Just not this, almost all Acts enshrines the principle of “Offense by Companies”, which can be interpreted to draw the inference that:

• Company is responsible
• Person in charge and responsible to be held responsible
• If the person, who is in- charge and responsible, is able to prove that the particular offense was committed without his knowledge and he exercised due diligence, then it is a good defense.
• This defense is not available if it is proved that the offense was committed either by consenting or conveying.

The legal position wasn’t the same and the concept of Corporate Veil was respected, and directors were not prosecuted.

In the landmark case of Assistant Commissioner vs. Velliappa Textiles Ltd, (2003) the Supreme Court held that Corporation cannot be imprisoned. It said that company can also not be prosecuted for the offence that is punished with imprisonment.

As the Complexities changed and the decision taking authorities of the directors surfaced out, the judiciary pronouncements started fastening responsibilities and punishing directors.

This trend further saw an upswing with the use (including misuse) of technology, recent & multiple scams and numerous examples of financial irregularities, embezzlement, money laundering, profit diversion and extraction, online frauds, data thefts and misuse, which has put the role of companies under lenses, which many times are examined under microscope.

Taking into account all these, Supreme Court in the case of Standard Chartered Bank vs. Directorate of Enforcement (2005) overruled the Velliappa case and stated that, a Corporation cannot be let free merely because it imposes imprisonment for its criminal act. In case where, it imposes imprisonment, it should be punished with fine. In Iridium India Ltd. Vs. Motorola Incorporated, (2011) it was explicitly held that the corporations are punished under both common law and statutory law similar to an individual.

The trend continued – in SMS Pharma (2007) , Supreme Court on while commenting on vicarious liability exonerated, most of the directors and only made Managing Director and Joint Managing Director responsible for the offense.

In yet another case, Narayana 2013, Supreme Court emphasized on the positive and negative onus of the directors and held that HR director cannot escape his liabilities by citing that he looks after only the recruitment and talent management and cannot be responsible for the financials of the Company, which is primary responsibility of Director & CFO.

In Sunil Bharti Mittal vs CBI 2015, Supreme Court while appreciating the fact of the case, did not hold MD of the Company, as the necessary criminal intent was missing. In essence, the Supreme Court reflected that it is not the position i.e. directors and managing director but the substantial proof of mensrea and criminal intent is necessary for prosecuting and holding the director responsible.

In yet another recent case of August 2019, of Hyatt Regency, Supreme Court exonerated the Managing Director, and held that just holding the position of director was not sufficient to prosecute and penalize the director of the company.

Analysis: It may be incorrect to draw conclusion basis the above Supreme Court Judgements without evaluating facts and the Acts applicable. This so, as S.M.S Pharmaceuticals was under NI Act, Narayana Case was under SEBI Act, Sunil Bharti Mittal case was under Prevention of Corruption Act and Hyatt Regency under IPC Act.

The global perspective is aligned with Indian jurisprudence– the concept is not very different world-wide, except in Germany and Russia.

Companies in Germany cannot be held liable as per the German Law, but those individuals who commit crime can be held accountable for their actions even if those actions are for Company’s benefit. However, fines can be imposed on companies.

In Russia the liability of a Company is either Civil or Administrative in case it commits illegal activities – as there is no concept of criminal liability for companies.

Civil law jurisdictions need codification and we have examples of Switzerland, where Corporate Criminal liability was introduced in 2003 which stated that corporations can be held liable when fault cannot be attributed to a specific individual.

France codified Corporate Criminal liability under Article 121-2 of new French Penal code. According to this law, three requirements were needed (1) French legislature must have enacted a substantive criminal offence (2) actual criminal liability must lie (3) acts which are criminal in nature and criminal liability can be imposed must be for the benefit of the Corporation.

Japan is interesting to know as it has the provision known as dual criminal liability provision. Here the Company, business operator and the perpetrator can be held liable and this provision was introduced in 1932 via Prevention of Capital Outflow Act.

USA – US laws evolved very similar to Indian laws as earlier, Corporations were considered fictitious legal entity incapable of forming any criminal intention and therefore not made criminally liable. The judgment of New York Central and Hudson River Railroad vs. U.S rejected the above idea. In this case, the employee of railroad company paid rebates to the shippers, which was violation of federal law. The court held that, the company cannot be convicted for the act of its employee, as the corporation did not have any criminal intention. But later, the Supreme court held the corporation criminally liable, because the act of the employee.