Updated: Feb 6, 2022
This blog is authored by Richik Dadhich, a 3rd year student at NLU Jodhpur
A corporate entity could be defined as an autonomous institutional actor separable from those with an interest in it. This principle of separation of the legal identity and liability between different companies is treated as one of the cornerstones of corporate law.
One of the ways through which a company could be held liable is through the lifting of corporate veil. This concept disregards the separation between companies with the limited liability of shareholders and thus acts as a way to justify jurisdiction over a corporate affiliate. Thus, if a company invokes legal separation in order to prevent liability, corporate veil could be lifted in order to ensure fair results and make the real owners or shareholders liable.
Now, in a stark contrast with other Common Law regimes, the Indian legal scenario regarding corporate liabilities is far more ambivalent and nebulous. A plethora of Indian statutes specifically include references to corporations in definitions of personality, which leads to uncertainty and ambiguity. Either we can directly apply the statutes and punish them through the statutes by imposition of fines. Or, as held in various judgements, the principle of attribution and identification could be applied to make the employees liable. Apart from this, various other provisions only make the officials directly liable for the criminal act. Hence, the corporation’s financial situation or its image remains unscathed even after a criminal act has been conducted.
Further, Section 53 of the Indian Penal Code, 1860 (hereinafter “IPC”) provides for the kinds of punishments that can be imposed upon the convict. These punishments include capital punishment, life imprisonment, rigorous imprisonment, forfeiture of property and fine. However, it has been held by the Courts in numerous cases that imposition of fines is the only way of punishing the corporations. In cases where only imprisonment is an option, no punishment can be levied at all. In other words, the corporations enjoy a blanket immunity regarding those crimes where only imprisonment is a punishment.
In this context, the focus of this article is directed at an emerging issue which, considering the developments in other countries, is surprisingly unaddressed in the Indian jurisprudence. This issue is regarding the absence of specific statuary provisions regarding the deaths caused by a corporate body’s actions. Further, even if the first issue is resolved in some manner, there will be scepticism on its implementation, because mere imposition of fines may not act as a sufficient deterrent for large corporations.
The Failure of Indian Legislative Framework to Account for Corporate Deaths
There are multiple factors which could lead to death of a person by the corporations. These include consumption of adulterated goods or faulty pharmaceuticals, exposure to toxic chemicals disposed by the organisation, and as an effect of natural or man-made disaster caused by the organisation. Apart from this, certain employees who work in high risk environments might also be affected and factory accidents leading to death of workers are fairly common.
After the Bhopal Gas Tragedy, various environmental legislations have been enacted by the government. A peripheral reading of these legislations reveals that they are aimed at protecting human and environmental rights, regulating industrial processes and emissions and holding the corporations strictly liable for pollution and accidents caused by hazardous substances. It is important to note that these legislations are primarily aimed at providing relief and compensation for the harm caused. The payments made to the victims are for the purpose of providing immediate relief and there is no requirement of establishing the claim on merits.
Recently, in 2019, the Occupational Safety, Health and Working Conditions Code was introduced in the parliament with the goal of amending laws governing occupational safety in India. However, it fell short of its goal because the practical implications of its provisions would have no effect. Section 96 (1) of this code states that anyone who commits an offence resulting in the death of another person will be sentenced to a minimum of two years in prison or a fine of five lakh rupees, or both. This penalty is similar to that provided under Section 204A of the IPC. Furthermore, the Code only applies to businesses with ten or more workers, which implies that small workplaces and industries would be excluded.
Apart from theses statutes, the IPC also fails to directly address the issue of deaths caused by corporations. Section 269 of the IPC provides for punishment when any person unlawfully or negligently does any act which is likely to spread the infection of any disease dangerous to life. Similarly, Section 272 and Section 277 of the IPC deal with the adulteration or voluntary fouling of consumer edibles and public water bodies respectively. However, the issue how a corporate body causing such activities must be held liable has been circumvented.
Further, if we apply the principles of attribution and identification as discussed earlier, the employees behind such act could also be punished in certain circumstances. However, this has to be done under Section 304A of the IPC, which provides for the bailable offence of ‘causing death by negligence.’ Also, to prove that the employees acted with the intention that their acts would lead to fatalities is a herculean task. Further, the term of imprisonment is usually not more than two years.
All these facts point out the lapses in the Indian statutory provisions. This is in strong contrast with the position in other Common Law regimes. While there are specific legislations dealing with corporate homicide in Nigeria and the United Kingdom, there is not even a single mention of the word ‘murder’ or ‘death’ in the Indian Companies Act, 2013. In the United States too, strong judicial precedents and the proposed amendments have established a comprehensive position on corporate homicide.
In Australia, for example, there are statutes which provide that those persons who negligently cause a workplace death shall be punished with imprisonment for up to twenty-five years. In these statutes, the only two things which need to established are the causal factor and the negligence.
Envisioning Rigorous Punishment Standards
It is a settled position that fines act as a reasonable punishment for traffic offenses, trespassing, torts and certain financial matters. However, where the offence is as grave as corporate homicide, it is questionable whether such fines could achieve the object of punishment. Further, most of the private companies and multi-national corporations possess huge savings and multiple assets. Thus, they could pay the fines with a significant ease. This vitiates the very essence of imposing such punishments as the organisations are neither deterred nor would they be retributed for the crimes they have committed.
