Attributing mens rea to Corporations – The Judicial Journey

Author: Tanya Agarwal, Research Associate

Criminal Law is a policy tool to regulate the undesirable conduct in the society. It is a means to an end, not an end in itself. Criminal activities are the worst sorts of behaviour that members of societies can engage in. If corporations commit some of the worst sorts of activities, then we should be entitled to label them as criminal ((Steven Bittle, Still Dying for a Living  Corporate Criminal Liability After the Westray Mine Disaster [1st edn. UCB Press 2012] 112.)). ‘Corporations’ touch every aspect of the society and hence amenability of corporation to criminal law is essential to have a peaceful society with economic stability.

 Actus Reus and Mens Rea are two elements which must concur to constitute a crime ((Lord Keyon CJ in Younghusband V. Luffing [1949] 2 KB 354; Also See Russell, W.O., Russell on Crime [12th edn. 1964] pp 22-60. In the past, criminal liability was absolute. A man was responsible for doing an act prohibited by law irrespective of mental attitude. However in cases of self defence (defendendo) and accident (per infortunium), the King used to pardon the accused.)). These elements are derived from the Latin maxim ‘reum lingum non facit, nisi mens sit rea’ ((Jerome Hall, General Principles of Criminal Law, [2nd edn.1960] pp 77-83. Also known as, actus non facit reum, nisi mens sit rea.))which reflects the fundamental principle of criminal liability. The word ‘actus reus’, may, be defined as, result of human conduct as the law seeks to prevent ((Kenny’s Outlines of Criminal Law, 19th edn. JWC Turner, p.17)).’  On the other hand, mens rea, which is a technical term is generally taken to mean some blameworthy mental condition or mind at fault, covers a wide range of mental states and conditions, the existence of which would give a criminal hue to ‘actus reus’ ((Sk. Mansuri Nizamuddin V. The State AIR 1955 Pat 330)).

In the present article, author have traced the journey of English and Indian law on role of mens rea in holding corporations liable under criminal law. This article excludes acts of corporations falling under the domain of strict liability and absolute liability as the element of mens rea does not play a dominant role in attracting criminal liability ((This happens in cases of mass destructions through pollution, gross negligence of the company resulting in widespread damages like Bhopal Gas Tragedy.)).

English Jurisprudence on criminal liability of corporates can be traced from sixteenth and seventeenth century.  During this period, corporations were deemed to have ‘no soul to damn and no body to kick ((Coffee,Jr., ‘No Soul to Damn: No Body to Kick’: An Unscandalized Inquiry into the Problem of Corporate Punishment, 79 Mich. L. Rev. 386.)).’ In 1800’s ((Citizens Life Assurance Company Ltd. V. Brown [1904] AC 423))and early 1900’s series of judgement ((Director of Public prosecutions V. Kent and Sussex Contractors [1944] I KB 146; R v ICR Haulage [1944] 30 Cr App R 31, Moore v Bresler [1944] 2 All ER 515.))slowly opened the gates for holding corporations criminally liable and finally Lord Reid in Tesco Supermarkets V. Nattrass (([1972] AC 153.))expounded the test of who the ‘directing mind and will’ of the company is. However, the development of the concept can be traced back to House of Lords decisions in 1915 entitled Lennard’s Carrying Co. Ltd V. Asiatic Petroleum Co. Ltd (([1915] AC 713)). The issue was whether the fault of a director, who was actively involved in the operation of the company, was in law the fault of the corporation. In holding that it was, Viscount Haldane laid down a general principle- the directing mind principle-for attributing fault to a corporation. Nonetheless, Tesco Supermarket’s judgement (([1972] AC 153. In this case, Tesco was prosecuted under the Trade Descriptions Act 1968 for displaying a notice indicating that goods were being offered at a price less than that at which they were actually being offered. This occurred because the manager of one of their branches had negligently failed to notice that he had run out of the low price pockets. The House of Lords held that the branch manager could not be held to embody the company as whole, which made available to Tesco a due diligence defence under section 24 of Trade Descriptions Act 1968.))has been subjected to a lot of criticism owing to its peculiar facts. It represents a crude distinction between the ‘hands’ and ‘brains’ of the company. The ‘actus reus’ of the crime is more likely to be committed at a much lower level than director level. Trying to match the ‘actus reus’ committed by a lower level employee with the mens rea of higher level employees has a certain inconsistency of approach.

The strictness of ‘directing mind and will theory’ was diluted to a certain extent in Meridian Global Funds Management Asia Ltd v Securities Commission (([1995] 3 NZLR 7. In this case, the chief investment officer of an investment company purchased substantial shares in a public issuer with the company’s authority but without director’s knowledge. No notice was given as required under New Zealand’s Securities Amendment Act, 1988. The company was held to be in breach of its duty to give notice on the basis that the chief investment officer was the directing mind and will of the company))[also known as Meridian Rule] where in the Privy Council effectively extended the class of persons who might be identified as the company. The Privy Council stated that whether an act is to be attributed to a corporation is a question of construction of the particular statute under which proceedings are brought, and that a statute may impose corporate liability in respect of an employee who could not be said to be the directing mind and will of the corporation under the company constitution. In other words, there was more than one formula under which the acts and knowledge of company officers could be attributed to a company.

