Supreme Court on Corporate Officers’ Criminal Liability

The Supreme Court
of India on Friday issued its judgment in Sunil Bharti
Mittal v. Central Bureau of Investigation
on whether senior corporate
officers are to be held criminally liable for acts of their companies. After an
analysis of the law on the issue and its application to the facts of the case,
the Court answered the question in the negative.
Conceptual Background
Corporate criminal
liability is a broad and developing field with courts and commentators
continuing to grapple with both philosophical and practical issues, as evident from
this very case. There are two distinct aspects in the field, which unfortunately
often tend to be conflated. First, it
is necessary to consider the principles of attribution, whereby the actus reus and/or mens rea of a corporate officer is attributed to that of the
company. In other words, the action or state of mind of a corporate officer is
treated as if it is that of the company so as to make the company liable in
criminal law. This area of the law has evolved significantly, probably more so
in the UK than in India, as Mihir and I discuss in a fair amount of detail in
this paper.
The essence of the principle of attribution is that the company (which is a
legal fiction and a separate legal personality) is held liable for the act
and/or state of mind of its corporate officers (who, through their human
intervention, are therefore able to act on behalf of, or even as, the company).
Second, it becomes necessary to consider
the converse scenario, which is where a corporate officer may be made liable
under criminal law for an offence committed by the company. This scenario
usually arises when such an officer is “the directing mind and will” of the
company. The principle of attribution is not appropriate in this context.
Courts have, however, sought to apply the principle of vicarious liability,
which can be invoked only if the state expressly provides for criminal
liability of one person (such as a corporate officer) for the acts of another
(such as the company). Another option, which has been less explored in the
context of criminal liability, is that of piercing the corporate veil,
where a shareholder or officer of a company may be held liable for the offences
committed by the company.
While the two-way
flow of liability and the principles invoking them are clear: (i) corporate
attribution for making the company liable for offences committed by officers,
and (ii) vicarious liability or piercing the corporate veil for making the
officers liable for offences committed by the company, the judicial exposition on
this count has been unclear. It is in this unsatisfactory state of affairs that
the Supreme Court’s recent decision enters the arena to clear the air. While it
does so to some extent, I humbly argue that some gaps continue to remain.
Supreme Court’s Decision
The factual matrix
in this case is relatively straightforward and does not require elaboration.
This is an appeal from an order of a Special Judge recording to his
satisfaction that there was enough material to proceed against certain persons
in connection with the award of certain telecom licences that have been the
subject matter of considerable legal controversy in the last few years.
Specifically, it was noted that “at the relevant time, Sh. Sunil Bharti Mittal
was Chairman-cum-Managing Director of Bharti Celluar Limited, … and Sh. Ravi
Ruia was a Director in Sterling Cellular Limited …” and that “they represent
the directing mind and will of each company and their state of mind is the
state of mind of the companies”. For this reason, the court took cognizance of
the case and issued summons to various persons, including the two offices
mentioned above. The two officers challenged the order before the Supreme
Court.
The key legal
issue in this case goes to the heart of the controversy discussed in the
background above. The Supreme Court unequivocally laid down its ruling as
below:
35.       It is abundantly
clear from the above that the principle which is laid down is to the effect
that the criminal intent of the “alter ego” of the company, that is the
personal group of persons that guide the business of the company, would be
imputed to the company/corporation. The legal proposition that is laid down in
the aforesaid judgment is that if the person or group of persons who control
the affairs of the company commit an offence with a criminal intent, their
criminality can be imputed to the company as well as they are “alter ego” of
the company.
36.       In the present case,
however, this principle is applied in an exactly reverse scenario. Here,
company is the accused person and the learned Special Magistrate has observed
in the impugned order that since the appellants represent the directing mind
and will of each company, their state of mind is the state of mind of the
company and, therefore, on this premise, acts of the company is attributed and
imputed to the appellants. It is difficult to accept it as the correct
principle of law. As demonstrated hereinafter, this proposition would run
contrary to the principle of vicarious liability detailing the circumstances
under which a direction of a company can be held liable.
37.       No doubt, a corporate
entity is an artificial person which acts through its officers, directors,
managing director, chairman etc. If such a company commits an offence involving
mens rea, it would normally be the intent and action of that individual who
would act on behalf of the company. It would be more so, when the criminal act
is that of conspiracy. However, at the same time, it is the cardinal principle
of criminal jurisprudence that there is no vicarious liability unless the
statute specifically provides so.
40.       It is stated at the
cost of repetition that in the present case, while issuing summons against the
appellants, the Special Magistrate has taken shelter under a so-called legal
principle, which has turned out to be incorrect in law.
Principally on
account of the questionable application of the law by the Special Magistrate
(and for other reasons expounded in its judgment), the Supreme Court allowed
the appeal and set aside the summons issued against the two officers. However,
the Supreme Court expressly conferred leeway on the Special Magistrate to
reconsider the evidence in the light of the principles of law clarified in the
judgment.
Comments
From a legal
standpoint, the Supreme Court has clarified the dichotomy between corporate
attribution and vicarious liability, while underscoring the fact that the
principle of corporate attribution cannot be used to impose liability on
corporate officers but rather only on the companies. To that extent, the
clarificatory function of this judgment somewhat fills the vacuum in the law. For
this reason, it is somewhat difficult to quarrel with the judgment and
reasoning of the court on the fundamental legal principles themselves.
However, one issue
which continues to linger is whether the invocation of the doctrine of piercing
the veil would have resulted in a different outcome so long as the conditions
for piercing exist in this case. At the outset, this issue was not raised
before the court. Even if it was, the outcome would have depended upon a
detailed legal and factual analysis of the presence (or otherwise) of various
factors that lead a court to pierce the veil so as to impose liability on the
officer. But, it would have been difficult to reject liability on that ground
by finding the application of an incorrect legal principle, as the Supreme
Court did in this case.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

3 comments

  • @Reganath. You raise a valid question, although the answer might require a more nuanced analysis under criminal law. On first principles, it appears that an accomplice might have to be involved personally in the offense in that capacity, whereas for officer liability through other means specific to corporate criminal liability the officer may be liable (e.g. through vicarious liability or piercing the veil) even without personal involvement in the offense.

  • Yes. I was just wondering, in a situation where the regulator/prosecutor wishes to make liable the allegedly “directing mind and will” of the company, without the tailwind of a specific statutory provision stipulating vicarious liability, taking the ‘accomplice’ path may be better than taking the one-way road of attribution. In essence, the equations could be something like this:
    1. directing mind/personal involvement, but no statutory stipulation = accomplice; 2.
    no personal involvement, but statutory stipulation of liability = vicarious liability.

    As regards piercing the veil, if Lord Sumption's ratio in Petrodel (2013, UKSC) were to be applied, the prosecutor may find there is no "existing legal obligation or liability".

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