The Hon’ble Supreme Court recently in Sunil Bharti Mittal v. Central Bureau of Investigation (2015) 3 judges bench has clarified the principles of corporate criminal liability.

Now we all understand that a company being a ‘person’ in the eyes of law can commit an offence and can be prosecuted for the same. As a brief backgrounder, we should remind ourselves of the established legal position that a company can be prosecuted even for offences which have a mens–rea requirement and carry a sentence of imprisonment. (Although the final sentence against the company perforce can only be by way of fine as the company being a juristic entity cannot be sent to jail).

Previously, the Supreme Court in Iridium India Telecom v. Motorola (2011) had categorically held that the companies and corporate houses cannot claim an immunity from criminal prosecution on the ground that they are incapable of possessing the mens rea for the commission of criminal offences. By way of the principle of attribution, the criminal intent of the alter ego of the company/body corporate i.e. the persons or group of persons in control of the affairs of the company and at the helm of its affairs, can be attributed to the company and the company can be prosecuted. This means attributing the will of the individuals on to the company to attract criminal liability of the corporate body.

In Sunil Bharti Mittal (supra) : The Hon’ble Supreme Court was faced with an opposite situation, where it had to examine as to : Whether the liability of the company can be attributed to the person(s) at the helm of the affairs of the company by invoking the theory of attribution?

The SC answered ‘No’. The Court reiterated that the “Criminal Intent of the person(s) controlling company can be imputed to company based on the principle of “Alter-ego”, however, the reverse application of this principle is not permissible. When the company is the accused, its directors cannot be implicated automatically and can be roped-in only in two situations :-

1. If there is sufficient incriminating evidence against them as to their specific role, coupled with criminal intent on their part; or
2. The statute provides for specific vicarious liability of directors of the acts of the company by way of a legal fiction (deeming provision) (Note : Many acts such as Negotiable Instruments Act, Prevention of Money Laundering Act etc have such provisions where the liability of the Director/Managing Directors is deemed and the onus is on them to rebut the same by proving : either due diligence on their part to prevent the offence, or lack of involvement in the case)

This order came in the facts of the case, where the Ld.Special Judge, in a matter relating to 2g allocation, summoned the directors of two companies, applying the theory of attribution. The Ld. Special Judge had summoned the two directors in light of the capacity in which these directors acted, and held that they can be considered as the persons controlling the affairs of the company and the directing mind and will of the respective companies.

The order went up to the Hon’ble SC and was reversed on the ground that the magistrate had issued process against the directors without ascribing any incriminating role to them, but solely on the basis that their companies were accused in this case and they being “Alter-Ego” are vicariously liable on account of their position in the company. This was held to be impermissible as there was no provision in the PC Act (or IPC, for that matter) providing for ‘automatic vicarious liability’ of directors. The Court has therefore, clarified that the ‘principle of attribution’ can be used to impose liability only on the companies and not the corporate officers. The liability of the corporate officers would have to be established independently by way of specific incriminating evidence against them, coupled with criminal intent.

This position of law has recently been reiterated in HDFC Securities Ltd. & Ors v. State of Maharashtra (Crl. Appeal No. 1213 of 2016) (SC) (Date of Decision : 09.12.2016).