A company, in the eyes of law, is a separate legal person. But unlike an individual, it cannot think, speak or act on its own. Every corporate decision is ultimately taken by people—directors, officers, employees or other people acting with the authority of the company. This creates an interesting legal question when criminal proceedings are initiated against a company. If the prosecution alleges that the company had the necessary criminal intent, but the particular individual who acted on behalf of the company has not been identified or made an accused, can the proceedings against the company still continue?
The Supreme Court recently considered this question in Sanofi India Ltd. v. Central Bureau of Investigation, and its decision has important implications for companies and their management. The Court held that criminal proceedings against a company cannot be brought to an end merely because the individual natural person through whom the alleged offence was committed has not been identified or arraigned as an accused.
The Issue Before the Court
The proceedings arose from allegations concerning the supply of pharmaceutical products to the Bhabha Atomic Research Centre. The allegations involved, among other things, a conspiracy relating to the procurement of medicines. Sanofi India approached the Supreme Court challenging the continuation of the criminal proceedings. One of the central arguments was that where an offence requires mens rea, or a guilty intention, the company could not be prosecuted unless the individual officer or employee responsible for the alleged conduct was identified and prosecuted. The argument was not without difficulty.
A large company does not necessarily operate through one person. A transaction may involve several employees, different levels of approval, internal committees and senior management. In some cases, even an investigation may not immediately reveal which particular individual was responsible for a decision. If the absence of that individual were by itself enough to terminate proceedings against the company, it could potentially make corporate prosecution difficult in cases involving complex organizational structures. The Supreme Court did not accept such an approach.
A Company can be Prosecuted for Offences Involving Mens rea
The principle that a company can be prosecuted for a criminal offence is not new. The more difficult question has always been how the criminal intention required for an offence can be attributed to a company.
In the present case, the Court made it clear that the prosecution of a company does not automatically fail merely because the particular individual whose conduct is alleged to represent the company’s intention has not been identified. That, however, should not be misunderstood as meaning that a company becomes criminally liable for everything done by any employee.
There still has to be a connection between the conduct in question and the company. The circumstances in which the person acted, the authority given to that person, the nature of the transaction and the company’s organizational structure may all become relevant in determining whether the necessary intention or conduct can be attributed to the company. This distinction is particularly important.
Why Attribution Matters
A company can only act through individuals, but not every individual associated with a company can necessarily be treated as the company’s directing mind for every purpose. For example, an employee acting outside the scope of his authority and contrary to established company policy may stand on a very different footing from a senior officer who is authorized to negotiate and conclude a transaction on behalf of the company. The answer will depend upon the facts. This is why corporate governance and internal delegation of authority are not merely administrative matters.
What Does this Mean for Directors and Senior Management?
There is another important side to the discussion. While the Supreme Court has made it clear that a company cannot necessarily avoid prosecution simply because the individual actor has not been identified, the law also does not permit directors or senior officers to be prosecuted merely because they hold a particular designation. A director is not automatically criminally liable for every act of the company. There must be a legal basis for fastening liability on the individual and material connecting that person with the alleged offence. In practical terms, the fact that a company is being investigated does not mean that every member of its management is automatically responsible. Equally, the corporate structure cannot always be relied upon to distance the company from conduct carried out by persons acting with its authority. The courts must ultimately look at the actual role played by the persons concerned and the circumstances in which the alleged conduct took place.
A Compliance Issue as Much as a Litigation Issue
For businesses, perhaps the more practical takeaway from the judgment lies outside the courtroom. Companies often have detailed policies dealing with approvals, delegation of powers, procurement, financial controls, anti-bribery measures and regulatory compliance. But when a dispute or investigation arises, the real question is often whether those policies were actually followed. Who approved the transaction? Who had the authority to approve it? Was the relevant risk identified? Were there internal objections? These questions can assume considerable importance when the conduct of the company is subsequently examined by an investigating agency or a court. This is particularly relevant to companies dealing with government contracts, public procurement, regulated sectors and transactions involving significant regulatory oversight.
Good Documentation can Make a Difference
Corporate records should not exist merely to satisfy a statutory filing requirement. Minutes, approvals, delegation documents, internal policies and relevant correspondence can help establish how a decision was actually reached. This becomes even more important in large organizations, where responsibility is distributed across different departments. A decision taken today may be questioned several years later, by which time the people involved may have moved to different positions or even left the organization altogether. Proper documentation can then become one of the few reliable ways of reconstructing what actually happened.
The Larger Significance of the Judgment
The Supreme Court’s decision comes at a time when corporate structures are becoming increasingly complex. Businesses today operate through multiple layers of management, subsidiaries, professionals, consultants and technology-driven systems. Determining criminal responsibility in such an environment cannot always be reduced to identifying one individual and treating that person’s conduct as the conduct of the entire organization.
At the same time, the corporate firm cannot become a convenient shield against accountability. The law therefore must strike a balance: a company should not escape prosecution simply because the precise individual actor has not yet been identified, but corporate criminal liability must still be established on the basis of the legal and factual connection between the alleged conduct and the company. The Sanofi India judgment adds an important piece to this developing area of law. For businesses, it is also a reminder that corporate compliance is not limited to making filings or having policies on paper. Clear delegation of authority, meaningful internal controls and proper documentation of important decisions can play an important role in managing legal risk.
Conclusion
In the end, the question of corporate criminal liability is not simply about whether a company can have a “guilty mind”. It is about understanding how the actions and intentions of individuals operating within an organization can, in appropriate circumstances, become attributable to the organization itself. That question is likely to remain increasingly important as corporate structures continue to evolve, and regulatory scrutiny becomes more sophisticated.
Author: Sarika Aggarwal (Head – Advisory & International Relations)
