Introduction
Traditionally criminal liability has been conceptualized keeping the individual as the focus. However, as time has progressed, criminal liability has come to be imposed on entities like corporations as well. This article aims to examine the corporate criminal liability framework. It highlights the individualistic bias of this framework and the problems this bias creates when imposing liability on corporations.
The second part of this article focuses on the manner in which the judiciary has tried to mould this individualistic framework to impose criminal liability on corporations. It also proposes alternative punishments that could be imposed on organizations to make criminal liability more effective.
The article concludes by showing that there is a need to reconceptualize the current principles and punishments envisaged for the imposition of criminal liability on companies.
The Individualistic Bias
The framework of criminal liability is conceptualized only for individuals. It draws on human characteristics like emotion and free will to make decisions. It seems that within criminal law, a criminal actor is an individual and ‘criminality’ is a human characteristic.[1] The individual is the ‘paradigmatic legal actor’ around which this conception of criminal liability has been based. The primacy given to individuals is known as ‘individualism’.[2] This individualistic view seems to dominate the perception of criminal liability. It is this predominance that creates problems when criminal liability has to be imposed on non-human entities like corporations.
Problems Posed by the Individualistic Bias
Corporations play an extremely important role in today’s world. They have wide-ranging functions and have become intimately connected to the economy. As the roles played by corporations expanded, questions arose about their accountability, responsibility, and liability. A separate framework of criminal liability has not been created only for companies. The current trend has been to integrate the liability of corporations within the existing framework. Individuals are held criminally liable if it is proven that they had the intention (or mens rea) of committing the prohibited act. This becomes a point of contention when it comes to corporations. It poses the problem of ‘no body to kick or soul to damn’ because a corporation is an abstraction.[3] This is where a certain legal reluctance can be seen when it comes to imposing criminal liability on companies. However, over the years, the judiciary has found ways to impute criminal responsibility to corporations as well.
The approach of Judiciary in UK and India for Imputing Criminal Liability
Within common law, the corporate personality theory has been used to hold the company criminally responsible. The approach has been to treat the corporation ‘like a man’.[4] It is through vicarious liability and the ‘alter ego’ doctrine that liability has been imputed to the corporation. While these approaches are not without criticism, it at least allows affixation of criminal responsibility on companies. If companies are treated as mere fictional entities, it will allow them to evade all responsibility and accountability.[5] This section aims to examine the various ways in which criminal liability has come to be imposed on corporations first in the United Kingdom and then see how this has influenced the position in India.
Vicarious Liability
Vicarious liability is a doctrine in tort law. This doctrine provides that a master will be liable for acts of his servant. This has been adapted to hold companies criminally liable for the acts or failure to act of their employees. It is mainly applied in cases of regulatory offenses. The imposition of vicarious liability depends on the manner in which the statute has been drafted. This application is more prominent in cases where there is no requirement of the mental element.
Identification Principle
For those offenses that require mens rea, courts have developed the identification principle. This principle finds its roots in common law. Lord Denning in H.L. Bolton (Engineering) Co. Ltd v. T.J. Graham & Sons Ltd,[6] drew an analogy between the human body and the working of a corporation. He held that a company has a brain and nerve centre which controls its actions. Some agents only carry out the work. They act as the company’s hands. However, others like directors and managers represent the mind of the company. In law, minds of these people are seen as the mind of the company. The analytical framework adopted by Lord Denning continues to highlight the domination of the individualistic attitudes towards criminal liability. In this manner, the judiciary has developed the ‘alter ego doctrine’ or the ‘controlling mind theory’.
In modern times, the leading authority for this principle is Tesco Supermarkets v Nattrass. In this case, the error of the shop assistant resulted in goods being sold at a price higher than the one advertised. The company pleaded that the error was of the manager. The House of Lords held that the manager could not be identified as the ‘directing will and mind of the company’. This is because he was not high enough in the hierarchy. Therefore, they quashed the conviction. It seems that the courts drew on the analogy given by Lord Denning by equating the manager of the store to be only the hands of the Company. Due to such reasoning, the company escaped liability.
Position in India
It is these cases that have also shaped the development of the law in India. It has come to be established through Iridium India Telecom Ltd. v. Motorola Inc that if a person or group of persons who are at the head of the affairs of the company commit an offence with a criminal intent, their criminality can be imputed to the Company. This position came to be affirmed in Sunil Bharti Mittal v. Central Bureau of Investigation. Therefore, it is clear that Indian courts have also used the ‘alter ego’ doctrine to impose criminal liability on corporations.
The above section shows that the ‘alter ego’ doctrine is the dominant approach towards imposing criminal liability on corporations. This approach has been applied and affirmed in India as well. However, this approach is not without critique.
Critique of Alter Ego Doctrine
The manner in which the identification principle has been evolved views a corporate entity solely as a manifestation of individual interaction. It identifies the top management as the alter ego or the controlling mind of the company. It then merges the company personality with these individuals. This principle deepens the problem posed by the individualistic bias. It draws on the idea of individualism that the organizational decisions are limited to only the decisions of its individual members. It becomes essential to note that the actions of these individuals take place in the larger context of the organization. It is an oversimplification to treat an organization like the human body. Therefore, the identification doctrine is flawed, restrictive, and misleading.
The issues raised by the alter ego doctrine can be combatted by shifting focus to the organizational theory.
Organizational Theory: A New Approach
Critique of Individualism and Need for Organisational Theory
This bias of individualism has had the following effects: first, the criminal liability as envisaged for individuals is imposed on corporations unaltered. As shown above, this problem has been deepened by the judicially evolved alter ego doctrine.
