Criminal liability of company

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CRIMINAL LIABILITY OF A COMPANY / CORPORATIONS

Lakshminarayanan AlagurajaAdvocateAltacit Global



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

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WEBSITE

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Corporate Liability

In criminal law, corporate liability determines the extent to which a corporation as a legal person can be liable for the acts and omissions of the natural persons it employs. It is sometimes regarded as an aspect of criminal vicarious liability, as distinct from the situation in which the wording of a statutory offence specifically attaches liability to the company / corporation.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

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WEBSITE

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Formation of a Company

• Company = organization of persons and funds for common purpose.

• Only an Incorporation makes it a legal entity – registration under Companies Act, 1956 – conclusive proof of valid formation.

• Memorandum and Articles of Association – also shareholder’s agreement.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

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WEBSITE

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Promoter of a Company

• Promoter = one who promotes the formation of the company – entrepreneur.

• Personally liable for contracts before completion of the incorporation process.

• Fiduciary relationship – and legitimate expenses are payable – “sweat equity”, etc.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

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WEBSITE

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Objects Clause

• MoA – Main, Ancillary and Other Objects.

• Investor protection and as caution to outsiders – Doctrine of Ultra Vires – exceeding the legal power.

• Ultra vires actions are not binding on the Company.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Articles of Association

• For internal management – rules for day-to-day activities.

• Rule of Constructive notice = presumed knowledge of the AoA by anybody dealing with the Company.

• Rule of “indoor management” – an exception – of procedural compliance – to protect external interests with reasonable efforts.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Criminal Liability …

1. Nature and seriousness of crime.2. Complicity and pervasiveness within the

Company3. History of similar conduct.4. Corporation’s timely, voluntary disclosure

and cooperative efforts.5. Presence of a compliance and ethics code.6. Prosecution = combined efforts of the

Corporation and the Investigating Authorities Concern of “confidential information”.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Criminal Liability …1. Rationale for Criminal liability = enormous

influence on economy.2. Strict degree of Vicarious criminal liability

attribution of “collective mens rea” of Executives.

3. Gross negligence or breach of duty.4. Test of “Organizational approach”.5. Applies to Partnerships/Trusts/Unions too.6. Statutory compliances also covered for

liability.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Criminal Liability …

• Fundamental Rights of a Company– Fair trial = Procedural safeguards– Issue of Political funding

• Punishments for Company:– Restitution; Fines; Probation under

Court supervision; Forfeiture clauses; and Public apologies



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Culpability of Company

• Crime committed by an employee despite strong Corporate policy against it?

• Crimes committed by contractors/ consultants?

• Crimes committed in ignorance or wrong understanding of law?

• Serious frauds committed by senior management?



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Offences under Companies Act

Section

(Companies Act 1965)

Offences

Section 169 Failure to table accounts.

Section 364(2) Making false and misleading statement.

Section 131 Disclosure of interest in contracts, property, officers etc

Section 132 Breach of duty and liability of officers.

Section 132E Substantial property transactions involving directors.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Offences under Companies Act

Section

(Companies Act 1965)

Offences

Section 167 Failure to keep accounts for 7 years.

Section 125 Undischarged bankrupt acting as director.

Section 133A Prohibition of loan to persons connected with directors

Section 135 General duty to make disclosure

Section 174 Powers and duty of auditors as to reports on accounts

Section 367 Use of a company name in business prior to incorporation.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

CASE STUDY



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Iridium India Telecom Ltd. vs. Motorola Inc. 2011(1) SCC 74

The Hon’ble Supreme Court allowed the prosecution against the Motorola setting aside the defence plea that it could not have the necessary mens rea. A Company/Corporation is virtually in the same position as any individual and may be convicted of offences including those requiring mens rea. It cannot escape liability for a criminal offence merely because the punishment prescribed is that of imprisonment. The criminal intent of the alter ego of the company i.e. the persons or group of persons that guide the business of the Company, would be imputed to the corporation, depending upon degree of control exercised by persons in charge of affairs of company. Held if degree of control is so intense that a corporation may be said to think and act through a person or body of persons, mens rea of person or persons in control is attributable to the corporation.



Chennai - 600 004.Tel: +91 - 44 - 2498 4821



Bangalore - 560 001.Tel: +91 - 80 - 6546 2400



Tel: +91 - 422 – 6552921

EMAIL

[email protected]

WEBSITE

www.altacit.com

Thank You

Criminal liability of company

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