EVOLUTION AND GROWTH OF WHITE-COLLAR CRIMES IN INDIA
Yash Roy, Upasna Upadhyay, Kusha Mehta, Battimedi Mokshagna, N. Veera Syamala Devi
ABSTRACT
Corporate Liability has become a significant concern in India due to the rapid growth of the corporate sector and the increasing prevalence of corporate malfeasance. While corporations possess legal personality, their lack of physical existence complicates the attribution of criminal culpability. This research provides an in-depth examination of corporate liability in India exploring its evolution and statutory provisions, particularly under the Companies Act, 2013 to assess their effectiveness in addressing the liability. Judicial interpretations and landmark cases that have significantly shaped corporate criminal jurisprudence and the framework of corporate liability in white-collar crimes are also examined. The study further explores the challenges in enforcing corporate liability and concludes with recommendations to strengthen corporate governance while ensuring a balanced approach to corporate accountability in India.
Keywords: Corporate Liability, Evolution, Statutory Provisions, Companies Act 2013, White Collar Crimes, Challenges, Corporate Accountability
INTRODUCTION
In today’s corporate landscape, businesses wield substantial power and influence, shaping not only economic growth but also societal well-being. This influence comes with a heightened responsibility to ensure corporate accountability in cases of wrongdoing[1].‘Corporate Liability’ is a legal principle that holds corporations accountable for unlawful actions committed by their employees, or agents in the course of their commercial activities. While corporations are distinct legal entities separate from their shareholders, their ability to commit offenses necessitates a legal framework that imposes liability. Historically, the concept of corporate liability was largely absent in India, as criminal law traditionally required physical acts (actus reus) coupled with a guilty mind (mens rea) to establish culpability. India has significantly moved from a system where corporations were largely shielded from prosecution to a more structured approach attributing responsibility. The introduction of the Companies Act, 2013, along with various judicial interpretations, has significantly shaped the scope of corporate liability in India. This law outlines the legal framework for the formation, governance, and dissolution of businesses while also incorporating provisions that hold companies accountable for various offenses. These include fraudulent actions, misrepresentation, and non-compliance with financial reporting regulations[2]. Additionally, key government initiatives, particularly those led by the committee to review offenses under the Companies Act, 2013, and the Company Law Committee, played a crucial role in introducing major legislative changes towards the end of the last decade. Such legal measures are crucial to ensure the protection of shareholders and the general public. The Companies Amendment Act, 2019, and the Companies Amendment Act, 2020 played a crucial role in reinforming corporate criminal liability by decriminalizing several compoundable offenses under the Companies Act 2013, and converting many criminal violations into civil infractions[3]. Judicial precedents, including landmark cases like Standard Chartered Bank vs Directorate of Enforcement[4] and corporate scandals like the Satyam Scam, have further clarified the application of criminal liability in India. These cases have led to closer scrutiny of principles like attribution, corporate intent, etc., all of which are essential in holding corporate liability. The evolution of Criminal Liability has been driven by differing viewpoints, which prompts the government to adopt a regulatory framework that prioritizes public interest.
HISTORICAL OVERVIEW OF CORPORATE LIABILITY IN INDIA
In India, corporate responsibility has changed dramatically over time, moving from the old belief that businesses could not be prosecuted for crimes to a more contemporary theory that holds them responsible for their deeds.
EMPIRICAL PERIOD
Along with the family-run business and individually owned business enterprises, ancient India possessed a number of other forms of engaging in business or collective activity, including the gana, pani, puga, vrata, samgha, nigama, and sreni.[5] The examination reveals that businesspeople on the Indian subcontinent utilized a variety of organizational entities from a very early period. The sreni– a complex organizational entity that shares similarities with corporations, guilds, and producers’ cooperatives – was being used in India from around 800 B.C. and was in more or less continuous use since then until the advent of the Islamic invasions around 1000 A.D. This provides evidence for the use of complex organizational entities centuries before the earliest Roman proto-corporations[6].
