Criminal Liability

Fixing Criminal Liability of Giant Corporate Firms

Some corporate entities, companies, conglomerates, and corporations have become so enormous, giant, or systemically important to the State that the government cannot credibly impose ‘effective’ criminal consequences when they infringe laws or break the legal rules of Corporate Governance.

Corporate Giants Becoming Too Big To Jail:

These corporate giants have become Too-Big-to-Jail (TBTJ) with the passage of time, and this problem impacts the authority of investigating agencies to deter corporate crimes by simply leaving them with small monetary fines or warnings. When the prosecution of culpable individuals/entities does not proceed in accordance with the law, it undermines the administration of Justice and the Rule of Law. In the Indian scenario, structural reforms are needed by introducing a strict political-economic restraint into a standard microeconomic model of corporate liability.

The investigating agencies and the prosecutors frequently lack the basic resources and knowledge to charge corporate criminals or enact institutional reforms. The threat of criminal prosecution alone for large organizations is insufficient to motivate it to invest in internal controls or cooperate with government agencies, but in order to deter these companies and their management, the investigating agencies should also legitimately investigate and prosecute the guilty management and officials with criminal and monetary sanctions with utmost diligence and competence.

How Companies Can Be Prosecuted:

Ordinarily, a company cannot be arrayed as an accused in a criminal case, whenever a company is arrayed as an accused, the responsible management/ officials shall also be arrayed as accused along with the company. If the management/officials involved are not arrayed as accused, the prosecution shall be in nullity. The Hon’ble Supreme Court has settled this proposition of law by a judgment of 3 members bench in Aneeta Hada vs. Godfather Travels & Tours Pvt. Ltd. (2012) 5 SCC 661. The Hon’ble Supreme Court held that:

48. Keeping in view the anatomy of the aforesaid provision, our analysis pertaining to Section 141 of the Act would squarely apply to the 2000 enactment. Thus adjudged, the director could not have been held liable for the offence under Section 85 of the 2000 Act. Resultantly, the Criminal Appeal No. 1483 of 2009 is allowed and the proceeding against the appellant is quashed. As far as the company is concerned, it was not arraigned as an accused. Ergo, the proceeding as initiated in the existing incarnation is not maintainable either against the company or against the director. As a logical sequeter, the appeals are allowed and the proceedings initiated against Avnish Bajaj as well as the company in the present form are quashed”.

Lifting The Corporate Veil:

Holding the company responsible every time for the wrongdoer’s deception, mismanagement or irresponsible activities would be difficult because the company cannot have any ‘Mens Rea’ to commit any wrongdoing of its own because it is an artificial Legal/Juristic entity. The corporate entity concept was developed to stimulate and promote trade and commerce, but not to do unlawful acts or mislead people. When the corporate personality is proved to be hostile to justice, convenience, and interest of the revenue or worker, or against the public interest, the corporate veil can unquestionably be broken. This veil must be raised in order to enforce the law in the interests of equity, a good conscience, and justice, without prejudice. The concept of ‘Lifting of Corporate Veil’ is rarely used by the Indian Courts in its judgments using various statutory sections of law. The courts having a versatile weapon of law must act actively within the ambit of the law to achieve justice by penetrating the wall of incorporation to investigate the individuals behind a Corporate Crime. The Hon’ble Supreme Court discussed the concept of Lifting the Corporate Veil in Delhi Development Authority vs. Skipper Construction Company Co. Pvt. Ltd. 1996 SCC (4) 622. The Hon’ble Supreme Court held that:

The concept of corporate entity was evolved to encourage and promote trade and commerce: but not to commit illegalities or to defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or for defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned…

Role of The Law Enforcement Agencies & Prosecutors:

A structural explanation for the lack of individual prosecutions in relation to negotiated criminal settlements with these big companies is due to the fact that the investigating agencies, governmental agencies, the prosecutors currently rely on an investigation apparatus that may produce information useful for corporate settlements, but does not reliably produce evidence sufficient to charge culpable individuals of corporate entities. With this role of investigating agencies, governmental agencies, and the prosecutors, the courts rarely have opportunity to adjudicate the matters related to corporate crimes, and large corporate settlements take place without requiring a comprehensive investigation or adjudicatory mechanism of the Courts.

Incoordination of Investigating & Government Agencies And Issues Related To Cross-Jurisdictions Disputes:

It has been observed in a practical experience that the investigating and government agencies have limited or minimal coordination for corporate crimes. The procedures to seek coordination are long, troublesome, time-consuming, and yield undesired results. Another key source of both distributional and efficiency constraints on company law is self-conscious transnational initiatives to coordinate the regulation of firms across agencies, and countries of different jurisdictions.

In cross-jurisdictional disputes, the coordination must be done to some extent on a national and international level, such as in international efforts to set common accounting standards, and having some expertise to cross border laws. This trend is currently visible in the European Union’s efforts to further integrate its common market. These attempts are loosely divided into two categories: harmonization and regulatory competition, which are mainly incompatible.

Reforming Corporate Settlement:

A legislative change is needed to a mandatory judicial review of every prosecution or immunities given to the corporates, and the investigating & governmental agencies must gather enough evidence before concluding corporate settlements. The way forward in bringing new reforms like:

  • Improving judicial oversight of deferred prosecutions;
  • Forbidding Corporate Non-prosecution Agreements;
  • Increasing Political Accountability;
  • Improving structural reform mandates for law enforcement strategy;
  • Identifying the source of the problem relating to the law and practice of deferred prosecutions and also analysis of why corporate settlements generate relatively a few individual prosecutions.

This employs economic formalism to establish an obvious point: if an organisation and its management decide “rationally” to engage in criminal behavior and know that the state’s ability to punish them is limited, they will be under deterred in comparison to the ideal. The analysis, which takes into account the scale, interconnection, and political power of some modern corporations will demonstrate the government’s ability to discourage corporate criminality in the context of a highly concentrated political economy breaking down.

When giant corporations discover that criminality pays in some situations, the government finds it difficult to extract good-faith cooperation from responsible individuals. The government’s investigation technique, on the other hand, is mainly reliant on cooperation and self-reporting. This recasts the lack of individual prosecutions as a result of corporate dominance and an overly defensive government approach in the name of efficiency. The flaws in the system clearly reflect that a period of intensive corporate criminal prosecution has coincided with ways of wrongdoing among certain large businesses.


As a result, the investigating agencies must focus more narrowly on bringing individual prosecutions, relying less on internal investigations of the companies for evidence generation and crafting more effective structural-reform requirements. However, this is a restricted strategy and this methodological point is unlikely to gain results if government agencies are unwilling of prosecuting white-collar crimes. The comparatively rapid political Will of multibillion-rupees settlements reached through the traditional “cooperative” channels may be too attractive to pass up for administrations with a democratic mandate to address the problem of corporate wrongdoing.

A more structural approach would be a legislative reform imposing binding procedural procedures and substantial judicial scrutiny. It would re-establish the separation of powers in corporate criminal law, protect the defendants from investigational pressure methods, and oblige investigating agencies to gather evidence against specific persons as a condition of a business settlement as well as to develop more effective structural-reform mandates.

In the end, these issues are pathological repercussions of our excessively concentrated political economy, and the investigation and the governmental agencies have limited capacity to remedy them. However, as long as some organizations are treated too big to prosecute, the government should not rely solely on corporate penalties/settlements to curb their criminal behavior.


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