Second, as a corollary to the first, the manner in which corporations are punished is also punished like individuals. It has created a trap of treating corporations and their actions like humans.[7]
To escape this trap, the company needs to be seen as an ‘intelligent machine’.[8] A machine with its intricate parts and distinct manners of decision-making and policies.
Therefore, when society holds corporations liable, it should hold the organizational structure liable. The organizational model endorses this view.
Aspects of the Organisational Theory
The organizational model holds that though corporations lack a cerebral state, they manifest intentionality through corporate policy and procedures.[9] It is also important to distinguish the individuals from their contributions to the organization. An organization finds its origin in interaction among all the individuals within the company. This interaction has a transformative character.[10] It is through the process of human interaction within the organizational structure that the ‘conglomerate replaces the aggregate’. This means that the policies are not an aggregate expression of the intentions of the top management, employees, and officers. Instead, they are a distinct expression of the corporation’s strategy. Therefore, it is important to understand that a company takes certain actions to further this policy. These actions have certain outcomes which are a reflection of the decision-making procedures and the corporate policy. This view helps us view organizations as autonomous entities.
This is how corporations should be held responsible and blameworthy.
The importance of corporate policies in decision-making and actions can be seen through the 2018 Amendment to the Prevention of Corruption Act, 1988. It has incorporated a defence for commercial organizations to show that the organization had adequate procedures in place to prevent persons associated with it from undertaking criminally liable conduct.
Individuals Relation with the Company
While it is important to distinguish the individualistic elements from the structure of the organization, individuals within the company cannot escape liability entirely. When required, individuals should also be held accountable for their acts.[11] They must be informed about their duties and must be given an appropriate chance to defend themselves.
There are various provisions of different acts which provide for the liability of the company along with that of the individual. For example, Section 58 of the National Disaster Management Act, 2005. It provides for the liability of the company along with the director of the company. However, the director also has a chance to prove his innocence by showing that they did not have knowledge of the offence committed or they had exercised due diligence. A similar provision can be found in Section 70, Prevention of Money Laundering Act, 2002.
Sanctions and Procedure of Imposition
While it has been established that companies can be held criminally liable, it also important to assess the nature of punishments imposed and the manner in which they are imposed. The individualistic conception of criminal liability also extends to the nature of punishments imposed. In the case of Standard Chartered Bank v. Directorate of Enforcement, the punishment prescribed was a sentence of mandatory imprisonment. Ultimately, the Supreme Court held that a company can be held criminally liable but the punishment imposed will be one of fine. The goal of imposing criminal liability is deterrence. The punishment imposed plays an important role in increasing the effectiveness of criminal liability. The punishments should also be such that they are able to achieve this goal.
Challenge to fines
Fines are the most common way in which companies are punished. The effectiveness of fines as punishment are challenged for two main reasons. First, fines do not achieve the goal of deterrence as the amount maybe so insignificant that it does not really impact the company substantially. In some situations, fines have been termed as mere ‘license fee’ for conducting the prohibited act.
Second, the impact of these fines has to ultimately be borne by the stakeholders. They do have little to no control over the decision-making structures. They do not play a direct role in the commission of the misconduct. However, in the end, even though they are innocent they have to bear the burden.
Alternative punishments
Corporations cannot be imprisoned. As shown above, fines are not as effective a deterrence measure. There is a need to consider new penalties to make the imposition of criminal liability effective. A new range of punishments can also include community service and adverse publicity. However, the most forceful of these is the punitive injunctions.
Punitive injunctions
It has been suggested that certain civil sanctions be moulded to fit the criminal law framework. An example of this is the punitive injunction. This could be used to change the inner controls. This would serve as both a ‘punishment and super remedy’. They will help overcome the problems posed by the fines. The focus of the injunction would be to contain penal liability to the internal structures. This would involve reform of the organizational structures through correction of malpractices and internal disciplinary action. They would be subject to judicial surveillance while these processes are conducted, to ensure compliance. This will also help mitigate the spillover to the stakeholders. Punitive injunctions will strike at the core of where the problem lies and help reform and remedy the same.
Conclusion
The proposition that companies must be held criminally liable is not disputed. However, there is a need to reconceptualise the manner in which criminal corporations are held criminally liable. Incorporation of the organizational theory will help remedy the problems posed by the individualistic bias in these areas. It will prompt a shift from the focus on individuals to the corporate policy and procedures which play a key role in the functioning of the corporation. This will ensure that the sanctions imposed on corporations are effective and remedy the root cause of the issue within the organizational structure rather than punishing one person or a group of people.
The 2018 Amendment of the Prevention of Corruption Act is one of the first steps towards incorporating the organizational theory but there is still a long way to go.
[1] Celia Wells, Corporations and Criminal Responsibility (1st ed, Clarendon Press, Oxford 1994) 63
[2] Christopher Harding, Criminal Enterprise- Individuals, Organisations and Criminal Responsibility (Willian Publishing, Devon 2007) 62.
[3] Harding (n 2), 93-94.
[4] Wells (n 1), 91.
[5] Wells (n 1), 92.
[6] [1957] 1 Q.B. 159
[7] Wells (n 1).
[8] Wells (n 1), 92.
[9] Wells (n 1), 82.
[10] Harding (n 2), 225-227.
[11] Andrew Ashworth and Jeremy Holder, Principles of Criminal Law (7th edn, OUP, Oxford 2013)
About the Author, Kopal [2019-24] is pursuing BA.LL.B(Hons) from NLSIU Bangalore.
Criminal Law Research & Review 