIES OF PUNISHMENT 

Supreme Court has stated that the motive behind the punishment is to have deterrence, preventive, reformative, retributive and compensatory.[4] It is not a sound policy to prefer one theory over another. The theory should be used independently and on the facts of each case.  The main objective of the law is to prevent crime.

Deterrence Theory

‘Deter’ means to stop from doing anything wrong. The primary objective of this theory is to prevent criminals from attempting the same type of crime in the future or repeating a criminal activity. This theory of punishment is utilitarian. A criminal punished not only because he has done a wrongful act but also to ensure crime not be committed in the future.

The motive of this theory is to show that the crime is never profitable. It assumed that the people who commit a crime, driven by enjoyment in a particular action or because of mental satisfaction. To remove such mental satisfaction the punishment is imposed to the same degree. This theory deters crime by creating a sense of fear. It sets an example for society and its members by punishing criminals.

To put it simply, according to the Deterrence theory of punishment. When a person commits a crime, he/she punished severely. And this will make society aware of such punishment, which may stop individuals from committing any wrongful act out of fear.

Preventive Theory

The preventive theory of punishment is similar to the deterrence theory. But this theory focuses on preventing crime by disabling the criminal from society, i.e. by way of imprisonment or by imposing the death penalty. When a criminal sent to prison, society is trying to prevent crime that the person could have committed and thus protect itself from antisocial elements.

Under the preventive theory, punishment works in three ways.-inflicting fear of being punished, disabling criminals from committing any further crime and changing the offender's mind by rehabilitation so that he may not commit the crime in the future.

Reformative Theory

This theory is most recent and humane from the other theories of punishment. This theory is on the principle that legal offender can be reform by individual treatment.  This theory states that crime is a disease that can't cure by killing it, but it had to be cure by reformation process with the help of medicine.

According to this theory, crimes committed cause conflict between the motive and character of the criminal. Crimes committed because the motivation behind the act is stronger or the restraint of the character is weaker.

Retributive Theory

The harshest theory of punishment is the retributive theory. The term ‘retribution’ means that the criminal has to pay for his criminal activity. This theory is on principle  Lex Talionis mean an eye for an eye. It is necessary to prevent crime to cause injury to the offender.

This theory follows the idea of vengeance. Punishment is imposed on the offender so that the victim or its family members would find some comforts. The reason behind keeping criminals in prison is to have vengeance pleasure. This theory does not believe in the causes of crime and the removal of such causes. 

In India, criminal punishment attached for those acts in which there is a violation of criminal law. And to determine such criminal liability Latin Maxim “non facit reum, nisi mens sit rea” is followed means an act that does not make one guilty unless there is criminal intent. So for a person to be punished for criminal liability two elements have to present one actus reus and the other mens rea.[5]

It is the general rule which applies in almost all criminal cases except few exceptions where the doctrine of strict liability does not apply. In those cases, punishment is imposed even in the absence of means reas that is criminal intention. Like it happened in the Bhopal Gas Tragedy[6] where because of the gross negligence of the company. There was widespread damage; the company was made liable for the damage.

CORPORATION AS A LEGAL PERSON

Corporation has become a part of our society it plays a significant role in the economy. And there is always a risk of getting victimized by such corporations so they need to punish for the wrongdoing for them to be deterred.

Section 11 of IPC, 1860 defines a person as “the word person includes any Company or Association or a body of persons, whether incorporated or not.” So it is clear that the Code considers a company as a person, not as a natural person but as a juristic person. And Section 2 of the Code states that “every person shall be liable to punishment, whether incorporate or not.” The company is a person under Section 11, and Section 2 states every person will be punished under the Code. So company/corporation is punished under the Code. And as in the case of Aneeta Hada v. Godfather Travels and Tours Pvt. Ltd.[7]the apex court states that company being a juristic person will be liable for the acts of others. IPC is not the only legislation which provides punishment of Corporation. There are other legislation like the Companies Act, 2013, Income Tax Act, etc.

Corporations have their separate legal entity which is different from their members, and it is sufficient to make corporation liable and punish for a crime committed by them.[8] And many times the culture and objectives of the corporation are such that it authorizes and sometimes even directs its employees to commit a crime like engaging in many types of unethical business practices.

PUNISHMENT AND ISSUES RELATED TO SENTENCING 

In India, there is a serious concern about corporate crimes because of the nature of such crimes as it affects and threatens the overall economy of the country. There have been many corporate scams in the country.[9] Such crime not only affects the economy but causes an impact on the welfare of the society depending upon the number of people it had affected.[10]  Liability of the corporate crime divided into three situations. Liability where only individuals commit a crime, only the company is held liable for the crime or liability of both company and its individuals.

Many laws enacted to punish the acts of corporations. Strong prohibitive laws are also framed for the fraudulent acts and other intentional crimes of the corporation. Most of the laws is enforcing both individual and corporate liability. But is the punishment by such laws serve its purpose to deterrent crime?