COLONIAL PERIOD
British common law concepts had a significant impact on corporate regulation in colonial India. One of the first attempts to regulate business behaviour through legislation was the Indian Companies Act of 1866[7]. It was mainly concerned with the establishment, administration, and dissolution of corporations and was modelled after the English corporations Act of 1862.
The Companies Act of 1862 being the culmination of a series of changes removing all obstacles to incorporation. Indeed, in just six years’ time, English lawmakers eliminated virtually all constraints: England went from a system of tight restrictions to one of the most permissive in Europe[8].
POST- INDEPENDENCE PERIOD
India acquired a legal system at independence that was primarily derived from British colonial laws. The newly established administration prioritized economic development and planning. In order to monitor economic expansion, the Planning Commission was founded in 1950, which had an indirect impact on business policy.
The previous colonial framework was superseded by the Companies Act of 1956[9], which provided thorough rules for business operations, accountability, and governance. Courts started to acknowledge the idea of “vicarious liability” for businesses during this time. Statutes such as the Factories Act of 1948 and the Industrial Disputes Act of 1947 established civil sanctions for corporate misbehaviour, notwithstanding the fact that criminal culpability for corporations remained restricted.
LEGISLATIVE EVOLUTION
Following the Bhopal Gas Tragedy (1984), which resulted in the Supreme Court of India defining the notion of absolute culpability in Union Carbide Corporation v. Union of India (1991)[10], corporate liability in India underwent a dramatic evolution. Regardless of carelessness, this approach holds companies strictly liable for damages brought on by risky operations. Stricter governance guidelines were imposed by the Companies Act of 2013[11], which made directors criminally liable for fraud or poor management. Laws such as the Prohibition of Benami Property Transactions Act of 1988[12], the Prevention of Money Laundering Act of 2002[13], and the Insolvency and Bankruptcy Code (IBC) of 2016[14] were also reinforced.
THE COMPANIES ACT, 2013 AND ITS KEY PROVISIONS.
The Companies Act, 2013 replaced the Companies Act of 1956 to facilitate corporate governance and business efficiency and adherence to international standards. Various reform efforts introduced more transparency with more accountability and more robust investor protection provisions.
There are several key aspects which fall under the Companies Act of 2013.
- Corporate Governance & Compliance
Under Section 149, the Act mandates certain companies to have independent directors for unbiased corporate decisions. The establishment of three committees is essential for listed companies as well as other prescribed companies in terms of regulatory standards: the Audit Committee, the Nomination and Remuneration Committee, and the Stakeholders Relationship Committee. With Section 211, the Act establishes a new agency, Serious Fraud Investigation Office (SFIO), to deal with corporate fraud cases. Organizational whistleblower programs are monitoring mechanisms that allow employees to report wrongdoing in their workplace.
- Corporate Social Responsibility (CSR) (Section 135)
Under the Act companies the criteria is of ₹500 crore net worth or if they turnover achieved surpasses ₹1000 crore or produces net profits which crosses the mark of ₹5 crore, then the corporate entity is bound to allocate 2% of their average net profits toward CSR activities focusing on education, healthcare and environmental sustainability. To oversee CSR policies organizations, need to establish a CSR Committee which will carry out CSR implementation.
- One Person Company (OPC) (Section 2(62))
One of the features under the Act includes the provision for One Person Companies (OPC), enabling every individual to set up a company with limited liability and simplified running procedures. The compliance regulations for One Person Companies in India remain more lightened when compared to private limited companies.
- Ease of Doing Business
The Act has removed the compulsory paid-up capital requirement for private and public companies, thereby making it a simpler process for companies to be established. SPICe+ (Simplified Proforma for Incorporating a Company Electronically) enhances convenience and efficiency in electronic company incorporation procedures.
- Strict Regulations Regarding Mismanagement and Fraud
Penalties under the Act were enhanced for fraudulent conduct and managerial inadequacies and non-compliance and criminalize director and officer obligations.
