By Krishna Nigam (PH, CCFL) ~ Law College Dehradun, Faculty of Uttaranchal University
Currently, our life is so much dependent on these corporate bodies that small change creates some impact in our lives. In our daily lives, we use so many products manufactured by corporate houses like starting with toothpaste to our mobile phones. Even there are many corporate bodies whose product or service we don’t use but big changes in that organisation also cause an indirect impact on our lives. These corporations became so important that it is hard to think without them but at the same, it is also becoming difficult to live with them. Earlier the corporates were only limited to commit public nuisance or tort but with the changing time, the crimes committed by them also changed and now reached to that extent which one could not imagine. They became a necessary evil today. The nature of such a crime is so impactful that it can become one factor contributing to a recession in the economy. The typical features of these types of crime in most cases is that there is no connection between the victim and offender. Even sometimes the victim is unaware of the fact that he is being cheated. Sometimes the impact of these crimes is divided among many numbers of victims and so from a point of view of one victim it is very less but in total economic losses are millions of crores. A major difficulty arises in such a case in finding out the right person to put the blame. The newer development in this field related to the liability part is the development of the doctrine of corporate criminal liability which is gaining huge importance.
MEANING OF CORPORATE CRIME
Corporate crimes are the crime committed by corporate bodies for economic gains. These crimes are so heinous that it affects the entire financial structure of the economy. John Braithwaite, an Australian criminologist,defined corporate crime as “the conduct of a corporation or employees acting on behalf of a corporation, which is proscribed and punishable by law”. This means that any act or omission either done by the corporation or any who is acting on the behalf of the corporation which is unlawful and punishable is known as corporate crime. Since corporate bodies are an artificial person so it works through the human being. Corporate crime is a subset of white-collar crime as white-collar crimes are the crime done by the reputed person for the illegal gain or to avoid legal charges for their own benefits. The only point of difference between corporate crime and white-collar crime is that in corporate crime the crimes are committed for the benefit of the entire corporation. Corporate crime is different from occupational crime as in occupational crime, an individual of an organisation commits a crime for his benefits and organisation suffers loss by his act and it is done by a person at personal level occupying a lower position in organisation but in corporate crime general higher managerial personnel are involved in it. It is also different from the organised crime in respect, that corporate crime involves clean job and each level well-educated person is required and it mostly economic offence but in organised crimes brutally, extortion, trafficking and smuggling are involved and at the execution level uneducated people are involved.
Corporate crime affects a huge section of the society even though generally there are no direct victims of these crimes but indirectly a lot of people get affected by these crimes which in stakeholder, consumer, society, and economy. The employees of the corporation are both the victims and offender also as they are directly or indirectly involved in the execution of the crime.
TYPES OF CORPORATE CRIME
- Deceptive Accounting
Under the legal framework of company act 2013, the corporate are required to disclose every information related to the financial activity of the corporation. This information is very essential and used by investors, shareholders, creditor and other stakeholders for the purpose to know the financial stability of the organisation. Sometimes corporate houses manipulate their audit results to mislead the stakeholder who has a genuine interest in the corporate. They do so to get credit from the creditor or to show the company in losses.
- Insider trading
Insider trading in simple words means the use of private data of the company for their benefits. This provides an unfair advantage over other traders. The person doing insider trading uses such information that is not available to the general public. Through this information, they manipulate the buying decision and affect the bonus price and share market. Generally, the person involved in insider trading is the employee of the organisation or such member who has direct access to such information.
- Stock Market Manipulation
This is a quick method to generate profit by manipulating the essential information necessary for buy and selling stock on the stock market. The companies earn huge profit by disseminating false information related to commodities or working of the corporation or other such information. These things are done to create interest among the investor but it eventually causes huge loss to the investor as such information generates huge activities at the stock market and sometimes it leads to crash of stock market also.
- Misuse of Trade Secrete
Every organisation has a unique way of conducting its activities. Be it marketing strategy, manufacturing strategy, recruitment policy or the composition of the product, every such information is essential for the smooth conduct of the business. Leakage or misuse of this information can bring a huge loss to the organisation. The competitive firm always tries to get such information from the rival firm to gain an advantage over it. They adopt various strategies to get such trade secrets such as bribing the rival employee, engaging hackers etc.
- Infringements of IP rights
Some corporate houses use a trademark or design of the rival organisation to sell their product. They tried to manipulate the potential customer of the rival firm to purchase their product. This type of activity causes huge loss to the rival firm resulting in the loss of customers also.
- Corporate Bribery
MNC or Big corporate house to secure a business contract from the government they bribe their official. They do so to gain an unfair advantage over the others. They MNC offer a huge amount of money to the government in return of approval to sell their product in the domestic market or conduct business activities which won’t be possible with these. These things are generally seen in underdeveloped or developing nations where government involvement in such activities.
- Violation of Norms
Manufacturing units of the big firm are often seen as violating the prescribed environmental norm by performing the activities. They discharge toxic gases in the atmosphere and poisonous water in the stream without treating them. These things affect humans living around those industrial units as their fundamental right of clean water and fresh air are also violated.
Violation of safety norms causes huge loss to society and the workers working there and resulting in deaths of many people as seen in the Bhopal gas tragedy, whose impact can still be felt.
- Corporate fraud
This has got bigger ambit as it includes all those activities related to providing manipulated information or accounting records or fake information and other such activities. These things are done by companies to look as financially stable to attract investors or to misguide the government authorities or for tax evasion.
Fraud in respect to companies’ affairs is defined under S 447 of the Companies Act 2013. It includes any conduct with the intention to deceive or to gain undue advantage or to cause injury to the interest of the companies or its shareholder or its creditor.