Perhaps, the legislators in India could take cue from the Corporate Manslaughter and Corporate Homicide Act of the United Kingdom. This act not only provides for imposition of fines with no upper limit, but also gives the Courts the power to issue orders directing the organization to remedy the causes of the circumstances which led to the fatal accident.
Further, regarding the imposition of ‘social sanctions’ on the corporations as a punishment, the Law Commission had made the following observations in its Forty-Seventh Report-
“The real penalty of a corporation is the diminution of respectability, that is, the stigma. It is now usual to insert provisions to the effect that the Director or Manager who has acted for the corporation should be punished. But it is appropriate that the corporation itself, should be punished. In the public mind, the offence should be linked with the name of the corporation, and not merely with the name of the Director or Manager, who may be a non-entity.”
This notion was also re-affirmed by the Supreme Court in Velliappa Textiles case. While there is still an absence of any binding legislative to the same effect in India, this method has been adopted in the United Kingdom through the Corporate Homicide Act.
Notably, Chapter 19 of the Act functions as a mia culpa provision and provides that the corporations may also be compelled to publically admit their guilt of being involved in Corporate Homicide. This could be done by taking out advertisements in local newspapers and publishing notices on their websites giving relevant details, the amount of any fine imposed and the terms of any remedial order made.
Since only a few of the many industrial accidents in India make it to the news and accidents with lower death counts escape the stigma of publication, these orders could be instrumental in improving the situation. Economists and accountants often consider goodwill as one of the most important assets for an organisation. Thus, a significant reduction in its value could act as an effective punishment.
Apart from these social sanctions, it is suggested that certain sanctions be levied in such a way that it creates a significant ‘economic impact’ on the corporation. One way of doing this could be ordering the closure of the department where the negligent act or accident took place which caused death.
“Any punishment that does not correct, that can merely rouse rebellion in whoever has to endure it, is a piece of gratuitous infamy which makes those who impose it more guilty in the eyes of good sense and reason”
After the onset of the Covid-19 pandemic, corporations have faced major supply chain disruptions and are struggling to physically reopen. It has thus become incumbent upon them to take necessary steps for the implementation of safety protocols. In addition to this, labour-intensive industries also need to comply with pre-existing regulations for safety of employees at manufacturing units and warehouses. If proper measures are not implemented promptly, deaths might become inevitable.
In India, various companies enjoy immunity in the absence of specific provisions and imposition of minimal fines, which leave them unaffected. It is time that a comprehensive legislation is enacted for creation of sanctions or provisions that can be imposed on corporations. This legislation should hold the State responsible for proper scrutiny and licensing regimes for granting permission to the corporations. It must be kept in mind that the end goal is to create deterrence and ensure that corporations do not indulge in such fatal and negligent acts again. While tackling the issue of corporate deaths, a mere imposition of fines on large corporations would be nothing short of injustice.
 Gunther Teubner, Enterprise Corporatism: New Industrial Policy and the “Essence" of the Legal Person, 36 AM. J. COMP. L. 130 (1988).  Kryvoi, Yaraslau, Piercing the Corporate Veil in International Arbitration, Global Business Law Review 1 (2011).  See Sec. 11, Indian Penal Code (1860); Sec. 3(42), General Clauses Act (1897); Sec. 2(31) (iii), Income Tax Act (1961); Sec. 2(4), Foreign Exchange Management Act (1999); Sec. 2(1), Competition Act, 2002 (2003); Sec. 2(s), Prevention of Money Laundering Act (2003); Sec. 2(49), Indian Electricity Act, (2003).  DPP v. Kent and Sussex Contractors Ltd, (1944) KB 146.  Sec. 45, 63, 68, 70(5), and 203, Companies Act (2013).  Sec. 53, Indian Penal Code (1860).  See Standard Chartered Bank v. Directorate of Enforcement (2005) 4 SCC 530; RATANLAL & DHIRAJLAL, THE INDIAN PENAL CODE (Lexis Nexis Online Edition).  Iridium India Telecom v. Motorola Incorporated and Others (2011) 1 SCC 74.  See Environmental Protection Act (1986); Public Liability Insurance Act (1991); Protection of Human Rights Act (1993); Public Liability Insurance Act (1991); Chemical Accidents (Emergency, preparedness and response) Rules (1996).  Mohammed Naseem, Environmental Law in India (Wolters Kluwer Online Edition).  Id.  The Occupational Safety, Health And Working Conditions Code, 2019: Bill No. 186 of 2019.  Section 269, Indian Penal Code (1860).  Section 272, Indian Penal Code (1860).  Section 277, Indian Penal Code (1860).  Section 304A, Indian Penal Code (1860).  Corporate Manslaughter Act, (Nigeria) (2010).  Corporate Manslaughter and Corporate Homicide Act, (2007).  The Companies Act (2013).  See James W. Harlow, Corporate Criminal Liability for Homicide: A Statutory Framework, 61 Duke Law Journal, (2011).  Section 39G, Occupational Health and Safety Act (Victoria) (2004); Section 49D, Crimes Act (1900).  Id, Ch. 9.  Law Commission of India, 47st Report, 1972.  The Assistant Commissioner, Bangalore and Ors. v. Velliappa Textiles Ltd. and Ors., 11 SCC 405 (2003).  Supra note 23.  Id, Chapter 19.  Keith W. Chauvin, Mark Hirschey, Goodwill, profitability, and the market value of the firm, 13 Journal of Accounting and Public Policy, (1994).  Marquis de Sade, Selected Letters, no. 8, (ed. by Margaret Crosland, 1965).