there is no immunity to the companies from prosecution

Supreme Court of India
Iridium India Telecom Ltd vs Motorola Incorporated & Ors on 20 October, 2010
Author: S S Nijjar
Bench: B. Sudershan Reddy, Surinder Singh Nijjar
 REPORTABLE
 IN THE SUPREME COURT OF INDIA
 CRIMINAL APPELLATE JURISIDCITION
 CRIMINAL APPEAL NO.688 OF 2005
IRIDIUM INDIA TELECOM LTD. ... APPELLANT
VERSUS
MOTOROLA INCORPORATED & ORS. ... RESPONDENTS
 JUDGMENT
SURINDER SINGH NIJJAR, J.
33. Keeping in view the aforesaid principles, we may now examine as to whether the High Court has
adopted the correct approach while exercising its inherent power under Section 482 Cr.P.C. The
High Court notices in extenso the facts as narrated above. Thereafter the High Court notices the
submissions made on behalf of the parties. It was observed by the High Court that a
company/corporation will not have the mens rea for commission of the offence under Section 415
IPC. The High Court relied on the observations made by this Court in the case of Kalpanath Rai Vs.
State31 and distinguished the judgment in the case of M.V. Javali Vs. Mahajan Borewell & Co.32,. It
is held that a company being a juridical person cannot have the intention to deceive, which is the
Iridium India Telecom Ltd vs Motorola Incorporated & Ors on 20 October, 2010
Indian Kanoon - http://indiankanoon.org/doc/18288042/ 16
necessary mens rea for the offence of cheating. According to the High court, although a company
can be a victim of deception, it can not be the perpetrator of deception. It can only be a natural
person who is capable of having mens rea to commit the offence. According to the High Court, the
same reasoning would also apply in respect of the offence of conspiracy which involves a guilty mind
to do an illegal thing.
34. The judgments relied upon by the complainant are distinguished by the High Court, as they
pertain to special provisions contained in different statutes such as, Income Tax Act, Essential
Commodities Act, Food Adulteration Act and TADA Act. It is noticed that in Kalpanath Rai Vs.
State33 this Court was concerned with the provisions of TADA Act. The High Court was further of
the opinion that Indian Penal Code does not contain any provision similar to the aforesaid acts.
Since the offence of cheating under Section 415 and the offence of conspiracy under [(1997) 8 SCC
732] [(1997) 8 SCC 72] Supra Section 120B can only be committed by a natural person, the word
whoever cannot include in its sweep, a juridical person like a company. The High Court notices the
judgment of the Calcutta High Court in the case of A.K. Khosla Vs. T.S. Venkatesan34 wherein it was
held that there are two tests in respect of prosecution of a corporate body i.e. first being the test of
mens era and the other being the mandatory sentence of imprisonment. However, no opinion has
been expressed there upon by the High Court. In view of the aforesaid conclusions, the High Court
has held that the complaint would not be maintainable against the respondent.
35. We are of the considered opinion that there is much substance in the submission of Mr.
Jethmalani that virtually in all jurisdictions across the world governed by the rule of law, the
companies and corporate houses can no longer claim immunity from criminal prosecution on the
ground that they are incapable of possessing the necessary mens rea for the commission of criminal
offences. The legal position in England and the United States has now crystallized to leave no
manner of doubt that a corporation would be liable for crimes of intent. In the year 1909, the United
[1992 Crl. L.J. 1448] States Supreme Court in New York Central & Hudson River Railroad Co. Vs.
United States35, stated the principle thus:-
It is true that there are some crimes which, in their nature, cannot be committed by
corporations. But there is a large class of offences, of which rebating under the
federal statutes is one, wherein the crime consists in purposely doing the things
prohibited by statute. In that class of crimes we see no good reason why corporations
may not be held responsible for and charged with the knowledge and purposes of
their agents, acting within the authority conferred upon them. If it were not so, many
offences might go unpunished and acts be committed in violation of law where, as in
the present case, the statute requires all persons, corporate or private, to refrain from
certain practices, forbidden in the interest of public policy.
* * * We see no valid objection in law, and every reason in public policy, why the
corporation, which profits by the transaction, and can only act through its agents and
officers, shall be held punishable by fine because of the knowledge and intent of its
agents to whom it has entrusted authority to act in the subject-matter of making and
fixing rates of transportation, and whose knowledge and purposes may well be
Iridium India Telecom Ltd vs Motorola Incorporated & Ors on 20 October, 2010
Indian Kanoon - http://indiankanoon.org/doc/18288042/ 17
attributed to the corporation for which the agents act. While the law should have
regard to the rights of all, and to those of corporations no less than to those of
individuals, it cannot shut its eyes to the fact that the great majority of business
transactions in modern times are conducted through these bodies, and particularly
that inter-State commerce is almost entirely in their hands, and to give them
immunity from all punishment because of the old and exploded doctrine that a
corporation cannot commit a crime would virtually take away the only means of
effectually controlling the subject-matter and correcting the abuses aimed at.
