The evolution of the jurisprudence of Corporate Mens Rea has gone through the phases from Tesco to Meridian in foreign courts and its application in Standard Chartered to Iridium cases.

While applying the doctrine of attribution, the Courts have taken two approaches – rigid and flexible rule. The paper examines the application of these rules and the reasoning behind it.

Introduction
Corporate liability is the foundation of corporate governance. The recommendations of various committees including the Companies Law Committee of 2016 and the Offences Committee of 2013 brought into shape the Companies Act, 2013 and the Rules.

The supporters of corporate criminal liability see it as more efficacious tool of governance as the cost of civil liability are often seen as the cost of running business and hence fails to regulate the corporate behaviour, thus criminal sanction are comparatively better deterrent. [1]

On the other hand, the critics to corporate criminal liability peg their argument on impact of lengthy criminal proceedings on commercial interests. The bottleneck in this is the task of proving 'mens rea' as it involves subjective analysis.[2] It was for this purpose, that certain offences under the Company Act, 2013 were decriminalized on the recommendation of CLC Report 2019.

Before we discuss the interpretation of criminal liability it is pertinent to discuss how this particular legal conundrum proved a hole through which the culprits of Bhopal tragedy escaped.

First question to explore is how the legal status of a company impacts its liability.

The 'actual control' of the company, i.e. senior management, distanced themselves from the legal responsibility and accountability of their acts and omissions. Plus the nature of the corporation and its legal relation to the subsidiaries, made it impossible to fix the criminal liability of actual offenders. [3]

Doctrine Of Attribution
The Doctrine of Attribution is a principle that has evolved in UK in the realm of corporate criminal liability. It is invoked to identify the person within a company whose mens rea can be attributed as the mens rea of the company. The ingredients that attract this doctrine are: offence committed in relation to the company + by a person + in control of the company's affairs.

There are two rules to ascertain identity of this person: anthropomorphic or rigid rule; and flexible rule. The rigid rule which was established through Tesco, treats a corporate body being similar to human body. It works on the premise of predetermined rule with one-size-fits all formula where the 'brain' has to be identified. Whereas the flexible rule, established in landmark Meridian case, has a contextual approach and the person may be situated at different levels of hierarchy. Thus, the rigid rule has 'directing mind and will' test, while flexible rule has 'actual person in default' approach.

Research Question

• Whether the Indian Courts adopted the flexible or rigid rule while applying Doctrine of Attribution?

Interpretation Of The Rules In Foreign Judgements
One must first analyse the interpretation by the foreign courts to understand its impact on Indian Courts.

Tesco Supermarkets Ltd. v. Nattras[4]:
A customer was made to pay for a product at normal price, despite the fact the supermarket had advertised discounted prices. The error happened because of negligence of the shop manager. The issue was whether the precaution by the board to be considered or the conduct of the shop manager. The House of Lord applied the rigid application of 'directing mind and will' test which identified the board, not the manager, whose act to be attributed.

Meridian Global Funds Management Asia Ltd. v. Securities Commission[5]:
This case concerned the attribution of knowledge not attribution of action. The Board alleged that only investment manager had knowledge that it had become the substantial holder, not the board. The issue was whether knowledge of investment manager in company can be attributed to the company.

The court closely analysed that whose knowledge to be counted as knowledge of the company. It finally reached to the conclusion that the person who has acquired the relevant interest through the authority of the company can be identified as the person. In this case the investment manager. Thus, the Court applied a flexible rule.

However the court gave a word of caution that this cannot be applied as a rule but construed on the bases of facts specific to each case.

Application Of The Rules By Indian Courts
The corporate mens rea was dealt with ambivalent approach by the Indian Courts. In cases where the company had primary responsibility the mens rea of the individual was attributed directly to the company without the need of invoking any doctrine of vicarious responsibility or agency.

This 'primary liability' was a concept that was propounded by Justice Viscount in Lennard's Carrying case [6] It was based on logic that the fault or privity was not merely of somebody who was servant or agent of company but somebody for whom the company is liable because her very actions are actions of the company. However, the Courts were hesitant to take this as ratio decidendi and instead chose vicarious liability as a more convenient rule, as seen in the judgment of JK Industries case.[7]

Initially the approach of the Indian Courts while dealing with criminal liability was to refrain from mandatory imprisonment offences. This position was held in Assistant Commissioner v. Vellippa Textiles Ltd, [8] which was overruled in Standard Chartered case.

Standard Chartered v. Directorate of Enforcement:[9]
The Supreme Court held that the company can be prosecuted even for the criminal offences that require mandatory imprisonment. However, the question whether it can be prosecuted for offences requiring mens rea was left unanswered. This position was finally settled in landmark Iridium case.

Iridium India Telecom v Motorola Incorporated & Ors[10]:
Facts in Brief: Under IPC sections 420 and 120B, criminal complaint filed against Motorola by Iridium. The allegations were about a PPM floated by Motorola to invite investments for an Iridium project. The PPM had made some false representation of facts which resulted into loss to the investors. After receiving complaint, the Pune session court commenced criminal proceedings against Motorola, against which the defendants procured a quashing order from the Bombay High Court. Aggrieved by this decision, the petitioners appealed to the Supreme Court.

