CORPORATE CRIMINAL LIABILITY – and lifting the corporate veil

INTRODUCTION

All other characteristics of a corporation's personality stem from the fact that it is a separate legal
entity from its shareholders. Therefore, it may have rights and be subject to duties separate from
those of its members. Corporate personality has been described as "one of the most pervasive of
company law's fundamental ideas." It is the guiding principle that a firm is viewed as a separate
entity from its investors. Courts and academia have discussed "lifting the corporate veil" for many
years, and in certain circumstances, courts have deviated from the theory's strict application. This
attitude is based on convenience, need, and commercial viability. According to the "Lifting the
Corporate Veil" thesis, the law penetrates the corporate veil or mask to reveal the actual identity of
the individual hiding behind it.

Providing its shareholders with limited liability is one of the primary reasons for forming a
corporation. According to this idea of limited liability, a shareholder's maximum loss is limited to the
quantity of shares contributed to the corporation. However, in order to appreciate "Lifting of the
Corporate Veil," it is required to analyse both the Indian legal laws that permit courts to penetrate
the corporate veil and the corporate personality of a company. Another meaning of "piercing the
corporate veil" is "the Court's incapacity to allow corporate existence and behaviour to deviate from
the application of law to prove facts." When this principle is in question, it is permissible to
demonstrate that the person hiding behind the company is responsible for fulfilling the
responsibilities, while abandoning the concept of the corporation as a separate entity. The misdeeds,
transgressions, or violations of a company's shareholders and directors are not necessarily binding
on the corporation as a whole. To apply the law to known facts, the court procedure may disregard
the company's legal status and oblige the directors and, in some cases, shareholders to fulfil their
legal obligations. When the corporate veil is lifted or pierced, the court presumes the corporate
entity of the business is a ploy to perpetuate the deception, avoid accountability, the repercussions
of the law, and contractual responsibilities.

CORPORATE CRIMINAL LIABILITY- PROSECUTION OF CORPORATE ENTITIES

Global stipulating forces are enormous corporations. Almost everywhere and in every aspect of our
lives, they are there. In a manner analogous to this, strong corporations have occasionally morphed
into lethal criminals. However, due to the fact that companies are not human, their criminal
behaviour is also rare. Corporate criminality disrupts our perception of reality. This characteristic is
what makes the topic of corporate crime so sensitive. As corporate criminal liability has increased,
courts and prosecutors are now dealing with a growing number of cases involving this issue. In the
middle of the 20th century, under the common law, which was founded on established tort law
concepts, English courts began imposing penalties for statutory infractions on firms. However, many
nations that adhere to European continental law have been unable or unwilling to incorporate the
concept of corporate criminal responsibility into their legal systems. Numerous legal systems have
not yet accounted for the fact that white-collar crimes are on the rise and were almost entirely
committed by individual offenders 150 years ago. Simultaneously, the international reach of crime
has broadened. Criminal culpability is the linchpin of the criminal law's logical structure. Each
element of a crime that must be proven beyond a reasonable doubt is a principle of criminal liability.
Criminal behaviour crimes are those in which only a subset of the applicable liability principles are
engaged. In the criminal law jurisprudence, the topic of a corporation's criminal liability for crimes
committed by its directors, managers, officers, and other people in the course of doing corporate
business has gained prominence. As of present, the question is whether or not a corporation, as a
synthetic person, is legally liable for any crimes it commits. According to popular thinking, a business
could not commit a crime since criminal responsibility needs intent, and a mindless corporation
could not manufacture intent. In addition, the organisation lacked a lockable body

COMMON LAW THEORIES OF CORPORATE CRIMINAL LIABILITY

(A) Agency Theory - The agency theory was first created in tort law and gradually transferred to
criminal law. This idea holds the organisation responsible for the intentions and actions of its
workers.

(B) Identification Theory - The doctrine of identification is the conventional means by which firms are
held accountable under the rules of common law in the majority of nations. Direct responsibility
theory was developed due to the limitations of the agency theory.

