The Supreme Courtroom has held that prison proceedings in opposition to an organization accused of an offence can’t be quashed merely on the bottom that no particular person director, officer, or worker has been recognized or arraigned as a co-accused, even the place the offence charged requires proof of mens rea.
A bench of Justice JB Pardiwala and Justice Manoj Misra held so whereas listening to an attraction filed by a pharmaceutical firm, in opposition to a Karnataka Excessive Courtroom order that had refused to quash a corruption and prison conspiracy case arising out of alleged irregularities in drug procuration by the Bhabha Atomic Analysis Centre (BARC).
Dismissing the attraction, the bench perused English and Indian legislation on company prison legal responsibility and advanced a recent, three-stage framework for figuring out when the responsible thoughts of a pure particular person could be attributed to an organization.
The appellant (pharmaceutical firm) had provided medicines to a BARC venture. It was arraigned as accused no 4 (A4) in an FIR registered by the Central Bureau of Investigation (CBI), whereby it was alleged that one Dr Anand (Scientific Officer, BARC) had conspired with a number of pharmaceutical firms to obtain medicines at inflated charges and in extra portions.
A chargesheet was subsequently filed in 2017 in opposition to Dr Anand (accused 1/A1) and the pharmaceutical firm (accused 2/A2/appellant) below Part 120B learn with Part 420 of the Indian Penal Code, 1860 (IPC, now Part 61 and Part 318 of the Bharatiya Nyaya Sanhita, 2023 respectively). Sections 11, 12, 13(2) learn with 13(1)(b), and 13(1)(d) of the Prevention of Corruption Act, 1988 (PC Act) have been additionally invoked. Nevertheless, no worker or official of the pharmaceutical firm (appellant) was named as an accused.
The pharmaceutical firm approached the Karnataka Excessive Courtroom in search of to quash the proceedings, contending that an organization can’t be prosecuted for prison conspiracy independently of the pure individuals who acted on its behalf, and since no worker of the corporate had been arraigned as an accused, the prosecution in opposition to it couldn’t be sustained. The Excessive Courtroom, counting on the Supreme Courtroom’s ruling in Iridium India Telecom Ltd. v Motorola Inc, dismissed the rivalry, holding {that a} company entity could be prosecuted even with out its administrators or persons-in-charge being arraigned as an accused.
Aggrieved by the Excessive Courtroom’s dismissal, the pharmaceutical firm approached the Supreme Courtroom.
The Supreme Courtroom framed the broader query to cope with the difficulty as:
Whether or not the Excessive Courtroom should have quashed the prison proceedings instituted in opposition to the Appellant firm on the bottom that no pure particular person had been recognized and arraigned alongside it?
Showing for the pharmaceutical firm, Senior Advocate Siddharth Luthra contended that the identification precept laid down by the Home of Lords in Tesco Supermarkets Ltd. v Nattrass, required that the conduct and frame of mind of an organization’s “directing thoughts and can” be recognized earlier than it may very well be attributed to the company. For the reason that CBI had didn’t establish and arraign any pure particular person of the corporate, there was no foundation to impute both the fee of an offence involving mens rea, or an overt act of conspiracy, to the corporate.
Quite the opposite, the CBI relied on Iridium and Standard Chartered Bank v Directorate of Enforcement to contend {that a} company may very well be prosecuted even with out figuring out or arraigning its workers individually, and that there was ample materials to point out a conspiracy between the appellant and Dr Anand.
The bench opined that the decision of the difficulty wanted to reply two linked questions on company prison legal responsibility. First, whether or not a company can in any respect possess mens rea; second, on what foundation a pure particular person’s thoughts could be attributed to the company. The bench famous that whereas the primary is already settled by Indian courts within the affirmative, “there has, nonetheless, been little to no dialogue on the second query.”
“It might be trite to look at that the query earlier than us within the current case doesn’t press upon the primary query. The impugned judgment and the submissions canvassed earlier than us each proceed on the understanding that companies can possess mens rea. Nevertheless, consideration of the difficulty earlier than us requires us to enterprise into, and a minimum of broadly perceive, the place below Indian legislation relating to the second query,” the bench noticed.
Place Underneath English Regulation:
With a purpose to reply the second query, the Courtroom traced the event of the legislation in England and Wales. It referred to Lennard’s Carrying Co v Asiatic Petroleum Co. (1915) AC 705, the place Viscount Haldane first articulated the notion of an organization’s “directing thoughts and can”, an individual whose actions are, in legislation, the very actions of the corporate itself, and never merely these of a servant or agent.