Held: The judgment relevant to our research question here is the Court's conclusion that a company can be held criminally liable even for the offences requiring mens rea. Further, the filter of 'mandatory imprisonment' cannot be applied to escape this liability. A company can be treated in the same manner an individual is treated.

Analysis:
While identifying who is the person in default, the Supreme Court mulls on the element – 'what is degree of control.' The accepted degree of control is the one which is so intense that the corporation may think and act through the person or body of persons.

A corollary to this approach is that the person in default is not mere a person who was at the time of default in control of the company, but must be the person who is holding the key managerial position. Thus, the position that the Court holds in Iridium case aligns with the rigid rule in Tesco. Interestingly, Tesco was discussed in judgment of PC Agarwal [11]by the Supreme Court where the Tesco was seen only as a corollary of vicarious liability, very similar to the Court's stance in previously discussed JK Industries.[12] The reason for this approach can be seen in the Court's hesitation in dealing with corporate mens rea and thus applying the rule where this technical issue can be evaded.

Conclusion
Iridium case is a major leap in the Court's approach towards Corporate Criminal Liability from viewing it within strict liability offense to extending to offenses requiring mens rea through the Doctrine of attribution. While dealing with attribution, the Indian Court's incline more with rigid rule application in Tesco. This approach is reasoned on the set rule that the criminal law jurisprudence works on the principles of certainty and hence the flexibility accorded in Meridian case will disturb the scheme.

Thus the emphasis is laid on 'degree of control' as an additional test to identify the person in default. The researcher finds problem with this approach as the rigid rules serve as back door escape in cases like Bhopal gas tragedy and also in much recent Joshimath crisis. Thus, Meridian seem better equipped with dealing with practical challenges in fixing the liability in corporate hierarchy.

However, the benefits of Iridium are manifold on the fact that it clears one position, and accepting this not as a set rule, there is a need to take it as a step forward to crystallize further ambiguities in law in concerned field.

References:
Case Laws:

• Assistant Commissioner v. Vellippa Textiles Ltd. (2003) 11 SCC 405
• Standard Chartered v Directorate of Enforcement, (2005) 4 SCC 530
• Iridium India Telecom Ltd v Motorola Incorporated & Ors, (2011) 1 SCC 74
• Meridian Global Funds Management Asia Ltd. v. Securities Commission, (1995) 2 AC 500 (PC)
• Tesco Supermarkets Ltd. v. Nattrass, (1972) AC 153 (HL)
• Lennard's Carrying Ltd. v. Asiatic Petroleum Ltd. (1915) AC 705 (HL)
• PC Agarwal v. Payment of Wages Inspector, MP, (2005) 8 SCC 104
• JK Industries v Chief Inspector of Factories and Broilers, (1996) 6 SCC 665

Articles:

• John T. Byam, 'The Economic Inefficiency of Corporate Criminal Liability' (1982) 73 J. Crim. L. & Criminology 582
• Tomas Mac Sheon and Frank Pearce, Bhopal and After, Social Justice, 2014, Vol. 41, pp 1-27
• V.S. Khanna, 'Corporate Criminal Liability: What Purpose Does It Serve?' , (1996) Harvard Law Review, Vol. 109, No. 7, p. 1477
• V.Umakanth and Mihir Naniwadekar, Corporate Criminal Liability: Rationalizing Iridium-Motorola case, National law School review, 2013, pp. 144-167

End-Notes

1. V.S. Khanna, 'Corporate Criminal Liability: What Purpose Does It Serve?' , (1996) Harvard Law Review, Vol. 109, No. 7, p. 1477
2. John T. Byam, 'The Economic Inefficiency of Corporate Criminal Liability' (1982) 73 J. Crim. L. & Criminology 582
3. Tomas Mac Sheon and Frank Pearce, Bhopal and After, Social Justice, 2014, Vol. 41, pp 1-27
4. Tesco Supermarkets Ltd. v. Nattrass, (1972) AC 153 (HL)
5. Meridian Global Funds Management Asia Ltd. v. Securities Commission, (1995) 2 AC 500 (PC)
6. Lennard's Carrying Ltd. v. Asiatic Petroleum Ltd. (1915) AC 705 (HL)
7. JK Industries v Chief Inspector of Factories and Broilers, (1996) 6 SCC 665
8. Assistant Commissioner v. Vellippa Textiles Ltd. (2003) 11 SCC 405
9. Standard Chartered v Directorate of Enforcement, (2005) 4 SCC 530
10. Iridium India Telecom Ltd v Motorola Incorporated & Ors, (2011) 1 SCC 74
11. PC Agarwal v. Payment of Wages Inspector, MP, (2005) 8 SCC 104
12. JK, supra note at 7

Written By:

1. Peehu Bhardwaj
2. Laksh Tuli