Supreme Court rules corporate body can be prosecuted for criminal offences - International Law Office

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Supreme Court rules corporate body can be prosecuted for criminal offences

March 01 2011

Facts
First instance decision
Supreme Court proceedings

Decision
Comment


In a recent case filed by Iridium India Telecom Ltd against Motorola Incorporated,(1) the Supreme Court ruled on the question of corporate liability for criminal offences. The court held that a corporation or company can no longer claim immunity from criminal prosecution on the grounds that it is incapable of possessing the necessary mens rea (ie, 'guilty mind') to commit a criminal offence, or that the punishment prescribed for such an offence includes imprisonment. In its judgment the court took the view that a corporate body can be prosecuted for cheating and conspiracy under the Indian Penal Code.

Facts

Motorola Inc was the founder-promoter of a corporation known as Iridium LLC, which launched the Iridium Project - a commercial system designed to provide services akin to today's cellular phone. In 1992 a private placement memorandum was floated to obtain investment in order to finance the project. Relying on the representations and assurances made in the memorandum, Iridium India Telecom Ltd and other banks and institutions collectively invested by purchasing equity in Iridium Inc, an instrumentality of Motorola. The project turned out to be commercially unviable, resulting in significant loss to the investors. Aggrieved, Iridium India Telecom filed a complaint against Motorola before the Judicial Magistrate First Class Court in Pune (JMFC) on several charges, including allegations of cheating under Section 420 read with Section 120B of the Penal Code.

First instance decision

The JMFC issued process against Motorola for offences under Section 420 read with Section 120 of the code. Motorola challenged this by way of a petition under Section 482 of the Code of Criminal Procedure before the Bombay High Court.

The Bombay High Court allowed Motorola's petition, citing several reasons - one of them being that a corporation is incapable of committing the offence of cheating, as it has no mind. According to the High Court, although a company can be the victim of deception, it cannot be the perpetrator. Only a natural person is capable of having the mens rea to commit an offence. Aggrieved by the order of the Bombay High Court, Iridium India Telecom appealed to the Supreme Court.

Supreme Court proceedings

The following questions arose before the Supreme Court:

  • whether the High Court had adopted the correct approach while exercising its inherent power under Section 482 of the Code of Criminal Procedure to quash the proceedings at the stage when the magistrate had merely issued process against the respondents;
  • whether the averments made in the complaint, if taken on face value, would not prima facie disclose the ingredients for the offence of cheating, as defined under Section 415 of the Penal Code; and
  • whether the High Court was correct in dismissing the complaint on the grounds that a company or corporation does not have the mens rea for committing an offence under Section 415 of the Penal Code.

This update focuses on the third issue.

Iridium India Telecom contended that a corporation is in virtually the same position as any individual and may be convicted of common law as well as statutory offences, including those requiring mens rea.

Motorola in turn contended that a company is incapable of possessing the necessary mens rea to commit a criminal offence and hence cannot be tried for the same.

Decision

The Supreme Court allowed the appeal and set aside the impugned judgment of the Bombay High Court. In its ruling, the court took the position that companies can be prosecuted for offences involving mens rea.

The Supreme Court opined that a corporate body can be prosecuted for cheating and conspiracy under the Penal Code. The court, in its ruling, relied on the legal position in several judgments, including:

  • New York Central & Hudson River Railroad Co v United States;(2)
  • Tesco v Natrass;(3)
  • HL Bolton Co Ltd v TJ Graham;(4)
  • Lennard's Carrying Co Ltd v Asiatic Petroleum Co Ltd;(5)
  • Director of Public Prosecutions v Kent and Sussex Contractors Ltd;(6) and
  • HL Bolton Co Ltd v TJ Graham & Sons.(7)

The Supreme Court relied on the following observations made in the abovementioned judgments:

  • A corporation is in virtually the same position as any individual and may be convicted of common law as well as statutory offences, including those requiring mens rea; and
  • The criminal liability of a corporation arises 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.

In such circumstances, it is necessary to ascertain that the degree of control of the person or body of persons is so high that a corporation may be said to 'think' and 'act' through the person or the body of persons. In other words, the criminal intent of the company or corporate body's 'alter ego' (ie, the person or group of persons that guide the business of the company) is imputed to the corporation.

The Supreme Court also referred to and relied on its earlier position in Standard Chartered Bank v Directorate of Enforcement, observing that:

"There is no dispute that a company is liable to be prosecuted and punished for criminal offences... the generally accepted modern rule is that except for such crimes as a corporation is held incapable of committing by reason of the fact that they involve personal malicious intent, a corporation may be subject to indictment or other criminal process, although the criminal act is committed through its agents."

The court also considered the proposition that a company could avoid criminal prosecution in cases where custodial sentence is mandatory and took the view that:

"As regards company, the court can always impose a sentence of fine and the sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a company. This appears to be the intention of the legislature and we find no difficulty in construing the statute in such a way. We do not think that there is a blanket immunity for any company from any prosecution for serious offences merely because the prosecution would ultimately entail a sentence of mandatory imprisonment."

The court opined that there is no immunity to companies from prosecution merely because the prosecution is in respect of offences for which the punishment prescribed is mandatory imprisonment, and it overruled the views expressed by the majority in Ast Commr v Velliappa Textiles Ltd.(8)

Comment

The Supreme Court in Iridium appears to have crystallised the law on attribution as a whole. It lays emphasis on the theory through which the intention of the directing mind and will of a company is attributed to the company, and confirms that a corporation can be held liable for crimes of intent (ie, offences involving mens rea). The judgment further clarifies that a company is not immune from any prosecution for criminal offences for which a sentence of mandatory imprisonment is prescribed, as the sentence can be imposed in terms of penalty and fine.

For further information on this topic please contact Jasleen K Oberoi or Bahaar Dhawan at Amarchand & Mangaldas & Suresh A Shroff & Co by telephone (+91 11 4159 0700), fax (+91 11 2692 4900) or email (jasleen.oberoi@amarchand.com or bahaar.dhawan@amarchand.com).

Endnotes

(1) 2010 (10) UJ5258 (SC).

(2) 53 L Ed 613.

(3) 1971 All ER 127.

(4) [1957] 1 QB 169.

(5) AC at pp 713, 714.

(6) 1944 1 All ER 119.

(7) 1956 3 All ER 624.

(8) (2003) 11 SCC 405.


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