Tesco Grocery store v Nattrass (1972) AC 153 was a case whereby the Home of Lords held {that a} store supervisor, being merely a cog within the machine, couldn’t be equated with the corporate’s directing thoughts, because the board had not delegated any of its capabilities to him. Contemplating it intimately, the bench concluded that Tesco recognised two pathways to attribution. One delegation route (energy delegated with full discretion, freed from oversight) and the standing route (senior officers of the corporate).
It additionally referred to Meridian International Funds Administration Asia Ltd. v Securities Fee (1995) 2 AC 500, the place Lord Hoffmann held that attribution is a matter of building ruled by three guidelines of attribution, major guidelines (discovered within the firm’s structure), normal guidelines (extraordinary ideas of company), and particular guidelines (customary by courts the place the primary two fail to present impact to a statute’s objective).
The judgment quotes Lord Hoffman’s remark as, “there may be in reality no such factor as the corporate as such, no ding an sich, solely the relevant guidelines. To say that an organization can’t do one thing means solely that there isn’t any one whose doing of that act would, below the relevant guidelines of attribution, depend as an act of the corporate.”
The bench reconciled the Barclays instances with the Tesco and Meridian, by a sequential, hierarchical method. First analyzing the corporate’s constitutional paperwork, then implied delegation, and solely thereafter, a particular rule of attribution based mostly on statutory objective. Barclays held that standing alone can now not justify attribution, even senior officers’ acts require proof of precise authority over the precise transaction in query.
Place Underneath Indian Regulation:
The bench additional famous that Indian courts had grappled with two questions. The primary query is whether or not an organization may very well be prosecuted for offences carrying obligatory imprisonment, and whether or not it may very well be held answerable for offences requiring mens rea.
As regards to the primary query, the bench referred to MV Javalli v Mahajan Borewell, Assistant Commissioner v Velliappa Textiles Ltd., and Standard Chartered Bank v Directorate of Enforcement, which held that an organization shouldn’t be immune from prosecution merely as a result of the offence prescribes obligatory imprisonment together with high quality, courts should learn in a discretion to impose high quality alone on the idea of impotentia excusat legem (the legislation doesn’t compel the not possible).
On the second query, the Courtroom referred to Bombay Excessive Courtroom’s State of Maharashtra v Syndicate Transport Co. and Madras Excessive Courtroom’s AD Jayaveerapandia Nadar & Co v ITO, which had accepted that an organization may very well be held answerable for mens rea offences by attributing to it the frame of mind of its brokers, although they left the “how” to be selected the idea of details of every case. The bench additionally relied upon Supreme Courtroom’s judgments in Velliappa Textiles and Iridium India Telecom Ltd v Motorola Inc., which had held that firms can possess mens rea. Nevertheless, none of them addressed how such mens rea is to be attributed.
“In our thought-about view, this passage is correctly learn as an extension of the Courtroom’s dialogue of the place below English legislation, relatively than as an unbiased pronouncement on how mens rea is to be attributed to a company below Indian legislation. In any occasion, and as already famous above, this Courtroom in Iridium India was by no means involved with the “how” query, ie, the second query, however solely with the “whether or not” query, ie, the primary query. Due to this fact, on this concern we discover ourselves an empty vessel, but to be stuffed,” the bench famous.
Three-stage take a look at
The Courtroom laid down a framework to find out the query, in relation to any pure X particular person appearing for a company. “The primary stage of this inquiry is the narrowest of the three in scope. It is because it primarily includes analyzing the constitutional paperwork of the company, i.e., the memorandum and articles of affiliation, to find out in whom they vest the ability to do or undertake the act in query,” the bench acknowledged.
“The place the constitutional paperwork and the foundations implied by firm legislation are silent as to X, it turns into essential to ask whether or not the ability to do the act was nonetheless delegated to X. It’s right here that the overall guidelines of company step in to complement the primary stage, and the second stage of the inquiry requires an examination on these strains,” the bench laid down the second stage.
“It’s exactly to deal with the narrowness and rigidity of the primary two phases that a 3rd stage of inquiry turns into needed,” asking whether or not, having regard to the aim of the statute creating the offence, a particular rule of attribution should be customary treating X’s act as that of the company.
