Companies can be dangerous too

LEGAL EYE

The Supreme Court in Som Mittal's case did not pronounce him liable or guilty on any count. It simply refused to quash the proceedings initiated against him leaving it to the Magistrate to decide the issues in a trial. Therefore, whether the complaint against Mittal is maintainable or whether the law imposes an obligation on his office to provide certain safeguards to women employees will depend on the prosecution.

To what extent can the Company, also a party to the above proceedings, be subjected to an indictment or other legal process? What are the situations in which an employee is held liable or a company arrayed as a co-accused or for derivative liability of crimes committed by employees? The general rule of thumb is that except for such crimes which a corporation is regarded incapable of committing as they involve personal malicious intent, a corporation by itself, and/or through its agents, can be liable in various ways. There are several laws, regulations and compliances, civil and administrative, the evasion of which can attract civil imprisonment or fine, though there is no conviction under penal law.

The issue of criminal liability of corporations has become significant in the wake of several environmental, anti trust, worker death, and other financial crimes involving corporations. The most prominent was the Enron case which led to the disintegration of Arthur Anderson and the birth of Sarbanes Oxley. Closer home, there have been murders of whistleblowers Manjunath, and Satyendra Dubey, but the Act for their protection is stillborn till date.

Criminal liability of corporations is no different from that under general law "" the objectives are retribution, deterrence, rehabilitation etc. Unfortunately, most jurisdictions face problems in grappling with situations where the statute is silent or inconsistent, as distinct from a situation, say under a special law, where the corporation is made jointly liable with a human agent.

In India, this dichotomy manifested itself in the Standard Chartered Bank case when the Bench was divided on the question whether a corporation could be prosecuted for offences in which imprisonment is a mandatory punishment along with a fine. The interpretation of the legislative intent therefore can lead to a view that since a corporation cannot be subjected to a custodial sentence, the prosecution itself becomes a mockery.

The Indian Penal Code (IPC) and the General Clauses Act define a "person" to include any company or organisation or body of individuals whether incorporated or not, thereby extending the liability to all entities. IPC addresses all types of general crimes which can involve a company such as criminal breach of trust, cheating, fraud, forgery, misappropriation etc.

The one stop law for companies is the Companies Act, 1956 (Act), under which, a company is recognised as an artificial person and the members' liability pegged to the shareholdings "" the 19th century vintage doctrine of Salomon vs Salomon.

The Act has several punitive provisions and also recognises the enforcement of lifting of the corporate veil in order that the persons actually responsible for commission do not evade liability.

The realities of our times have made corporate criminal liability imperative. Corporations are independent juristic entities with deep pockets that can cause harm and hurt. Accountability has become extremely important and lawmakers have realised that punishment of drug traffickers, polluters, money launderers are as important as doctrinal issues. In earlier days when a company was involved in carrying an activity involving use of a hazardous substance, the management would appoint a subordinate staff as the "Occupier" of the factory who would face the music instead of the owners or persons in control. The Factories Act was substantially amended to provide for the managing director, any specific director, or otherwise the entire Board to be deemed as Occupiers liable for all contraventions. This was hotly contested, but the Supreme Court upheld the validity of the amendment.

The Shops and Establishment (S&E) laws do not follow this pattern. An individual is usually appointed as the "officer in default" who is liable for contraventions. In the Som Mittal case, the inconsistencies between the definition of "Employer" the non- applicability of the Karnataka S&E Act to "Persons Occupying Positions of Management" and the interpretation of who can be held liable for contraventions may provide an escape route. Our lawmakers need to look at these anomalies seriously, as corporations are the most powerful person in a modern society.

Kumkum Sen is a Partner in Rajinder Narain & Co.

kumkumsen@rnclegal.com