DOCTRINE OF CORPORATE CRIMINAL LIABILITY
The doctrine of Corporate criminal liability means that a corporation can be held liable and can be convicted for the wrongful conduct of its employee or agent acting under the scope of employment. The doctrine of corporate criminal recognised in India by the landmark judgment of Standard Chartered Bank v. Directorate of Enforcement. This doctrine is still gaining importance all over the world. Corporate criminal liability means the extent to which a body corporate i.e. legal person liable for the illegal act or wrong conduct by it or by a natural person employed by it. In chartered case, the hon’ble supreme court held that a corporation should be punished with fine where it imposes imprisonment for its wrongful act. In Iridium India Ltd. Vs. Motorola Incorporated, the court held that the corporations can be punished under both common law and statutory law similar to an individual. In India, corporate criminal liability is established by the principle of attribution of intent. In a general word, it means that guilty intention on the part of the person acting on behalf of the corporation is must for holding an individual liable along with the corporation.
LEGISLATION TO PREVENT CORPORATE CRIMES
- THE COMPANIES ACT 2013
The Companies Act governs the entire corporate bodies of India. It provides rules and regulations related to the function of the companies and even it provides penalties for the violations. This legislation was made with the intention to prevent corporate crimes. The act makes fraud a punishable offence and provides imprisonment for 6 months -10 year. Further, the act also tried to prevent the false circulation of information as it imposes criminal liability for mis-statement in prospectus and also provide punishment for false information related to financial statement, report etc. Moreover, the act also prescribes punishment for providing false evidence and proviso of Section 8 of the act provides that if the affair of the company was conducted fraudulently then every such person responsible for it shall be punished with imprisonment for 6 months – 10 years.
- Prevention of Corruption Act 1988
This act was amended in 2018 with the intent to stop corporate bribery as this act provide prosecution of the official taking the bribe and the person of the company who offers a bribe to official.
- Prohibition on Insider Trading
Insider Trading in India is completely prohibited. There are two legislations which prohibit insider trading i.e. the companies Act 2013 and the SEBI (Prohibition of Insider Trading Regulations), 2015.
The companies act expressly prohibits every person having sensitive information from entering into insider trading. Further, it provides that if anyone found guilty of this shall punish with imprisonment for 5 years or with fine of 5 lakhs to 25 crores or three times profit earn on trading or both.
Insider trading regulation prevents a person from dealing with the securities who is in the possession of sensitive information. The violator shall be punished with imprisonment for up to 10 years or with fine up to 25 crores or three times profit earned on trading.
- Law on financial records
There are many legislations relate to maintaining proper financial records such as The Prevention of Money Laundering Act (PMLA) 2002, PMLA ( Maintenance of records of the nature and value of the transaction, the procedure and manner of maintaining and time for furnishing information and verification and maintenance of records of the identity of the clients of the banking companies, financial institutions and intermediaries rule) 2005 and the companies act 2013.
The PMLA rules require proper maintenance of detailed information of every transaction. It also provides fines in case one fails to disclose accurate information.
The companies act 2013 also provides that every company shall maintain every detail of the transaction as per the accounting standards prescribed. The failure to which attracts a fine of Rs 500000- and one-year imprisonment.
SOME FAMOUS CORPORATE CRIME CASES
- SATYAM SCANDAL
It is the biggest corporate scandal that India has ever witnessed. In 2009, this scandal came into limelight. The founder of the company Mr B. Ramalingam Raju along with other associates was found guilty of manipulating books of accounting to show sound financial stability of the company. This manipulation caused a huge impact on the stock market and nearly the entire spam was around 14000 crores. People lost around Rs 100 billion who has invested in Satyam share through the stock market.
2. SPEAK ASIA SCAM 2011
This is one of the biggest online frauds as it collected thousands of crore from lakhs of the investor by asking them to fill survey forms in return of guaranteeing to quadruple their income in a year.
3. SRADHA CHIT FUND SCAM
This is a major scandal caused by a Ponzi scheme run by Saradha Group financial in west Bengal. It enjoyed political support and caused huge lost to the public who invested with the hope of getting high returns. A group of Saradha entities collected 200 to 300 billion through pooling activities.
Corporate, an artificial and legal person, but no one has ever thought that this artificial person can create a huge amount of destruction to the economy and live of people connected with it. The development of corporations has attracted the life of people for good and bad. Entire economic system is dependent on these big corporate houses which have provided huge employment to people. Corporate crimes once revealed create a huge problem not only for the victim and economy but also it hits hard on families of the person working there. The corporate crimes in various forms are so prevalent in the present time that they are destroying the economical structure of the country. We have witnessed the cases of Vijay Malia and Nirav Modi who flee after taking our money. Even though the legislature has made laws to prevent these crimes and made various enforcement agencies to look after the enforcement for the same. But the cases are still prevalent. Now it is high time for the legislature and the enforcement authorities to wake up and take this issue seriously before it becomes too late and these corporate bodies ruin the economy.
-  Companies Act 2013, No 18 Act of Parliament 2013(INDIA).
-  (2005) 4 SCC 530.
-  2004 (1) MnLJ 532.
-  Companies Act 2013,No 18 Act of Parliament 2013(INDIA)S/447.
-  Companies Act 2013,No 18 Act of Parliament 2013(INDIA)S/34.
-  Companies Act 2013,No 18 Act of Parliament 2013(INDIA)S/448.
-  Companies Act 2013,No 18 Act of Parliament 2013(INDIA)S/449.
-  Prevention of Corruption Act 1988, No 49 Act of Parliament 1988 (India)S/9.