The aforesaid sentiment is reiterated in the 19 American Jurisprudence 2d para 1434 in the
following words:- [53 L Ed 613] Lord Holt is reported to have said (Anonymous, 12 Mod 559, 88
Eng Reprint 1164) that `a corporation is not indictable, but the particular members of it are'. On the
strength of this statement it was said by the early writers that a corporation is not indictable at
common law, and this view was taken by the courts in some of the earlier cases. The broad general
rule is now well established, however, that a corporation may be criminally liable. This rule applies
as well to acts of misfeasance as to those of nonfeasance, and it is immaterial that the Act
constituting the offence was ultra vires. It has been held that a de facto corporation may be held
criminally liable.
As in case of torts the general rule prevails that a corporation may be criminally liable for the acts of
an officer or agent, assumed to be done by him when exercising authorized powers, and without
proof that his act was expressly authorized or approved by the corporation. A specific prohibition
made by the corporation to its agents against violation of the law is no defence. The rule has been
laid down, however, that corporations are liable, civilly or criminally, only for the acts of their agents
who are authorized to act for them in the particular matter out of which the unlawful conduct with
which they are charged grows or in the business to which it relates.
Again in 19 Corpus Juris Secundum, para 1363 it has been observed as under:-
A corporation may be criminally liable for crimes which involve a specific element of
intent as well for those which do not, and, although some crimes require such a
personal, malicious intent, that a corporation is considered incapable of committing
them, nevertheless, under the proper circumstances the criminal intent of its agent
may be imputed to it so as to render it liable, the requisites of such imputation being
essentially the same as those required to impute malice to corporations in civil
actions.
36. The Courts in England have emphatically rejected the notion that a body corporate could not
commit a criminal offence which was an outcome of an act of will needing a particular state of mind.
The aforesaid notion has been rejected by adopting the doctrine of attribution and imputation. In
other words, the criminal intent of the alter ego of the company / body corporate, i.e., the person
or group of person that guide the business of the company, would be imputed to the corporation. It
may be appropriate at this stage to notice the observations made by the MacNaghten, J. in the case
of Director of Public Prosecutions Vs. Kent and Sussex Contractors Ltd.36:
Iridium India Telecom Ltd vs Motorola Incorporated & Ors on 20 October, 2010
Indian Kanoon - http://indiankanoon.org/doc/18288042/ 18
A body corporate is a `person' to whom, amongst the various attributes it may have,
there should be imputed the attribute of a mind capable of knowing and forming an
intention -- indeed it is much too late in the day to suggest the contrary. It can only
know or form an intention through its human agents, but circumstances may be such
that the knowledge of the agent must be imputed to the body corporate. Counsel for
the respondents says that, although a body corporate may be capable of having an
intention, it is not capable of having a criminal intention. In this particular case the
intention was the intention to deceive. If, as in this case, the responsible agent of a
body corporate puts forward a document knowing it to be false and intending that it
should deceive, I apprehend, according to the authorities that Viscount Caldecote,
L.C.J., has cited, his knowledge and intention must be imputed to the body
corporate.
[1944 1 All ER 119] The principle has been reiterated by Lord Denning in the case of H.L.Bolton
(Engg.) Co. Ltd. Vs. T.J.Graham & Sons37 in the following words:-
A company may in many ways be likened to a human body. They have a brain and a
nerve centre which controls what they do. They also have hands which hold the tools
and act in accordance with directions from the centre. Some of the people in the
company are mere servants and agents who are nothing more than hands to do the
work and cannot be said to represent the mind or will. Others are directors and
managers who represent the directing mind and will of the company, and control
what they do. The state of mind of these managers is the state of mind of the
company and is treated by the law as such. So you will find that in cases where the
law requires personal fault as a condition of liability in tort, the fault of the manager
will be the personal fault of the company. That is made clear in Lord Haldane's
speech in Lennard's Carrying Co. Ltd. Vs. Asiatic Petroleum Co. Ltd. (AC at pp. 713,
714). So also in the criminal law, in cases where the law requires a guilty mind as a
condition of a criminal offence, the guilty mind of the directors or the managers will
render the company themselves guilty.
37. The aforesaid principle has been firmly established in England since the decision of House of
Lords in Tesco Supermarkets Ltd. Vs. Nattrass38. In stating the principle of corporate liability for
criminal offences, Lord Reid made the following statement of law:-
I must start by considering the nature of the personality which by a fiction the law
attributes to a corporation. A living person has a mind which can have knowledge or
intention or be negligent and he has hands to carry out his intentions. A corporation
has [1956 3 All ER 624] [1971 All ER 127].
none of these; it must act through living persons, though not always one or the same person. Then
the person who acts is not speaking or acting for the company. He is acting as the company and his
mind which directs his acts is the mind of the company. There is no question of the company being
vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an
Iridium India Telecom Ltd vs Motorola Incorporated & Ors on 20 October, 2010
Indian Kanoon - http://indiankanoon.org/doc/18288042/ 19
embodiment of the company or, one could say, he hears and speaks through the persona of the
company, within his appropriate sphere, and his mind is the mind of the company. If it is guilty
mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts
have been ascertained, a person in doing particular things is to be regarded as the company or
merely as the company's servant or agent. In that case any liability of the company can only be a
statutory or vicarious liability.
