CORPORATION
Sec 2(11) “body corporate” or “corporation” includes a company incorporated outside India, but does not include—
(i) a co-operative society registered under any law relating to co-operative societies; and
(ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf;[1]
The term Corporation is defined under section 2 (11) of the Companies Act, 2013 as body corporate, which is incorporated outside India, but excludes co-operative society, corporation sole and any corporation which is formed by the notification in the Official Gazette by the Central Government.
A corporation is an organization that has a separate legal entity, or its identity is distinct from the owners of the corporation. It can also sue or be sued in its name, with limited liability i.e. the liability of its members is limited up to the amount unpaid on shares held by them, having authorized capital of at least five crores, and continued existence. Corporate Tax is levied on the income of the corporation under the Income Tax Act, 1961.
Corporations have almost similar rights and responsibilities that the natural person has such as they can enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets, and pay taxes. A corporation can also be referred to as a “legal person.”
It does not come to end with the death of its members and thus, has perpetual existence. But, a corporation can act only through its agents.
Types of Corporations-
There are two types of Corporations:
1. Corporation Aggregate:
It is an association of human beings united in one 1order to convey a certain interest to them. A limited corporation is one of the best examples of this. Such a corporation shall be founded by a number of persons who, as shareholders of the company, contribute or pledge to contribute to the capital of the company in order to promote a common purpose. Their responsibility is limited to the extent of their shareholding in the company. As a result, a limited liability company is formed by the personification of the shareholders. The property is not the property of the shareholders, but its own property and its assets and liabilities are different from those of its members. Shareholders have the right to earn dividends from the earnings of the company, but not from the assets of the company. The concept of the corporate personality of a company was acknowledged in the case of Saloman v. Saloman & Co[2].
2. Corporation Sole:
This is a series of successive persons incorporated. It consists of a single person who is, by law, personified and regarded as a legal person. In other words, a single person engaged in the exercise of an office or function has legal capacity and legal rights and duties. The corporation sole is perpetual. Generally, a corporation sole is the holder of a public office recognized by law as a corporation. The chief characteristic of a corporation sole is its “continuous entity with an enduring capacity.”
A corporation sole is an example of dual power. The object of the corporation sole is similar to that of the corporation aggregate. In it, a single person holding a public office holds office in a series of successions, meaning that with his death his property, rights and liabilities, etc., are not extinguished, but are assigned to the person who succeeds him. Thus, when a corporation sole dies, its natural personality is destroyed, but the legal personality continues to be represented by the successive person. Consequently, the death of a corporation sole does not adversely affect the interests of the general public.
CORPORATE CRIMINAL LIABILITY
The Indian Penal Code, 1860 defines ‘person’ under section 11 and includes any company or association or body of persons. Further, it extends to include all body corporate whether incorporated or not. The criminal liability of the corporate can therefore be traced from the Indian Penal Code. In addition, the company is held criminally liable under the provisions of the Companies Act, 2013.
The existence of special legislation such as the Companies Act in the case of a company does minimize the application of the general law of the IPC. However, the concept of corporate criminal liability can be derived from the IPC. The concept of criminal liability is based on the maxim “Actus non-facitreum, nisi mens sit rea,” which means that an act committed will not become a crime unless there is a guilty mind. In the case of corporate criminal liability, the guilty minds of persons who are in a position to manage the affairs of the corporate body shall be considered.
Corporate Criminal Liability and Indian Penal Code-
Interpreting Section 11 of the IPC, it can be understood that a corporation may be prosecuted under the provisions of the IPC. However, while imposing penalties, the courts had to discuss the scope of the same. The Courts have considered the following models in the determination of corporate criminal liability.
There are two models on which the Corporate Criminal Liability works in India-
(1) Derivative Model
(2) Organizational Model
(1) Derivative Model–
The derivative model focuses on the individual as the center of the corporation and relates to the actions of individuals in relation to the criminal liability of the corporation. Thus, this model involves two doctrines (i)Vicarious Liability and (ii) Identification Doctrine.
Vicarious Liability and Corporate Criminal Liability-
The theory of vicarious liability leaves the master responsible for the actions of the subordinate. Thus, while the concept of corporate criminal responsibility was new, the courts held the company responsible for the actions of employees. However, this model is rejected in light of the criminal law jurisprudence in India.
The doctrine of Identification and Corporate Criminal Liability-
Corporations are artificial persons. Therefore, they are identified by the natural persons who are involved in managing the affairs of the corporate. But the liability of these natural persons is limited to the extent of employee and employer relationship. Consequently, the question of the personal liability of these natural persons does not occur until the corporate veil is lifted, as would be done by the courts in exceptional instances where these natural persons have acted beyond the scope of their jobs.
(2) Organizational Model–
The organizational model is different from that of the derivative model. This model focuses on the corporate sector. But this model has its own limitations, as it is not workable when mens rea is considered to be involved in an offence.
In view of the advantages and disadvantages of both models, the courts have taken a balanced approach. Corporate Criminal Liability in India has evolved through judicial interpretation. The following cases are also considered to be important judgments in the history of the law of corporate criminal liability.
In case of Assistant Commissioner v. Velliappa Textiles Ltd,[3] the Apex Court held that the body corporate can not be prosecuted for offenses that prescribe imprisonment as punishment. Therefore, only a fine may be imposed as a penalty and only those offenses that prescribe a fine as a penalty or alternative punishment may be prosecuted against the corporate body.
Later this decision of the Hon’ble Supreme Court got overruled in case of Standard Chartered Bank v. Directorate of Enforcement[4] in which the Court held that the corporates can not be granted full immunity from prosecution under the provisions mandating imprisonment as punishment.
Finally, in the case of Iridium India Telecom Ltd. v. Motorola Incorporated and Others[5], the Hon’ble Supreme Court clarified the position of corporate criminal liability under the provisions of the IPC. The Court noted that a corporation similar to an individual may be prosecuted for crimes involving mens rea. Mens rea of individuals regulating the affairs of the corporate body shall be found to be complicit in the prosecution of these crimes.
Punishment for Corporate Crimes
The concept of criminal liability is established in the case of corporate crimes. But the imposition of punishment is not entirely settled as a concept. Corporates can not be punished with imprisonment, the only penalty that can be imposed is fine. In 1972, the legislature proposed a bill that required the amendment of criminal law to the extent that the companies should be made liable to pay an additional fine instead of imprisonment. Yet this Bill has lapsed.
It is therefore indeed necessary to incorporate certain provisions in the IPC in order to prosecute companies, even in cases where the sections are subject to mandatory prison sentences. In addition, the Companies Act accepted the principle of criminal liability and the practice of the lifting of the corporate veil. Such principles under the Companies Act have offered an option to prosecuting companies that are not held liable under the IPC due to flaws in the application of penalties.
[1] https://www.mca.gov.in/SearchableActs/Section2.htm
[2] UKHL 1 AC 22
[3] (2003) 11 SCC 405
[4] AIR 2005 SC 2622
[5] 2011 1 SCC 74
This Article is Authored by Rishab Bhalla, 3rd Year BA.LLB Student at JEMTEC, School Of Law, Affiliated to GGSIP Uinversity.
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