The Companies Act, 2013 represents a vast redesign of the regulatory approach that governs corporations in India. The legislation promotes transparency while strengthening accountability which brings Indian corporate laws into compliance with the global standards of practice. The business environment transformed through three major changes: Corporate Social Responsibility became mandatory (CSR), One Person Companies established eligibility (OPC) and enhanced compliance standards made the environment more welcoming for investors while becoming more inclusive to stakeholders.
National Company Law Tribunal (NCLT) along with National Company Law Appellate Tribunal (NCLAT) provides better dispute resolution services through the Companies Act 2013 which also allowed India to advance its Ease of Doing Business ranking. The Act supports stakeholder protection and corporate sustainability through its purpose to develop businesses at pace as well as implement regulations. India’s corporate environment has transformed into a stronger business sector with enhanced competitiveness through its adoption of the Companies Act 2013 in alignment with international business conditions. The ongoing evolution of corporate governance ensures the progressive nature of governance systems in India through solutions for advancing challenges.
CORPORATE LIABILITY REGARDING WHITE COLLAR CRIMES
The issue of corporate responsibility in white collar crime is very relevant in the governance and accountability of a corporation. Committed deed of a corporation, which involves perpetration of some white-collar crimes such as fraud, insider trading, money laundering, and tax evasion, require the corporation to also be liable along with the individual perpetrators.
Though under Indian laws, corporations have a distinct identity as legal persons, they still can be prosecuted for crimes committed by their employees, directors, or agents. The Doctrine of Attribution states that the certain actions by senior officers of a corporation can be deemed to be the actions of the corporation itself. In Standard Chartered Bank v. Directorate of Enforcement (2005), the Supreme Court ruled that corporations are also liable to prosecution and penalty for criminal acts, even where the punishment is imprisonment, which applies to human beings.
Certain legislation like the Prevention of Money Laundering Act (PMLA), 2002, Companies Act, 2013, and SEBI Regulations impose liability without fault or strict liability on a corporation for financial crime or manipulation of markets. Stricter BNSS 2023, also introduces provisions which relate to the enforcement of corporate misconduct.
Corporate liability is a deterrent factor for a company in indulging in immorally and unethically misconduct.
DIFFICULTIES IN IMPLEMENTING CORPORATE LIABILITY
Although there are legal provisions that allow for the imposition of corporate liability in white collar crimes, there are several difficulties in implementing the same.
Complex Corporate Structures: Many large companies have complex structures that include subsidiaries, offshore accounts, and shell corporations which make it difficult to pin responsibility to particular people or companies.
Legal Loopholes and Regulatory Gaps: Corporate offenses are often based on complicated financial transactions that are legal technicalities that are not well covered by the laws. Lack of frequent legislative reviews also pose a problem.
Mens Rea or Criminal Intent: Whereas corporations are not natural persons they cannot be said to have a mind of their own. The common law resorts to the Doctrine of Attribution but to prove direct involvement is not easy.
Influence and Regulatory Capture: This is because large corporations exercise a great deal of power over the economy and politics, which sometimes leads to leniency or delay in enforcement. This can lead to weak enforcement and the use of settlements instead of penalties.
Cross Border Issues: Some of these corporations are multinational and therefore involved in crimes across different countries. Such factors include differences in legal systems and lack of cooperation between countries make it difficult to prosecute such criminals.
Delay in investigations and judicial backlog: Corporates cases are typically resolved within a period of years due to the long investigation process, absence of dedicated courts and procedural delays. It also erodes the deterrent effect of corporate liability laws.
