Director cannot be held criminally liable on the basis of their ‘designation’. Director is in charge of the company who is responsible for conducting the business. The director can be held criminally liable for non-compliance of legal provision of Companies Act, 2013, such director are known as ‘officer in default’. The provision of the Act held director vicariously liable who are ‘in default’. ‘Section 2(60)’ characterizes the director who would be considered as ‘officer-in default’ and will be responsible for the conduct of business.
These are the various sections under which a Director of a Company can be held criminally liable for any contravention of the provisions specified under the ‘Companies Act, 2013’. Apart from the provisions of the ‘Companies Act 2013’, there are other statutes like ‘Prevention of Corruption Act, 1988’; ‘Indian Penal Code, 1860’ etc. under which the Director can be held criminally liable for acting ‘Ultra vires’ to the provisions of the specified statute.
Earlier the courts were reluctant to hold Companies liable for the wrongdoings done with intention. The criminal liability of the Company depends on the nature of the offence resulting from the actions of its individual members. So the offences to be punished with imprisonment cannot be imposed as the company does not have ‘mens rea’. In a scenario, where both ‘fine and imprisonment’ have been imposed on the company, then the court could only impose the fine but a company cannot be imprisoned as a company has no ‘mens rea’. The criminal intent of the Corporate entity can only be determined in a general body meeting of the company or by the ‘Memorandum of Association’ or ‘Articles of Association’ of the company.
The court faces a parcel of difficulties at different levels when an offence is done by Companies. The gravity of crime done by the company can be extraordinary owing to the powers and reach of the Company. The judiciary has been dealing for a long time with the issue of ‘whether corporations can be held guilty of crimes since corporations do not have ‘mens rea’. For many years Companies were not held liable for criminal offenses due to the lack of criminal intent to commit the offence and also the Companies cannot be awarded imprisonment or arrest, etc. However, now due to various judgements corporations are no longer immune
In ‘Standard Chartered Bank v. Directorate of Enforcement’, the court dismissed the idea that the corporate entity cannot be held liable for the criminal offences, the company can be prosecuted and imposed with both fine and imprisonment but as company cannot be sentenced with imprisonment, therefore, the court can only impose fines against the company. The director of the company can be held liable only if the offense was committed with the consent or result of his negligence. If the company director is not in charge of the conduct of the business of the company then he cannot be made liable for any offense .
The Supreme Court in ‘Iridium India Telecom Ltd. v Motorola Inc.’ the court applied modern approach to ‘Corporate criminal liability’ where the court held that in the absence of a specific statutory or common law exception, the principle of ‘Corporate criminal liability’ of the company will be based on the ‘concept of attribution’. The company is a ‘juristic person’ and actions and mental state of its employees are attributed to the company. The company itself cannot ‘acquire property’, ‘sign a contract’, ‘making public disclosures’, etc. All the affairs of the company are managed by the company employees.
The issue of criminal liability of the company again came up for consideration in the ‘Sunil Mittal / 2G Spectrum case’ where the court held that Director is not vicariously liable under the provision of ‘Prevention of Corruption Act, 1988’. The court stated that the ‘principle of attribution’ is applied only when the criminal intent of the Director can be attributed to the Company. Thus, if director had not committed the offence on behalf of a Company then the director cannot be vicariously liable along with the company. The director can be prosecuted when the corporation is accused because the company is a juristic person which act through Directors.
Thus, if a corporation commits a crime then it will be presumed to be the intent and action of the director who acts on the behalf of the company. The company director cannot be held vicariously liable unless the statute specifically provides for it. There is a very high threshold to hold the director liable as there should be ‘sufficient evidence’ to prove the criminal intent of the director. If the director has ‘omitted or committed’ an act or with their knowledge or consent or where they have acted negligently then only the director can be criminally held liable otherwise the director cannot be vicariously held liable.
As of now, the settled position is that if a Company commits a criminal offence, then the director can only be held liable in two ways:
One of the problems in determining the liability of the Company’s Director is that the court refused to hold the directing minds of Company vicariously liable in the absence of legislation. Another problem in holding the Director vicariously liable is that there is a high threshold to prove the fact that the Director was in charge of the overall day to day business. There is a need for strong evidence against the Director for prosecuting him for criminal liability.