(C) Aggregation Theory - Similar to the agency and identification doctrines, the aggregation theory is
founded on similarities to tort law. Under the aggregation approach, a corporation's culpability is
determined by combining the knowledge of its several executives.

CORPORATE CRIMINAL LIABILITY - CHALLENGES AND NECESSITY

A new criminal regime has developed, and technology is continuously evolving. As a result, the acts
of corporations have a profound effect on society. Through our day-to-day activities, corporations
have a good effect on people's lives; nonetheless, they may frequently be disastrous and fall under
the category of crimes. It took a long time for the law to determine that firms should be held
criminally accountable, despite a number of tragedies. This was done largely for two reasons: (1)
corporations cannot commit crimes because they lack mens rea, or a guilty mind; and (2)
corporations cannot be put to jail. These two hurdles survived until the very early and late 20th
century. In the early 16th and 17th centuries, there was a widespread belief that corporations were
free from criminal prosecution. In the early 1700s, corporate criminal liability faced at least four
obstacles,

--- the first of which was attributing crimes to the business, a legal construct. In the seventeenth
century, courts and legal theorists viewed corporate liability with an obsessive focus on corporate
personality.

--- Second, according to legal authorities, corporations lacked the moral culpability necessary to
commit deliberate crimes.

--- The ultra vires doctrine, which argues that courts will not hold corporations accountable for
conduct such as crimes that are not authorised by their charters, is the third element.

--- The final obstacle was the court's understanding of criminal procedure; for example, judges
needed that the accused be physically brought before them.
PRIME CHALLENGE-CORPORATE PUNISHMENT

In India, several laws and regulations, such as Section 53 of the Indian Penal Code, govern the
punishments that may be imposed on the guilty party. These include the death penalty, life in jail,
solitary confinement, the forfeiture of property, and a fine. In other instances, such as when a
violation of Section 420 occurs, the sections just indicate imprisonment as a potential punishment.
Given that a criminal conduct must be correctly interpreted and that these rules do not provide for
the incarceration of enterprises, the question of how to apply these provisions to the businesses
arises. Given the above reason and the rising trend of corporate crime, the Indian courts have finally
admitted that a firm may have a guilty attitude, but they have been reluctant to penalise them since
Indian law does not enable it. According to B.N. Srikrishna J. in The Assistant Commissioner,
Assessment- II, Bangalore and Ors. v. Velliappa Textiles Ltd. and Ors.1, corporate criminal liability
cannot be proved without corresponding legislative changes. The Court was of the opinion that the
company could be prosecuted and punished for an offence involving rupees one lakh or less because
the court has the discretion to impose a sentence of imprisonment or fine, whereas for an offence
involving an amount or value exceeding rupees one lakh, the court does not have the option to
impose a fine in lieu of imprisonment. This judgement was eventually reversed in the Standard
Chartered Bank Case2, which created a baseline for future legal conflicts and the capacity to penalise
firms.

SUGGESTIONS/RECOMMENDATION

• Directors who operate in the name of corporate organisations to the harm or prejudice of
the public gain all of the rewards of their activities. According to the above analysis, the idea
of "corporate criminal responsibility" is not unreasonable. This type of responsibility has
existed since the dawn of time. The legislature opted to keep mute when the question of
implementing penalties for corporate accountability emerged. With the emergence of
several theories, the most essential topic of corporate criminal culpability, namely the
question of mens rea, was settled. Corporate criminal responsibility incorporates the
concepts of strict liability and vicarious liability. In the present climate, it is necessary to
enact strong legislation that makes businesses accountable for all of their illegal conduct.
• The criminal law jurisprudence regarding the imposition of criminal liability on corporations
is fixed on the notion that corporations can commit crimes and be held criminally liable;
however, the Indian statutes are not in step with these developments, and the analysis
above demonstrates that they do not make corporations criminally liable, and even if they
do, the statutes and judicial interpretations impose no punishments other than fines. In
addition to fines, sanctions may include business dissolution, temporary corporate closure,
substantial victim compensation, exploitation of the company's goodwill, etc. Such types of
punishment, which would have a deterrent effect on the organisation, would fulfil the sole
purpose of criminal law punishment. The Indians ought to maintain a balanced and steady
posture.
 By quoting several Indian and international case laws, it is easy to assert that various ideas,
principles, and doctrines have been instilled by jurists based on their own judgments and
what they believe to be appropriate for the situation. Nevertheless, there is also "dissent,"
which should be recognised and considered. Several precedent-setting rulings in India have
been created by a slim majority due to an incompetent legislature and a lack of appropriate