Mens Rea

Among some of the problems faced while imposing punishment on a corporation, one of the problems is the essential requirement of mens rea. It had to offend argued by the judges that how a juristic person can have mens rea? The corporations were not tried earlier for the offenses where there was the requirement of mens rea. The principle behind it was that it not possible for the corporate to have a mens rea, which is an essential element of any offenses.[11]

There are many situations where a corporation gets involved in criminal activity like causing death or hurt in the workplace or causing damage to the property, etc. Such belief that corporate does not possess criminal intent and they are not been tried gave rise to such crimes.[12]

But this belief of corporation not having criminal intent put to end in the case of H.R. Bolton (engg.) Co. Ltd. v. T.J. Graham[13] where it stated:

“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 under 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 a state of mind of the company and it treated by law as such. So you will find that in a 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 the company.”

The Supreme Court stated that companies or corporate bodies will not claim immunity from criminal prosecution on the ground, they do not possess mens rea.[14] The corporation will be liable for the criminal act of its members if done in a working capacity. The mens rea of members of the corporation will be considered as mens rea of the corporation. It was based on the concept of alter ego.

Imprisonment

Under IPC, Section 53 states that punishment can be imposed on the convict in the form of life imprisonment, rigorous or simple imprisonment, death, forfeiture of property and fine. There are some sections like Section 420 that impose punishment only in the form of imprisonment. So the problem arises as to how to apply these sections to a corporation when it is not possible for a juristic body to imprison. A similar type of provision is also there in the Companies Act, 2013 under Section 447 and in The Income Tax Act under Section 276B that makes mandatory imprisonment of person which includes company. So the question arose whether a court can impose fines instead of imprisonment where the provisions make mandatory imprisonment. Since it is clear that imprison a corporation is not possible.[15]

The question was settled in the case of Standard Chartered Bank v. Directorate of Enforcement[16], Supreme Court held that a corporation or company cannot avoid punishment in those cases where imprisonment is mandatory. Where fine and imprisonment both is prescribed as punishment, a court can impose a fine as punishment for the corporation.

In such a situation where both fine and imprisonment are mandatory. The court does follow the strict or literal rule of interpretation. These rules need to take into consideration while interpretation in penal statutes. But to provide justice by mischief rule of interpretation is followed by imposing only a fine. So the penal provisions, like all statutes, should be fairly constructed while keeping in mind the legislative intent that is express in an enactment. And by going through the legislative intent of the statute, it is clear that the intention was never to exclude corporations from being prosecuted, it is to punish the offenders.

The solution provides by the court is that though a juristic person will not be punished by imprisonment instead he will be liable for a fine. And the court can charge a greater amount of fines in caparison to an individual for the same offense.

CONCLUSION

Legal Luminaries took a great initiative by providing legislation for punishing the corporate bodies and their members/employees. Landmark judgments were made to punish the corporate bodies under corporate crime. But the present legislation do not provide proper justice to the victims of corporate crimes. The punishment based on the theory of deterrence, preventive, reformative, and retributive. This theory aims to prevent the crime from happening again by creating a sense of fear. The object is not just to compensate the victim for the wrong done to him/her. But to bring justice to the victim by inflicting some or the same degree of harm to the wrongdoer. There are lacunas in the present punishment mechanism for corporate crimes, like if a corporate commits a crime that results in the death of someone. Then the court can only impose fines as a punishment in such a situation. The only punishment available for the crimes committed by a corporation is fine. And this does bring justice to the victim or society. Corporate crime like scams is still increasing in the country. The big corporations pay the amount of the fine and nothing harm caused to them.

To punish corporations, there is a need for new forms of punishment. Things that are important to a corporation like Goodwill of the company, its shareholders, and customers and punishment should focus on these areas to create a sense of fear in corporations.


[1] Kelly-Kilgore, Sarah. Smith, Emily M., ‘Corporate Criminal Liability’, 48(2) American Criminal Law Review 421-453 (2011)

[2] 1992 AIR 248

[3] John Braithwaite, Regulatory Capitalism, Edward Elgar Publishing (2008)

[4] Dr. Jacob George v state of Kerala, 1994 SCC (3) 430.

[5] Russell, W.O., ‘Russell on Crime’, J.W.C. Turner Ed., New Delhi; Universal Law Publishing Pvt.,17-51 (2001).

[6] 1992 AIR 248

[7] 2012 5 SCC 661

[8] Salomon v. Salomon, 1897 AC 22.

[9] Goel, Shivam. ‘Corporate Manslaughter and Corporate Homicide: Scope for a New Legislation in India’, Partridge Publishing India, Gurgaon (2015).

[10] Reddy, P L Jayanthi, ‘Corporate Criminal Liability: Some Insights’, ICFAI University Press, Hyderabad (2008).

[11] Motorola Inc. vs. Union of India, 2004 Cri LJ 1576.

[12] Bronitt, Simon. McSherry, Bernadette, ‘Principles of Criminal Law’, Thomson Reuters, Australia (2010).

[13] [1957] 1 QB 159.

[14] Iridium India Telecom Ltd vs. Motorola Inc.,(2011) 1 SCC 74.

[15] Gobert, James. Punch, Maurice, ‘Rethinking Corporate Crime’, Lexis Nexis Butterworths, London (2003).

[16] AIR 2005 SC 2622


About the Author: This Legal Article is prepared by Mr. Naveen Toppo, a 5th-year law student at the National University of Study and Research in Law, Ranchi and is an intern at MyLawman. He can be reached at naveennusrl@gmail.com

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