OPINIONS AND WAYFORWARD
The corporate liability in India has come up a very long way, but there are still some gaps that needed to be addressed for a better compliance and accountability. One of the key areas for improvement is corporate governance.it should be Strengthened, and the regulatory framework such as SEBI and ministry of corporate affairs must enforce strict rules and guidelines to prevent fraudulent and unethical business practices.[15][16]
Key step would be to improve Whistleblower Protection. Many corporate frauds go unnoticed because of employees’ fear vengeance. Strengthening laws under companies act and providing a better safeguard encouraging people to report the misconduct without any fear.[17]
Another important measure is Holding Top Executives who are accountable for corporate misconduct can bring additional responsibilities to boardrooms. It means in case of any fraud or negligence, company’s leaders will face the consequences, not just the entity as whole.[18]
Additionally imposing rigorous penalties for corporate crimes. While the existing laws prescribe fines and imprisonment, but the enforcement remains weak. Faster judicial proceedings and greater penalties can serve as a better deterrent. [19]
Finally, Corporate Social Responsibility (CSR) regulations should be more transparent. And, CSR spending is mandatory, ensuring that funds are genuinely used for social causes rather than just for compliance is necessary. Stricter reporting system and audits can help achieve this easily.[20]
CONCLUSION
In India the evolution of the corporate liability has been shaped by historical developments, important legislation changes, and ongoing challenges in the enforcement. From early corporate laws to the Companies Act,2013, the legal framework has been strengthened to adopt to address the corporate wrongdoing efficiently. Also, the landmark cases have played a crucial role in corporate liability, setting the precedents for accountability and control.
Despite these advancements, white-collar crimes became a significant concern, emphasizing the need of stricter enforcement. As discussed, the corporate liability in such cases very difficult to establish because of the delayed judicial proceedings, and legal loopholes. Strengthening governance, stricter penalties and ethical practices are important to ensure the corporate accountability and preventing future misconduct.
[1] Erathi Anudeep. (2024, February 2), Corporate Criminal Liability: Analysis With Respect To Indian Penal Laws, International Journal of Creative Research Thoughts (IJCRT)
[2]Jiyauddin, Sunita Banerjee, (2024, May 27), A critical analysis of corporate criminal liability in India, International Journal of Law
[3] Ashima Obhan and Anubhav Chakravorty, (2021, October 20), The Development Of Corporate Criminal Liability In India, Live Law
[4] Kumarappan M, (2025, February), Corporate Criminal Liability In India: Evolution, Jurisprudence, And Contemporary Challenges, International Journal Of Advanced Legal Research
[5] See MAJMUDAR, supra note 18, at 13 – 17, 44, 45, 138, 221, 222; THAPLYAL, supra note 18, at 6 – 12, 160 – 165.
[6] VIKRAMADITYA S. KHANNA ‘THE ECONOMIC HISTORY OF ORGANIZATIONAL ENTITIES IN ANCIENT INDIA’ (JOHN M. OLIN CENTER FOR LAW & ECONOMICS, 2006)
[7] Indian Companies Act, 1866
[8] David Foucaud ‘The Impact of the Companies Act of 1862 Extending Limited Liability to the Banking and Financial Sector in the English Crisis of 1866’ (Revue économique, 2011)
[9] Companies Act, 1956
[10] Union Carbide Corporation Etc. Etc vs Union Of India Etc. Etc on 3 October, 1991
[11] Companies Act, 2013
[12] Benami Property Transactions Act, 1988
[13] Prevention of Money Laundering Act, 2002
[14] Insolvency and Bankruptcy Code, 2016
[15] Ministry of Corporate Affairs, Report of the Committee to Review Offences under the Companies Act, 2013 (2018).
[16] Securities and Exchange Board of India (SEBI), SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.
[17] Vikramaditya Khanna & Carolina G. Müller, Whistleblower Protection and India’s Companies Act: Evolution and Challenges, 14 J. Indian L. & Soc’y 185 (2019).
[18] Satvik Varma, Corporate Governance and Director’s Liability in India: An Emerging Legal Framework, 45 Nat’l L. Sch. India Rev. 210 (2020).
[19] Sandeep Gopalan, White-Collar Crime and Corporate Criminal Liability in India: Recent Developments and the Way Forward, 52 Ind. J. L. & Just. 95 (2021).
[20] Pankaj Jain, CSR and Its Implementation in India: A Legal Analysis, 10 Indian J. Corp. Gov. 87 (2020).