1
2007 AIR (SC) 2204
2
AIR 2005 SC 2622
 punitive laws. In order for India to become a "Justice" nation, "Jurismetrics" of Indian
heritage must rapidly rise in order for India to have a thriving economy.
• Currently, a fine is the sole kind of penalty that may be imposed on a business under the
criminal provisions of several laws. Similar reasoning applies to sentencing judgments. In
addition, the Law Commission proposes in its 41st Report to add a single fine to the list of
penalties that can be imposed on enterprises in place of several fines. Lex non cogit ad
impossibilia, which stipulates that the law does not contemplate the impossible, is the basis
for this restrictive worldview, according to the courts. This argument alone shows that the
law lacks a nonholistic view on the concept of corporate criminal responsibility.
Unquestionably, the courts did an excellent job defining the concept of corporate criminal
liability and applying it to the convicted, but only fines have been viewed as a form of
punishment.
• Several corporate criminal liability concepts, including alter ego, imputation, vicarious
responsibility, and specific vicarious liability clauses, are still in their infancy or birthing
phases. Our high courts and supreme courts have had opposite views on these theories,
which has resulted in dual justice or divergence justice, which differs for instances involving
the same forms of corporate criminal behaviour. A judgement with a razor-thin majority
always generates a variety of legal questions that, if left unanswered, might have
catastrophic consequences for India's present corporate criminal prosecution system.

CONCLUSION

The corporate veil piercing theory is not subject to any tests using gleaming and radiating lines.
While courts sought to refine and enhance their evaluation of these claims, many years have passed.
Each successive phase offers a new collection of facts and circumstances, necessitating a further
verification to establish if the plaintiff has provided sufficient proof of control and dominance,
inappropriate intent or usage, and consequential harm. Consideration of the opinion of competent
professionals may aid in choosing whether to breach the corporate veil in part. When deciding
whether the firm has secured adequate sponsorship for its declared purpose, expert testimony
would be most beneficial to the judge. In the end, the choice on whether or not to disregard the
corporate entity will be taken after balancing a variety of elements, some of which may be necessary
but not all of which may be sufficient to raise the veil. The technique of piercing the corporate veil
remains one of the most controversial subjects in corporate law. Fraud, agency, sham or facade,
injustice, and group enterprises are viewed as some of the most peculiar grounds for which the Law
Courts might pierce the corporate veil. Nonetheless, these classifications are only generalisations
and by no means exhaustive. The proverb "The words of a man's lips are profound, and the source of
wisdom like a rushing torrent" is still applicable today. In addition to case-by-case analysis and other
methodologies, new criteria are always being established. To uncover the real breach and offer
justice within the limits of symmetry, jurists and legislators must act with an honest and justifiable
purpose.

BIBLIOGRAPHY

1. Ramaiya, Guide to the Companies Act, 1956, LexisNexis, New Delhi (18th ed., 2013)

2. Vicarious Criminal Liability for Corporate Officers in India: Problems and Prospects by Nigam
Nuggehalli
3. Corporate criminal liabilty- An analysis by Soumya Suman Faculty of Law, Jamia Millia Islamia, New
Delhi

4. Lifting of corporate veil by Vasundhara Majithia, Yamini Rajora, National Law University Jodhpur

5. The Companies Act, 2013 as amended up to date