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Mens rea of the Alter-ego of a Company

In A.K Khosla Vs. T.S Venkatesan, the Calcutta High Court had held that there are two tests for the prosecution of a corporate body. The first is the test of mens rea, and the other is the mandatory sentence of imprisonment. Though the HC had made such an observation, it had not expressed any opinion on it and held that the complaint would not be maintainable against the company. Whether the said observation is correct in view of the criminal intent of the persons who acted behind the veil of the said company? Being an artificial juridical person, a company has no hands and limbs to act like a normal person. But does it have a brain? If the answer is a ‘No’, then how can a company be held responsible for its acts without the application of its mind? If the answer is ‘yes’, then the intent of those who acted as the brain is material to determine the guilt of the company.

The most important question is whether a company can be prosecuted for a criminal offence such as punishable under Section 420 of the IPC(an aggravated form of cheating in which the victim is dishonestly induced to deliver property)for which imprisonment of seven years and a fine is a mandatory punishment. However, Section 417 of IPC, simple cheating, is an offence punishable with imprisonment of one year or fine or both. In cases where only a fine is charged as a punishment, there is no doubt that a company can be prosecuted but for graver offences with imprisonment, can it be prosecuted? In such cases, it is pretty logical to think that, being a person without corpus a company cannot be punished with a custodial sentence. Corporate houses and Companies being at the centre stage of numerous large-scale economic offences, is it correct to state that, for more minor offences, it will be prosecuted, and for more significant offences, there will be immunity? There is no doubt that a corporation can commit an offence like a natural person. But whether it can be punished under the provisions of IPC in the same manner an individual is being punished in the absence of mens rea? Whether a corporation incapable of possessing necessary mens rea can be punished for the commission of criminal offence?

In New York Central & Hudson River Railroad Co. Vs United States it was observed by the Supreme Court of United States that, though the corporations cannot commit certain types of crimes there are a large number of offences happening under its hood which are explicitly prohibited by the statutes. If such offences are left unpunished on technical grounds, the real beneficiary of the crime, which acted through its agents under the authority or otherwise, shall go scot-free. The Court held that the Corporations which profit from the transaction of their agents shall have to be attributed by such actions of those individuals and to be punished accordingly.

A Corporation is not indictable, but the particular members of it are. This rule applies as well as to the acts of misfeasance as to those of nonfeasance, and it is immaterial that the act constituting the offence was ultra vires. A Corporation may be criminally liable for the acts of an agent or officer assumed to be acting under its authorization. Though a company is incapable of having malicious intent while committing an act, the same is driven by the criminal intent of its agent. In such case, the intent of the agent may be imputed to the company, for which it can be rendered liable. This is an essential factor in determining the malice of corporations in civil actions. The Courts in England had a consensus that a body corporate can commit a criminal offence as the same is an outcome of an act of will needing a particular state of mind. The said consensus was largely based on the doctrine of attribution and imputation. The criminal intent of the persons or group of persons, the alter ego, that guides the company, to be imputed to the company. Its directors determine the actions of a company. Though a company has a brain, the same is under the control of its conscious keepers, who are the directors. The state of mind of the controllers is the state of mind of the company. If the personal fault of an individual is a condition of a tort, the said intention is to be attributed to the company to make it liable for the said tort. In a criminal offence, a guilty mind is a prerequisite for punishing an offender. The intention of the human agents must be imputed to the company to arrive at the mens rea behind an offence. The guilty mind of the directors or managers of the company will render the company guilty. In Tesco Supermarkets Ltd. vs. Nattrass, it was decided by the House of Lords that a company cannot be held vicariously liable for the acts of its agents. A company is not acting as a servant, representative, agent, or delegate. The agent is the persona of the company, and both share the same state of mind and mental condition. If the agent is guilty, then the company is also guilty—Supreme Court of India in Standard Chartered Bank Vs. Directorate of Enforcement analyzed in detail the legal position referring to the entire body of case laws in the country and other jurisdictions and observed that a company is liable to be prosecuted and punished for criminal offences based on the personal malicious intent of its agents, though it is incapable of committing such crimes.

From the above, it is evident that a company is virtually in the same position as any individual and may be convicted undercommon law as well as statutory offence including those that requires mens rea. However, while attributing the acts of its agent to the company it is vital to ascertain the degree of control the said agent exercise. The control should be very intense so that a corporation may think to act through the said agent or body of persons. So it can be concluded that a Company cannot escape liability for a criminal offence merely because the punishment prescribed is that of imprisonment and fine, and the intention of its agents shall be imputed and attributed on it to determine the gravity of the offence.

Bijoy P Pulipra LL.M, FCS,

Advocate & Senior Partner Artis Law House


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