By AdminApril 29, 2021

Applicability of Criminal Law in the Corporate Sector

Tags: Criminal Law in the Corporate Sector

This Article is written by MoumitaMondal, a third year law student of Burdwan University during the internship under Ace Legal- Law Firm, Kolkata.   Introduction Nowadays, corporate crimes are very prevalent these days. It is seen that the directors, business partners and senior officials are liable if they are involved in any unlawful activities which are related to their companies. The maxim ‘Actus Non FacitReum Nisi Mens Sit Rea’ means the act of the person would be regarded as unlawful if it was done with a guilty mind. Here, the ‘actusreus’ refers to the action of the person which causes destruction to the other person whereas the ‘mens rea’ means any unlawful act which is done by the person intentionally. In the simple words. ‘mens rea’ means the person already has knowledge about his action which may cause harm to the other person.   The term ‘white collar crime’ was first defined by the sociologist Edwin Sutherland. White collar crime is a crime which is committed by a person during the course of his employment.   In the corporate sector, the crimes are mostly committed by the persons who hold a reputability and high social status during the course of occupancy.   This article will discuss the corporate crimes, the relation between the criminal law and the corporation.   Corporate Criminal Liability A corporation is an association of members which have common intention to achieve their desired objectives. Criminal liability is interrelated to the criminal law . The criminal liability arises when there is any infringement arising from the act which is unlawful under the Criminal law.This depends upon the maxim Actus non facitreummens sit rea which means that the persons associated with the company are liable for their unlawful acts. And, also they must possess a guilty mind while committing the offense.   There are various doctrines which were established categorically under the concept of corporate criminal liability. One of them is vicarious liability in which the master is held liable for the act of his agent in the course of employment. In the other words, the company would be liable for the act committed by its employee. But the company would only be responsible if its employee had committed the act while working under them. Another doctrine is identification in which the intention or the objective of the company is detected. Here, the work of the company is the results of the members working under them. The applicability of this doctrine is to determine the guilty intention of the company. The third doctrine is wilful blindness which is applicable when the company doesn't take any action against the unlawful activities. The doctrine of Alter Ego is applied when the directors  and other members of a company can hold liable for the acts committed in the favour of the company.   Essentials of Corporate Criminal Liability The essentials of Corporate Criminal Liability are as follows:

1. The act of the individual must be wrongful i.eActus Reus. In the simple words, Actus Reus means any wrongful act of one person which causes damages to the other person.
2. The act of the individual must be intentional i.eMensRea.In simple words, Mens Rea means guilty mind.
3. The objective of the members of the association should be common.

  How Criminal law is related to the corporate Sector? White Collar Crimes White Collar Crimes are criminal activities that are committed by professionals belonging to the private sector or government sector. They usually commit crimes to prevent the loss of their money, property, or assistance and also to acquire supremacy in the business. A crime committed by the individual could lead to the destruction of many people. Fraud is one of the white-collar crimes in the Corporate Sector. There are various types of Fraud that occur in the Corporations such as Corporate Fraud, mortgaged fraud, embezzlement, and fraud related to health, banks, financial institutions, etc. The government is trying its best to prevent it from happening before it begins. The other crimes related to the corporate sector are money laundering and infringement of election laws. Corporate Fraud: The acts which lead to Corporate Fraud are misrepresenting the false financial status,  unnecessarily use of corporate property or falsely increasing the profits or hiding the damages. Money Laundering: This method is used by criminals to hide their identities. This allows them to show the appearance of the sources as legal. This also allows them to acquire or hide their funds and also enables them to avoid the legal procedure. In simple words, dirty money can be converted into clean money. The motive behind the use of this method is to obtain monetary benefits. Some of the ways relating to money laundering are human trafficking, corruption terrorism, medical fraud, etc. Embezzlement: This is a method where a person legally obtains the right to acquire the property but misuses it for other purposes. Embezzlement means the individual puts the funds for his personal use after gaining the entitlement. An embezzler joins with a partner who provides the invoices and gets the remittance but he never acts according to the responsibilities assigned to them. Banking Fraud: The deceitful bank employees acquire the details of the victim’s bank account by providing their false identity or by providing the depositor’s details. In this way, they gain trust and later the customers are duped. Nowadays, fraud relating to credit cards are also common these days. The credit cards can be obtained on the basis of details provided in the false applications.   Case Laws