38. From the above it becomes evident that a corporation is virtually in the same position as any
individual and may be convicted of common law as well as statutory offences including those
requiring mens rea. The criminal liability of a corporation would arise when an offence is committed
in relation to the business of the corporation by a person or body of persons in control of its affairs.
In such circumstances, it would be necessary to ascertain that the degree and control of the person
or body of persons is so intense that a corporation may be said to think and act through the person
or the body of persons. The position of law on this issue in Canada is almost the same. Mens rea is
attributed to corporations on the principle of `alter ego' of the company.
39. So far as India is concerned, the legal position has been clearly stated by the Constitution Bench
judgment of this Court in the case of Standard Chartered Bank Vs. Directorate of Enforcement39 On
a detailed consideration of the entire body of case laws in this country as well as other jurisdictions,
it has been observed as follows:
There is no dispute that a company is liable to be prosecuted and punished for
criminal offences. Although there are earlier authorities to the effect that
corporations cannot commit a crime, the generally accepted modern rule is that
except for such crimes as a corporation is held incapable of committing by reason of
the fact that they involve personal malicious intent, a corporation may be subject to
indictment or other criminal process, although the criminal act is committed through
its agents.
This Court also rejected the submission that a company could avoid criminal prosecution in cases
where custodial sentence is mandatory. Upon examination of the entire issue, it is observed as
follows:-
27. In the case of Penal Code offences, for example under Section 420 of the Indian
Penal Code, for cheating and dishonestly inducing delivery of property, the
punishment prescribed is imprisonment of either description for a term which may
extend to seven years and shall also be liable to fine; and for the offence under
Section 417, that is, simple cheating, the punishment prescribed is imprisonment of
either description for a term which may extend to one year or with fine or with both.
If the appellants' plea is accepted then for the offence under Section 417 IPC, which is
an offence of minor nature, a company could be prosecuted and punished with fine
whereas for the offence under Section 420, which is an aggravated form of cheating
by which the victim is dishonestly induced to deliver Supra property, the company
cannot be prosecuted as there is a mandatory sentence of imprisonment.
Iridium India Telecom Ltd vs Motorola Incorporated & Ors on 20 October, 2010
Indian Kanoon - http://indiankanoon.org/doc/18288042/ 20
28. So also there are several other offences in the Indian Penal Code which describe offences of
serious nature whereunder a corporate body also may be found guilty, and the punishment
prescribed is mandatory custodial sentence. There are a series of other offences under various
statutes where the accused are also liable to be punished with custodial sentence and fine.
30. As the company cannot be sentenced to imprisonment, the court has to resort to punishment of
imposition of fine which is also a prescribed punishment. As per the scheme of various enactments
and also the Indian Penal Code, mandatory custodial sentence is prescribed for graver offences. If
the appellants' plea is accepted, no company or corporate bodies could be prosecuted for the graver
offences whereas they could be prosecuted for minor offences as the sentence prescribed therein is
custodial sentence or fine.
31. As the company cannot be sentenced to imprisonment, the court cannot impose that
punishment, but when imprisonment and fine is the prescribed punishment the court can impose
the punishment of fine which could be enforced against the company. Such a discretion is to be read
into the section so far as the juristic person is concerned. Of course, the court cannot exercise the
same discretion as regards a natural person. Then the court would not be passing the sentence in
accordance with law. As regards company, the court can always impose a sentence of fine and the
sentence of imprisonment can be ignored as it is impossible to be carried out in respect of a
company. This appears to be the intention of the legislature and we find no difficulty in construing
the statute in such a way. We do not think that there is a blanket immunity for any company from
any prosecution for serious offences merely because the prosecution would ultimately entail a
sentence of mandatory imprisonment. The corporate bodies, such as a firm or company undertake a
series of activities that affect the life, liberty and property of the citizens. Large-scale financial
irregularities are done by various corporations. The corporate vehicle now occupies such a large
portion of the industrial, commercial and sociological sectors that amenability of the corporation to
a criminal law is essential to have a peaceful society with stable economy.
32. We hold that there is no immunity to the companies from prosecution merely because the
prosecution is in respect of offences for which the punishment prescribed is mandatory
imprisonment (sic and fine). We overrule the views expressed by the majority in Velliappa Textiles1
on this point and answer the reference accordingly. Various other contentions have been urged in all
appeals, including this appeal, they be posted for hearing before an appropriate Bench.
40. These observations leave no manner of doubt that a company / corporation cannot escape
liability for a criminal offence, merely because the punishment prescribed is that of imprisonment
and fine. We are of the considered opinion that in view of the aforesaid Judgment of this Court, the
conclusion reached by the High Court that the respondent could not have the necessary mens rea is
clearly erroneous.