The position in Tesco judgment appears to be re-instated in a recent decision R V. St. Regis Paper Co. Limited (([2011] EWCA Crim 2527 In this case employee was a technical manager who had intentionally made a false entry in a record required for environmental pollution control. The issue before Court of Appeal was whether company can also be held criminally liable for his action of employee.))the Court of Appeal held that directing mind and will of the company would normally be the board of directors, the managing director and other superior officers of the company who carry the functions of the management and spoke and acted as the company. Thus mens rea can be attributed to the corporation only when one of the controlling officers performs the alleged conduct with necessary intent.

Indian Criminal Jurisprudence recognizes that corporations are ‘persons’ for the purpose of criminal law ((Section 2 of the Indian Penal Code 1860 provides that every person shall be liable to punishment under the Code. Section 11of Indian Penal Code, 1860 defines a person as including ‘any Company or Association or body of persons, whether incorporated or not’))however the most challenging obstacle to imposing criminal liability on corporations was difficulty of attributing mens rea to an abstract, non human entity called a corporation. In 1960’s legal position in India stated that unless the statute clearly excludes mens rea in the commission of an offense, the same must be treated as an essential ingredient of the act in order for the act to be punishable with imprisonment and/or fine ((State of Maharashtra v. Mayer Hans George A.I.R. 1965 S.C. 722 ; Nathulal v. State of M.P.  A.I.R. 1966 S.C. 43.)).

Post Tesco, English Law had already seen a transition, however, Indian Courts still ruled ((A.K. Khosla V. T.S. Venkatesan (1992) Cr.LJ. 1448 ; Kalpanath rai V. State (1997) 8 S.C.C 732 In this case, a company, accused and arraigned under the Terrorists and Disruptive Activities Prevention (“TADA”) Act, was alleged to have harbored terrorists. In a bench trial, the trial court convicted the company of the offense punishable under section 3(4) of the TADA. On appeal, the Indian Supreme Court referred to the definition of the word “harbor” as provided in Section 52A of the IPC and pointed out that there was nothing in TADA. It held that held that an accused corporation could not possess the requisite mens rea, even if any terrorist had been allowed to occupy the rooms in its hotel.))that corporate body cannot be said to have requisite mens rea and therefore could not be prosecuted for offences under Indian Penal Code.  Even at the beginning of 21st Century Indian Courts in cases Zee Telefilms Ltd. v. Sahara India Co. Corp. Ltd (([2001] 3 Recent Criminal Reports 292. In this case, the court dismissed a complaint filed against Zee under Section 500 of the IPC. The complaint alleged that Zee had telecasted a program based on falsehood and thereby defamed Sahara India.))and Motorola Inc. v. UOI (([2004] Cri.L.J. 1576. In thi case, the Bombay High Court quashed a proceeding against a corporation for alleged cheating.)), held that  mens rea was one of the essential elements of the offense of criminal defamation and that a company could not have the requisite mens rea. The development process of corporate mens rea in India was slower than England.

In 2003, at last a breakthrough on this point came from Supreme Court decision in Assistant Commissioner, Assessment-ll, Banglore & Ors. v. Velliappa Textiles Ltd & Anr (([2004] 1 Comp. L.J. 21.)). Justice B.N. Srikrishna and Justice G.P. Mathur held that a company can be attributed with mens rea on the basis that those who work or are working for it have committed a crime and can be convicted in a criminal case, the judges held that the corporations are liable even where the offence requires a criminal intent. In Standard Chartered Bank & Ors. V. Directorate of Enforcement ((AIR 2005 SC 2622. In this case Standard Chartered bank was being prosecuted for violation of FERA provisions. The FERA statute does not make any distinction between natural person and corporations))the Indian Supreme court did not specifically laid down that a corporation is capable of forming mens rea and acting pursuant to it. However, it held that corporations are liable for criminal offenses and can be prosecuted and punished at least with fines.  Finally, the position in Tesco was expressly approved by Supreme Court in Iridium India Telecom Ltd V. Motorola Inc (([2010] 160 Comp Cas 147; Reversed Motorola Inc V. Union of India (2004) Cri.L.J. 1576.))wherein, the court held that a corporation is virtually in the same position as any individual and may be convicted under common law as well as statutory offences including those requiring mens rea. Also, the Court in Iridium appears to have approved of the theory through which the intention of the directing mind and will of a company is attributed to the company ((Naniwadekar Mihir, Varottil Umakanth, Corporate Criminal Liability and Security offerings: Rationalizing the Iridium Motorola case, NLSIU Review, Vol. 23, No.1, p.109, 2011.)). The principle in Iridium was recently reiterated by the Apex court in CBI V. Blue-Sky Tie- Up Pvt. Ltd. & Ors ((2011(6)SCALE436))which reflects that the position in India on corporate mens rea is settled.

The Journey of Indian law from societas delinquere non potest which means, ‘a legal entity cannot be blameworthy’ till corporate mens rea had been slower in comparison to English law. In light of judicial decisions, though corporations can have guilty mind but Indian Courts still need to address the issue of scope and applicability of Meridian rule in Indian context. It is necessary to determine the class of persons falling under the domain of directing mind and will of the company. Though, keeping in view Corporate Scams like Satyam and Enron recent Companies Bill has imputed criminal liability on auditors if they knowingly or recklessly omit certain information from reports. However, the broader question still remains unresolved.