• In Standard Chartered Bank v Directorate of Enforcement, AIR 2006 SC 2622, the appellant had filed a writ petition before the High Court challenging the notice sent to them under Section 50 read with Section 51 of the Foreign Exchange Regulation Act, 1973. The appellant company asserted that they cannot be tried and punished for crime committed under Section 56 of the Foreign Exchange Regulation Act, 1973. An appeal was also filed before the Bombay High Court against the judgment. It was contended in the appeal that the company could not be held liable because the punishment mentioned under Section 56(1) of the Foreign Exchange Regulation Act, 1973 is more than six years imprisonment with fine. Two questions were raised before the Court which are as follows:(1) Is the company  liable for the punishment of imprisonment or not? (2) If the company is found guilty for the offence whose punishment prescribed is both imprisonment and fine , so does the court has the direction to pass the sentence of fine? The provisions prescribe the punishment of both imprisonment and fine. And, so it was not possible for the Court to give the sentence of fine only otherwise the objective of the legislation would be defeated. The Court had also referred to Section 11 of the Indian Penal Code which states that the word”any person” refers to any Corporation or groups or form of person whether it is incorporated or not. This same judgment was upheld according to the  passage  mentioned in Craies on Statute Law which states that the statutes are mentioned in such a way that there is no option for the criminals to escape from the punishment given by the law. Therefore, the Supreme Court held that the corporation could be liable for the offence committed by it and also the punishment could be given in accordance with the statutory provisions.

 

• In AneetaHada vs. Godfather Travels and Tours Pvt. Ltd, [2012 5 (SCC 661)],AneetaHada had issued a cheque to Godfather Travels and Tours Pvt. Ltd which was dishonoured. So,under 138 of the Negotiable Instrument Act,1991 a complaint was filed against the director of International Travels Ltd. In the complaint, the Company was not arrayed as accused. A question was raised whether the company would be liable or not. The charges against the appellant were booked under Section 292 of the Criminal Procedure Code,1973 and also Section 67 of the Information Technology Act, 2000 without arraying the company as accused. An appeal was filed by the appellant before the High Court. The High Court passed a discretion that the appellant must be punished along with his directors. The appeal was not considered by the High Court. Another appeal was filed by the appellant to quash the proceedings against him. Among the two judge bench, S.B Sinha contended that the appeal should be allowed whereas the other judge V.S. Sirpurkar contended that the appeal should be considered. There was a conflict in the decision among the judges. So, the issue was referred to the third-bench judge. Thus, the appeal was allowed and the proceedings against the appellant were quashed by the High Court under Section 482 of the Criminal Procedure Code,1973.

  Conclusion Crimes related to the corporate are increasing day by day. This can be nationally or internationally. Due to poor surveillance and lack of security, the data of the companies are affected by other companies. Many laws were enacted with an objective to protect the companies from being affected by the other countries. Earlier, the company was not held liable by the court with a contention that it could not be physically present in the court. But, recent judgment, the Supreme Court had already declared that the Corporation would be liable for any unlawful act committed by it.   In Assistant Commissioner v. Velliappa Textiles Ltd., the Supreme Court held that the corporations cannot be given sentence of imprisonment and also it could not be prosecuted. The notion of Corporate Criminal Liability had already been elaborated under the Company Act.   The Company Act 2013 had already mentioned that the directors and the officers of the Company could be prosecuted and held liable jointly for the offence committed by them. In tort, we have already read about the concept of vicarious liability which means that the master will be liable if his agent has committed any offense during the course of employment. Similarly, if an employee had committed any offense while carrying the duties on behalf of his company, then the head of the company will be liable. Here, the employee is an agent and the head of the company is a master.   Therefore, the Corporate Criminal Liability has a wide concept. The white collar crimes are non-violent crimes which are committed by the members of the Corporation.           References  

• http://www.legalservicesindia.com/article/1634/Vicarious-Liability-in-India.html#:~:text=Conclusion-,Vicarious%20Liability%20deals%20with%20cases%20where%20one%20person%20is%20liable,for%20his%20own%20acts%20only.&text=So%20a%20master%20is%20liable,in%20the%20course%20of%20employment.

 

• http://www.legalserviceindia.com/legal/article-521-corporate-criminal-liability-white-collar-crime.html#:~:text=Corporate%20criminal%20liability%20can%20be,for%20the%20benefit%20of%20the

 

• https://lawtimesjournal.in/actus-non-facit-reum-nisi-mens-sit-rea/#:~:text=An%20act%20does%20not%20make,intent%20or%20a%20guilty%20mind.&text=Actus%20Non%20Facit%20Reum%20Nisi%20Mens%20Sit%20Rea%20explains%20that,done%20with%20a%20guilty%20mind.

 

• https://www.investopedia.com/terms/w/white-collar-crime.asp

 

• http://www.legalserviceindia.com/legal/article-1028-concept-of-white-collar-crime.html