Company can face criminal prosecution even if no individual is made accused: Supreme Court

The Supreme Court has ruled that criminal proceedings against a company cannot be thrown out merely because investigators have not identified or charged a specific director, employee or other individual allegedly responsible for the offence. The ruling came in a case involving Sanofi India Ltd and a CBI investigation into alleged irregularities in the procurement of medicines for the Bhabha Atomic Research Centre (BARC), a PTI report stated.

A bench of Justices J B Pardiwala and Manoj Misra dismissed Sanofi India's appeal against a Karnataka High Court order that had refused to quash the criminal proceedings.

The judgment provides clarity on when criminal liability can be imposed on companies, particularly in cases where an alleged offence involves criminal intent, or mens rea, of individuals acting for the company.

Case involving Sanofi India

Sanofi India, a public limited company primarily engaged in manufacturing pharmaceutical products, had approached the Supreme Court seeking an end to the proceedings arising from a CBI case. According to the chargesheet, a BARC official allegedly conspired with Sanofi India in the procurement of medicines at inflated prices. The investigation also alleged that illegal gratification was paid in exchange for undue favours.

No employee or official of Sanofi India, however, had been made an accused along with the company. Sanofi India argued that the prosecution could not continue because criminal intent could not be attributed to the company. It also pointed out that a company cannot be sentenced to imprisonment.

The Supreme Court rejected the plea.

Company need not have an individual accused alongside it

Justice Pardiwala, who authored the 98-page judgment, examined the principles governing corporate criminal liability and the manner in which the acts and mental state of individuals can be attributed to a corporation.

The court was specifically considering whether criminal proceedings against the company should have been quashed because investigators had not identified and arraigned a natural person alongside the company.

The bench held that the absence of a specifically identified individual is not, by itself, enough to terminate criminal proceedings at the stage of a petition seeking quashing.

"The position under Indian law is, thus, clear that a corporation can be prosecuted for an offence notwithstanding that it carries a mandatory sentence of imprisonment, or requires proof of mens rea. It appears that a corporation cannot be prosecuted only where the offence is punishable with imprisonment alone, or where the offence, by its nature, requires personal malicious intent, such that it is incapable of commission by a corporation at all," the top court said.

The court said the chargesheet must show, on its face, that the company itself committed the alleged offence.

"What the chargesheet must disclose, on its face, is that the corporation itself has committed the offence," it said.

According to the judgment, the role of a company can be established through allegations relating to its conduct, decisions and dealings even when the individual who carried out those actions has not been identified.

Mens rea can be examined from surrounding facts

The Supreme Court also addressed the question of criminal intent in corporate cases. It said mens rea can, at the initial stage, be inferred from the surrounding facts and circumstances. It does not necessarily have to be connected to a particular individual who has already been identified as an accused.

The court said the question of attribution involves a detailed examination of facts and would ultimately have to be determined during the trial.

"While the academic debate goes on, it is beyond question that, both in India and elsewhere, corporations can and are being subjected to criminal liability.... This has been primarily driven by the pragmatic recognition that corporations, as institutions commanding vast financial and sociopolitical power, possess the ability to cause serious harm...," the court said.

The bench noted that the issue becomes more complicated because a corporation has a separate legal identity from its members but is also an artificial entity that acts through human beings.

"At first blush, the question framed may appear to be a simple one and on closer examination, it proves to be a good deal more complex," it added.

"Corporate criminal liability is a notoriously-vexed issue and the difficulty traces back to two fundamental notions we simultaneously hold about corporations. First, a corporation is an artificial person with an identity distinct from that of its members. Second, a corporation is merely an abstraction, that is, an impalpable thing or, as is famously said, a corporation has 'no soul to damn and no body to kick'," it said.

No automatic requirement to name an employee

The judgment also rejected the argument that a company can be prosecuted only when an individual is simultaneously made an accused. The court said that where a company has direct criminal liability, the failure to make a natural person an accused does not, by itself, provide grounds for quashing the case.

At the same time, the Supreme Court clarified that corporations do not receive any special protection from the normal principles applied when courts consider requests to quash criminal proceedings. The allegations against the company must still satisfy the applicable legal test.

Supreme Court sets three-stage framework

The judgment also laid down a three-stage framework for deciding how the guilty mind or acts of an individual can be attributed to a corporation. First, courts should examine the company's constitutional documents, including its articles of association, to determine who had the authority to act on behalf of the company.

Second, courts should consider whether that authority was delegated to a person who had "sufficient discretion and independence", irrespective of the person's formal designation or title.

If neither of these approaches resolves the issue, courts may apply a "special rule of attribution" after considering the purpose and policy of the particular law under which the alleged offence has been registered.

The Supreme Court also observed that corporate criminal liability, particularly for offences requiring mens rea, involves difficult legal questions. The court indicated that some of these issues could eventually require legislative intervention and a more systematic examination of the law.

(Source: PTI)