The bench clarified that it’s a sequential and hierarchical train (one shifting to the following stage provided that the sooner stage fails to determine attribution).
The Courtroom clarified a number of points of the framework because it rejected the standalone status-based rule of attribution. “The framework set out above doesn’t recognise a standalone,standing based mostly rule of attribution, one below which standing inside the company, by itself, suffices.” Nevertheless, standing should still weigh closely as an element on the third stage.
The bench additionally reiterated Lord Hoffman’s warning in Meridian, stating that the inquiry is transaction-specific, not a seek for the corporate’s “directing thoughts” within the summary.
It additionally clarified that the framework applies solely in a single route (from the pure particular person to the company) with no bearing on the person’s personal legal responsibility, and that it needn’t be invoked the place a statute itself provides the reply, creates a deeming/vicarious legal responsibility fiction, or imposes strict or absolute legal responsibility.
Recognising that the framework stays inherently slender, the bench urged the legislature to think about a scientific examine of company prison legal responsibility, and pointed to alternate options reminiscent of “failure to stop” offences, citing Part 9 of the PC Act which penalises business organisations for bribery by individuals related to them.
“What is required, nonetheless, is a scientific examine of company legal responsibility, alongside the strains of the choices paper ready in the UK. Such a examine would deliver construction to the dialogue, make clear the current framework, and chart one of the best ways ahead. Surprisingly little has been written on this topic inIndia. It’s time higher consideration was dedicated to it. Company legal responsibility deserves to be taken extra severely than it presently is,” the bench emphasised.
On non-identification and non-arraignment of a pure particular person, the bench held that it by itself, is not any floor to quash proceedings in opposition to a company accused.
“What the chargesheet should disclose,on its face, is that the company itself has dedicated the offence, not that it has additionally recognized the actual particular person by whom it did so. The company’s position could be disclosed by averments regarding its personal conduct, selections, and dealings with out naming the person who carried them out. Non-identification of the pure particular person doesn’t, by itself, render the allegations incapable of revealing the company’s position within the offence,” the bench held.
It additional clarified that this doesn’t imply that Part 482 of the Code of Prison Process, 1973 (CrPC, now Part 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023) can by no means be invoked on the threshold for a company accused. “Whereas identification and arraignment of a pure particular person shouldn’t be needed, the allegations should, a minimum of prima facie, reveal that (i) some pure particular person or individuals acted on behalf of the company, (ii) such motion is referable to the offence in query, and (iii) the encompassing circumstances of such actions don’t render the existence of mens rea patently absurd or inherently inconceivable,” it was clarified.
Coming to the details of the case, the Courtroom held that the chargesheet filed in opposition to the pharmaceutical firm (appellant) satisfies the take a look at. “On a prima facie studying of the chargesheet and the fabric on file, it’s evident that pure individuals acted on behalf of the Appellant in relation to the offences in query, and that the encompassing circumstances give rise, a minimum of prima facie, to the chance that these acts have been undertaken with the requisite mens rea. That is ample at this stage, and nothing additional must be examined,” the bench held.
The Courtroom additionally clarified that its judgment was not confined to administrators or individuals in-charge of an organization’s affairs, however the framework extends to pure individuals usually.
Within the gentle of above, the Supreme Courtroom dismissed the attraction, upholding the Karnataka Excessive Courtroom’s refusal to quash the prison proceedings in opposition to the pharmaceutical firm, holding that whether or not or not the appellant is attributed with prison legal responsibility is a matter to be determined in trial.
Case: Sanofi India Ltd. v Central Bureau of Investigation
Quotation : 2026 LiveLaw (SC) 904
Click here to read the judgment
Look:
For Appellant: Mr Siddharth Luthra, Senior Advocate; Mr Mayank Pandey, AOR; Mr Aditya Vikram Bhat, Adv.; Mr VP Singh, Adv.; Mr Anind Thomas, Adv.; Mr Priyank Ladoia, Adv.; Mr Raghav Seth, Adv.; Ms Prerna Ponnappa, Adv.; Ms Priyanka Shetty, Adv. Ms Nivedita Mukhija, Adv.; Mr Ayush Agarwal, Adv.; Mr Karl P Rustomkhan, Adv.; Mr Suhail Ahmed, Adv.
For CBI: Mr SV Raju, ASG; Mr Mukesh Kumar, AOR; Mr Sachin Sharma, Adv.; Mr Ritwiz Rishabh, Adv.; Mr Harish Pandey, Adv.
